Adaptive expectations and rational expectations differ only in the fact that adaptive expectations suggest agents are irrational.

Question

Quizplus · Accepted Answer

Adaptive expectations do not necessarily suggest that agents are irrational. Rather, they suggest that agents update their expectations based on past experiences and observations, while rational expectations suggest that agents use all available information to form their expectations. Both approaches are valid and can coexist in economic models.

Adaptive Expectations and Rational Expectations Differ Only in the Fact