Convergence to rational expectations equilibrium

Abstract

The use of the rational expectations hypotheses is now so standard in both the microeconomic and the macroeconomic literature that authors no longer feel the need to justify and explain the hypothesis. Nevertheless, this chapter discusses the arguments for using the rational expectations hypothesis in the light of recent work by myself and others on the question of how agents learn to form rational expectations (Bray and Kreps, 1981; Bray, 1982). See also Blume, Bray, and Easley (1982) for a survey of the literature on the subject.