Document Type

Article

Publication Date

9-1997

Keywords

Rational expectations, Financial markets

Disciplines

Law and Economics

Abstract

Rational expectations models have become a staple of economic theory and the basis for a Nobel Prize. This article argues that rational expectations analysis suffers from potentially fatal flaws that seriously undermine its value in understanding many market phenomena. Using the example of financial markets, the article illustrates how the rational expectations approach has worked to obscure, rather than to illuminate, our understanding of speculation and speculative markets. This misguidance raises problems for law and policy.

Comments

This article predates the author's affiliation with Cornell Law School.

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