Economic rationality is talked about when the behavior of individuals corresponds to their interests. Agents are expected to act in a way that maximizes their well-being. This well-being is often calculated with a utility function that takes into account the income and leisure time. The neoclassical theory makes the concept of "rationality" a central assumption of general equilibrium model. The current financial crisis has had terrible consequences in the economic sphere. It is viewed as a situation of "panic", the "madness of the markets", "sheepish attitudes" the "irrational decisions", as if one left the world of reason.
[...] Therefore, the economic analysis is oriented towards the study of price dispersion. Theoretical models attempt to find meaning in these behaviors and see how variables are particularly sensitive. Shiller has tried, to break investors on the financial markets into groups with homogeneous behavior in order to isolate them and analyze their behavior with precision. This analysis shows that these attitudes may be explained and thus may not be judged irrational. All these studies agree that the presence of rational investors is not sufficient to ensure the stability of equilibrium of prices around the fundamental value, and therefore is unable to stabilize the operation of market. [...]
[...] In financial markets that give the impression that this is a place to combine irrational attitudes, economic agents actually take on rational behavior. Thus, the small carriers that are often described as unreasonable and impressionable officers are in fact mostly reasonable and their behavior is perfectly explicable. Thus, the history of financial crises shows that small investors prefer to invest in long term plans and that their investments are stable. Indeed, shareholders take time before committing to purchase. In times of growth, they are inspired to invest in view of the growth of the market over several months, but are often too late to take advantage of opportunities. [...]
[...] Camerer's theory identifies patterns in the utility (Observed prices can deviate from fundamental values due to changes in the utility of agents), the modes in beliefs (prices may vary due to massive changes in beliefs of agents about economic and social value that we accord to such goods or the future fundamental value), and patterns in returns (in the case of a capital market, the gap between observed price and distinction between different types of fashion is important from the standpoint of rationality). [...]
[...] They determine the individual behavior and macro-economic variables and play a crucial role in economic fluctuations, like the emergence of crises and resorption. The economic analysis was that people are very rational when it comes to predicting the future. From a theoretical point of view, the two major expectations models can be identified as: the autoregressive model and the model of rational expectations. The autoregressive model is a type of random process which is often used to model and predict various types of natural and social phenomena. [...]
[...] There are several categories of purely autoregressive models; thus, we may distinguish the extrapolative expectations, (Individuals extend the variables identified in the past effective sizes), the adaptive expectations (individuals should take into account their forecasting errors and revise their expectations based on the difference in each period) and regressive expectations (individuals correct movements recognized because they have in mind the idea of a certain level for economic magnitudes). Individuals, therefore, act with complete rationality in forming their expectations. Modern economists go even further with the idea that individuals make their expectations rationally, and put forward two main ideas. [...]
Online readingwith our online reader
Content validatedby our reading committee