The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the
A) rational expectations hypothesis.
B) adaptive expectations hypothesis.
C) permanent income theory.
D) recognition lag.

Question

Quizplus · Accepted Answer

The view that decision-maker expectations are based on actual outcomes observed during the recent past is called the adaptive expectations hypothesis. Option A refers to the belief that decision-makers use all available information, including past and current events, to form their expectations. Option C refers to a theory that suggests people's consumption decisions are based on their expected long-term income rather than their current income. Option D refers to the delay in recognition of changes in the economy by policymakers.

The View That Decision-Maker Expectations Are Based on Actual Outcomes