AP Info:
Theory of Rational Expectations: Consumer’s decisions are based on their expectations for future economic conditions.
The theory is based off several assumptions: Consumers act in ways to maximize their profits; consumers learn from past mistakes and adjust their expectations; the majority of consumers have correct expectations. The key difference between Keynesian and Rational Expectations is that Keynesian expects people to make decisions based on the current economic conditions. Rational Expectations expects people to make decisions based more on their expectations for future economic conditions.
For example: Under the theory of Rational Expectations, a consumer might wait until the summer to buy a winter coat because he expects the prices to be lower based on his past experiences