Lars P. Syll — Mark Buchanan on Wren-Lewis and alternatives to rational expectations

So again, it seems as if the purpose of the [rational expectations] model is to see how we can get the conclusion we want, not to explore the kinds of things we might actually expect to see in the world. This is what makes people angry and I think rightfully about the RE idea.
I suspect that the REAL reason for this is that, if one uses more plausible learning behavior (not the silly naive kind of adaptive expectations), you find that your economy isn’t guaranteed to settle down to any kind of equilibrium, and you can’t say anything honestly about the welfare of any outcomes, and so most of what has been developed in economics turns out to be pretty useless. Economic theory loses its authority and most economists find that too much to stomach. — Mark Buchanan

Mark Buchanan on Wren-Lewis and alternatives to rational expectations
Lars P. Syll | Professor, Malmö University