Expectations and Its Variants: The Nuanced Role of Expectations in Classical Economics

Expectations, in modern economics, are normally focused on the changes in the values of economic variables. However, they are predicated on two other aspects of expectation which are rarely explicitly discussed. One is the expectations that other agents would behave in a particular manner—which has been the subject of some questioning in the context of the problem embedded in the idea of the cunning of reason. The other aspect of expectations is the views which agents have with regard to the beneficial outcomes associated with the anticipated values of those variables. In fact, both the expectations about the value of economic variables and the ones about the behaviour of others are predicated on those associated with the anticipated benefits. In general, it is implicitly assumed that the move from one equilibrium to another inevitably entail all the benefits associated with competitive equilibria. In this paper, we study whether this presumption about the proposed benefits of the consequences of one’s behaviour (mimicked, for the same reason, by the others) is indeed justified. We examine the implications which this should have for the way people behave and their expectations of the other. While modern economics does not offer any satisfactory answer to these questions, we look at classical economics, and in particular, Adam Smith, where the expectations about the benefits of the outcome is clearly discussed in a much richer manner and where an explanation is offered as to why behaviour that should have changed, remains stubbornly unaffected.