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The Simonian bounded rationality hypothesis and the expectation formation mechanism

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  • Kowalski, Tadeusz

Abstract

Abstract. In the 1980s and at beginning of the 1990s the debate on expectation formation mechanism was dominated by the rational expectation hypothesis. Later on, more interest was directed towards alternative approaches to expectations analysis, mainly based on the bounded rationality paradigm introduced earlier by Herbert A. Simon. The bounded rationality approach is used here to describe the way expectations might be formed by different agents. Furthermore, three main hypotheses, namely adaptive, rational and bounded ones are being compared and used to indicate why time lags in economic policy prevail and are variable. JEL Codes: D78, D84, H30, E00.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33981.

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Date of creation: 2002
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Publication status: Published in Poznan Unversity of Economics Review Number 1, 2002.Volume(2002): pp. 5-24
Handle: RePEc:pra:mprapa:33981

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Keywords: Keywords: bounded rationality; substantive and procedural rationality; expectation formation; adaptive and rational expectations; time lags;

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References

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  1. Rutherford,Malcolm, 1994. "Institutions in Economics," Cambridge Books, Cambridge University Press, number 9780521451895, April.
  2. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March.
  3. Pindyck, Robert S, 1973. "Optimal Policies for Economic Stabilization," Econometrica, Econometric Society, vol. 41(3), pages 529-60, May.
  4. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
  5. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  6. Simon, Herbert A, 1986. "Rationality in Psychology and Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S209-24, October.
  7. Herbert Simon & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
  8. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
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Cited by:
  1. Tadeusz Kowalski & Yochanan Shachmurove, 2011. "John Maynard Keynes: Is That you Knocking on the Door?," Working Papers 56, Department of Applied Econometrics, Warsaw School of Economics.
  2. Kowalski, Tadeusz, 2011. "Economic policy and the financial and economic crisis," MPRA Paper 33994, University Library of Munich, Germany.
  3. Tadeusz Kowalski & Yochanan Shachmurove, 2011. "An Historical Walk Through Recent Financial Crises," PIER Working Paper Archive 11-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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