The rational expectations hypothesis is impeccably logical, but inconsistent with the facts.

Question

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The rational expectations hypothesis assumes that economic agents make predictions about the future based on all available information and incorporate those predictions into their decision-making. However, empirical evidence suggests that in practice, people may not be able to process or have access to all relevant information, leading to deviations from rational expectations. Therefore, while the hypothesis may be logically sound, it does not always align with real-world observations.

The Rational Expectations Hypothesis Is Impeccably Logical, but Inconsistent with the Facts