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.


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.