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Sunday, February 13, 2011

Muth, Heterogeneity, and Rational Expectations

Roman Frydman emails about a recent post:

I have been enjoying your blog and find it enlightening but the post about Muth and heterogeneity to be just perpetuating a myth and a confusion about REH:  that it can accommodate or approximate heterogeneity. In fact, there seems to be no coherent argument that it can be viewed as such an approximation. I hope that you find the attached worthwhile. (It will be published in 2012 in the Princeton University Press book that I will co-edit with Ned Phelps, entitled Micro-Marco: Back to the Foundations; see the attached contents). The paper argues that REH cannot be viewed as an approximation of diversity of beliefs, in fact such a belief about REH is incoherent on purely logical grounds. (You can also find many other pieces on related issues on my website below, including my most recent book with Michael Goldberg.) Best, Roman

[He adds that this was a quick email, and encourages people to read the more detailed argument is in the paper linked above.]

    Posted by on Sunday, February 13, 2011 at 10:29 AM in Economics, Macroeconomics, Methodology | Permalink  Comments (8)


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