The Fatal Flaw of Rational Expectations

While I believe that expectations are important to include in economic analysis, the belief that people and the economy are rational in tandem is fundamentally flawed. The mathematization of people’s decision making processes is flawed. The mathematization of economics is flawed. The equality between the two: flawed. I know what you’re thinking: If we don’t mathematize economics, what are we to do? How can we forecast? Where is the basis of our science? Honestly, I’m not sure. But I do know this: sometimes, people are rational. Take our class for example. All of us (with one exception) made generally rational claims about future inflation. Claims based on past inflation rates, the current economic climate: rational. But what even qualifies as a rational expectation? Is it a prediction that aligns with some complicated, all-assuming, idealistic model? Is it a prediction that matches the actual inflation, even if you just picked your guess out of a hat? How then, are we supposed to be rational agents if the quantifiers for our rationality are flawed? The economy will do as it will. Recessions happen. We will not always see them coming.