The Building Blocks of Neoclassical Analysis

Self-Check Question

Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.

Hint:

No, this statement is false. It would be more accurate to say that rational expectations seek to predict the future as accurately as possible, using all of past experience as a guide. Adaptive expectations are largely backward looking; that is, they adapt as experience accumulates, but without attempting to look forward.