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The Simonian bounded rationality hypothesis and the expectation formation mechanism


  • Kowalski, Tadeusz


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.

Suggested Citation

  • Kowalski, Tadeusz, 2002. "The Simonian bounded rationality hypothesis and the expectation formation mechanism," MPRA Paper 33981, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33981

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    References listed on IDEAS

    1. Rutherford,Malcolm, 1996. "Institutions in Economics," Cambridge Books, Cambridge University Press, number 9780521574471, March.
    2. Cecilia Chaing & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
    3. 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.
    4. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    5. Pierre Garrouste & Stavros Iaonnides, 2001. "Evolution and Path-Dependency in Economic Ideas: Past and Present," Post-Print halshs-00274526, HAL.
    6. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-217, March.
    7. Simon, Herbert A, 1986. "Rationality in Psychology and Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 209-224, October.
    8. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-595, September.
    9. Pindyck, Robert S, 1973. "Optimal Policies for Economic Stabilization," Econometrica, Econometric Society, vol. 41(3), pages 529-560, May.
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    Cited by:

    1. 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.
    2. Kowalski, Tadeusz & Shachmurove, Yochanan, 2011. "The financial crisis: What is there to learn?," Global Finance Journal, Elsevier, vol. 22(3), pages 238-247.
    3. 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.
    4. Kowalski, Tadeusz, 2011. "Economic policy and the financial and economic crisis," MPRA Paper 33994, University Library of Munich, Germany.

    More about this item


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

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E00 - Macroeconomics and Monetary Economics - - General - - - General


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