The stability of the rational expectations equilibrium of a simple asset market model is studied in a situation where a group of traders learn about the relationship between the price and return on the asset using ordinary least squares estimation, and then use their estimates in predicting the return from the price. The model which they estimate is a well-specified model of the rational expect...

This paper is devoted to the question of whether traders can learn rational expectations from repeated observations of market data in a stationary environment with finitely many exogenous states of the world. The learning problem is placed in the context of an iterative adjustment process which achieves equilibrium if traders have rational expectations. The main result is that even if traders b...

This study investigates whether many people fear an unexpected shock in their …nancial situation around retirement and whether the related expectations and realizations match each other. We use the Dutch Social Economic Panel survey data, where expectations about the next year’s …nancial situation are reported. We show that realized changes exceed expectations, and that this …nding is more prom...

Rational expectations solutions to macroeconomic models are equilibria requiring the coordination of expectations, and one can investigate the local stability of these solutions under alternative learning rules. Eductive (mental) approaches to learning have somewhat stricter stability conditions than do adaptive (statistical) approaches, as we illustrate using three economic models. The expecta...

Economic models of life cycle behavior suggest that expectations about future events may affect savings, insurance, and retirement planning. This article uses data from the first wave of the Health and Retirement Survey (HRS) to examine how personal characteristics and health conditions influence expectations of nursing home use. Subjective expectations of nursing home use are quite close to kn...

We modify the concept of consistent expectations equilibria introduced in Hommes and Sorger (1998) in two ways: (i) the consistency condition requires that the probability that the agents reject their perceived law of motion in any period does not exceed a given level and (ii) there may exist exogenous stochastic shocks. The concept is illustrated by two examples using a linear economic system....

In this paper, an economic study of different levels of expected privacy, both individual and collective, is used to demonstrate that we live neither in a dystopian control society nor in a utopian privacy enhanced society, but rather in a noise society characterized by high collective expectations of privacy and low individual expectations of privacy. This has profound consequences for the des...