"Interestingly, recent research shows that herd behavior is consistent with rational expectations when information is imperfect, though the extent of the herd behavior may well be greater than can be explained by these models. The essential reason for volatility in financial markets, as emphasized by Keynes, is that market players respond to expectations. The value of any asset today depends on what others are expected to be willing to pay for it tomorrow, and that depends in turn (in a never ending chain) on what others are expected to be willing to pay the day after. These expectations are based on information about current conditions. Such information is inherently incomplete and costly to process. This makes it rational for everyone to glean information about the desirability of investing from the opinions and actions of others."
Quote Details
Added by wikiquote-import-bot
Unverified quote
0 likes
Original Language: English
Available Languages (1)
Sources
José Antonio Ocampo, Shari Spiegel, and Joseph E. Stiglitz, "Capital Market Liberalization and Development" in Capital Market Liberalization and Development.
https://en.wikiquote.org/wiki/Rational_expectations
Revision History
No revisions have been submitted for this quote.
Categories
Rational expectations
37 quotes on TrueQuotesView all quotes by Rational expectations →
Related Quotes
"Using the popular macroeconomic models of the time, Lucas and Sargent showed how replacing traditional assumptions ab…"
"So monetary policy decisions tend to regress toward the mean and to be inertial—and hence biased in just the same way…"
"Most mainstream macroeconomic theoretical innovations since the 1970s (the New Classical rational expectations revolu…"
"Its development of Mises’s theory of action anticipated much of the rational expectations idea that would later win R…"
"The current macroeconometrics literature has proposed two ways to confront general equilibrium rational expectations …"
"The reason is that the second order properties induced by similar general equilibrium models are, in general, so diff…"
"The Keynesian econometric methodology developed by Klein and associates was criticized by Lucas in his 1976 “Critique…"
"The rational expectations revolution of the 1970s threw out the textbook Keynesian apparatus because it did not cope …"
"In the early 1970s,... economists began to embrace the Rational Expectations Hypothesis (REH), according to which mar…"
"One troublesome aspect is the place of rational expectations macroeconomics in the often political debate over Keynes…"