Rational expectations theorists argue that rate hedging is preferable to rate forecasting because guessing the public's expectations is too difficult.

Question

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Rational expectations theorists believe that individuals and firms use all available information to make decisions, making it difficult to predict public expectations accurately. Therefore, they argue that hedging against interest rate changes is more reliable than trying to forecast rates.

Rational Expectations Theorists Argue That Rate Hedging Is Preferable to Rate