Adaptive Expectations Hypothesis - Explained
What is Adaptive Expectations Hypothesis?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat is the Adaptive Expectations Hypothesis?Rational ExpectationsAdaptive Expectation FormulaAcademics Research on Adaptive Expectations Hypothesis
What is the Adaptive Expectations Hypothesis?
Adaptive Expectations Hypothesis theory states that people adjust their expectations on what the future will be based on experiences and events of the recent past.
Back to: BUSINESS MANAGEMENT
Adaptive expectation is closely related to rational expectations.
In rational expectations, an individual bases his or her expectations on three factors: available information, past experience, and human reasoning.
The main difference between adaptive expectations and rational expectation is that adaptive expectation uses real time data while rational expectation uses historical data.
Adaptive Expectation Formula
A simple formula for applying adaptive expectation theory to expected inflation in an economy is:
pe = pe-1+ (p-pe-1)
pe is next years inflation rate that is expected currently
pe-1 is this years inflation rate that was expected the previous year
p is this years actual rate of inflation is between 0 and 1