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Bounded rationality and expectations in economics

Author

Listed:
  • Ignazio Visco

    (Bank of Italy)

  • Giordano Zevi

    (Bank of Italy)

Abstract

Starting from Simon’s bounded rationality notion, in this study we consider some of the links between concepts of bounded rationality and the approaches followed by economists in their analysis of the role played by economic agents’ expectations in driving the evolution of the economy through time. We argue that the degree of attention devoted to the formation of expectations by the macroeconomic theory has followed high and low cycles. In recent years, the increasing availability of survey data and the failings of models based on purely rational representative agents have prompted renewed interest in inquiries into the direct measurement of expectations and empirical studies of their formation. The intellectual legacy of Herbert Simon provides a useful guide for both these activities.

Suggested Citation

  • Ignazio Visco & Giordano Zevi, 2020. "Bounded rationality and expectations in economics," Questioni di Economia e Finanza (Occasional Papers) 575, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_575_20
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2020-0575/QEF_575_20.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    bounded rationality; expectations; Herbert Simon;
    All these keywords.

    JEL classification:

    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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