Question

Do rational expectations tend to look back at past experience while adaptive expectations look ahead to the future? Explain your answer.

a) Yes, rational expectations look back, adaptive look ahead
b) No, both look ahead to the future
c) Yes, both look back at past experiences
d) It depends on the con

Answer 1

No, the statement is false. Rational expectations utilize all available information, including the past, to predict the future, while adaptive expectations are backward-looking and adjust based on past experiences without forecasting.

Step-by-step explanation:

The notion that rational expectations tend to look back at past experience while adaptive expectations look ahead to the future is incorrect.

In fact, rational expectations are concerned with making forecasts as accurate as possible by utilizing all available information, which includes past data and any anticipation of future events. On the other hand, adaptive expectations are fundamentally backward-looking, meaning they adjust based on accumulated past experiences without specifically trying to predict future outcomes.