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Theory of Rational Expectation
October 8th, 2008 by Mike

OK, so Congress passed the bailout (and about $150 billion of pork) and the stock market continues to tank. Could it be that fear, not tight credit, is fueling the market? Did it help that both presidential candidates said that this is the worst financial crisis since the Great Depression? Do the cries of the media help the situation?

The Theory of Rational Expectation in economics says that the economy will follow the expectations of the population. Are we expecting the economy to tank?


4 Responses  
  • georgette writes:
    October 8th, 200823:20at

    This Theory of Rational Expectation in economics seems to say the collective consciousness determines reality. This is just what all the new age preachers say. Huh, fancy that. 😉

  • bonnie writes:
    October 9th, 200808:42at

    Darned if I know. I have no stock, mutual funds, and no plans to apply for credit.

  • Old Dad writes:
    October 11th, 200813:36at

    Today is Saturday and the market is closed, so we get to spend our time worrying about football victories!
    Hooray!

  • Scoop writes:
    October 14th, 200820:32at

    InTrade Markets (http://www.intrade.com/) is a website where people invest/bet on the outcomes of current events. It has proven to be remarkably accurate. Today it has the probability of a recession happening in 2008 at 43% and for 2009 at 79%.

    My personal opinion: we are already in one. It’s just a question of how bad it gets and how long it will last.


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