Social Sciences and History / Unit 15 SSH 1421 short lesson, about 20 seconds
Rational Against Adaptive Expectations
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The idea
How fast the adjustment happens depends on expectations. Rational expectations hold that people use all available information, so price and other adjustments come very quickly. Adaptive expectations hold that people adapt gradually from past experience, so adjustment is slow. Expected inflation is the rate people build into current decisions.
In practice
A forecast against a habit.
Where people slip
Theories of expectation, not policy.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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