Rational Expectations Has No Foundation in Any Coherent, Existing Theory of Probability
20 Pages Posted: 23 Oct 2018
Date Written: September 29, 2018
The theory of rational expectations has no foundation in any extant theory of probability. None of the five existing theories of probability (Logical, Subjective, Classical, Propensity, and Limiting (relative) Frequency) lend any support at all to the Muthian conjecture that the subjective probability distributions are distributed about an objective, true probability distribution. This statement is incoherent and incomprehensible because in all subjective theories of probability there are no objective theories of probability, while in all objective theories of probability there are no subjective probability distributions.
Keywords: Muth.Savage, De Finetti, Reichenbach, Rational Expectations, SEU, Subjective Probability, Objective Probability
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation