Rational expectations theory was formulated as a direct rebuttal to Simon’s bounded-rationality critique
Evidence
John Muth, the initial proponent of the theory of rational expectations referred to in chapter 1, formulated the theory at Carnegie Tech and presented it explicitly as a response to Simon’s accusation that economists presumed too much rationality in individuals and firms. The hypothesis of rational expectations “is based on exactly the opposite point of view” to Simon’s, wrote Muth (1961, p. 316): “dynamic economic models do not assume enough rationality.” — Donald MacKenzie, An Engine, Not a Camera, 170
Categorization
- XREF: Links directly to the performativity thesis: models aren’t just descriptions, they were built as explicit intellectual weapons in a dispute. — connects to: Herbert Simon defined attention as the scarce resource that information consumes. — Yves Citton, The Ecology of Attention, 35; Herbert Simon’s bounded rationality decomposed the optimizing economic man — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 331; Rational choice theory rests on coherence and invariance assumptions — John T. Jost and Jim Sidanius, Political Psychology, 2407 (+2 more)
- CANDY: The irony that rational expectations, which assumes maximum rationality, was born as a response to the charge of assuming too much rationality, is a memorable elevator fact.
- DEFINE: Clarifies what rational expectations theory originally was arguing against — bounded rationality, not just optimistically rational agents.
Broader Connections
- Objections to rational choice theory shifted from emotional to cognitive grounds after Simon.
#corroborates(0.90) - Herbert Simon’s bounded rationality decomposed the optimizing economic man
#responds-to(0.85) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 331 - Rational choice theory rests on coherence and invariance assumptions
#expands(0.75) — John T. Jost and Jim Sidanius, Political Psychology, 2407