Rational Expectations Theory

Discipline: Economics

Formulated by American economist John Muth (1930- ), rational expectations theory states that individuals and companies, acting with complete access to the relevant information, forecast events in the future without bias.

Errors in their forecasts are assumed to result from random events.

Rational expectations theory has emerged as an important aspect of new classical economics.

Also see: adaptive expectations, new classical macroeconomics, random walk hypothesis

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