What does "adaptive expectations" mean?

Adaptive expectations is the economic principle of predicting future performance based on past results. This includes interest and inflation and their errors. The principle takes into account the errors revealed in previous predictions and makes adjustments to actual results. For this reason, the principle is also known as the hypothesis of learning about errors. Adaptive expectations are used to predict data, which are then usually replaced by real values ​​when developing. The gap between what has been predicted in the past and what has actually happened will also be included. The use of this information to adjust the forecasts for the future is called a partial setting. The equation can be constantly modified to adapt to the new actual number, thus improving the chances of an accurate forecast. After several decades of widespread use it has been at the beginning of 70. The years have fallen out of kindness. This was mainly due to restrictions associated with performing projection based only on previous performance and without current trends. While the past was an effective breakup in many aspects, it could not take into account the development of unforeseen trends and events that change the economic climate.

The new principle known as rational expectations has become popular because adaptive expectations have fallen out of fashion. Economist John Muth was one of the primary personalities involved in creating this theory in the early 1960s. It is based on the belief that if all available information is used correctly, including past and current trends, then the only factor that could cause data inaccurate is an unexpected event or trend.

rational expectations are some similar adaptive expectations of relying primarily on what people expect. The primary difference is that it takes into account not only the expected behavior of people based on past events, but also on what seems to be developing at presentWell. Rational expectations assume that people in their predictions generally do not make mistakes, while adaptive expectations are focused on the way they influence the forecast.

Yale Economist Irving Fischer created the principle of adaptive expectations. He died in 1947 before his theory got into wide use. Fischer contributed to the economy in several other ways, including his influential theory of debt deflation, Phillips curves and many books he wrote about the theory of investment and capital.