Real Life:
After Robert Lucas brought attention to the theory, Rational Expectations has become relatively popular among economists. It is often used in combination with other economic theories; economists now factor in the expectations of consumers when making decisions. However, because the theory contradicts the traditional theory of Keynesian, it has met some criticism. One of the main attacks is on Rational Expectation’s assumption that people’s expectations are usually correct. Critics argue that the average consumer does not know enough about the economy to have correct expectations. However, as the Keynesian theory continues to fail in explaining economic situations, the theory of Rational Expectations is being criticized less and less.