ABSTRACT
In this essay I question whether or not a frequently employed standard of economic rationality can be defended. Numerous economists now use models based on a ‘rational expectations’ hypothesis by which decisionmakers are assumed to make rational economic projections. Economists typically define rational expectations (RE) as predictions that are based on all relevant information. The rational expectations hypothesis has been criticized for not realistically describing the way decisions are actually made. This lack of realism is usually substantiated by psychological studies of ‘real’ people in experimental situations. The first section of this paper introduces an alternative critique which, rather than challenging the empirical realism of RE directly, tentatively adopts the RE view to determine whether it produces expectations that are epistemically justified.
