Theory of Rational Expectation

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 thoughts on “Theory of Rational Expectation

  1. 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. 😉

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

  3. InTrade Markets ( 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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