Rational Expectations Theorists Rely Completely on the Fallacy of Conditional Apriorism (Long Runism), First Introduced by Charles Sanders Pierce and Hans Reichenbach in Their Objective Limiting Frequency Interpretations of Probability: No Frequentist Hypothesis Test Can Ever Lead to the Acceptance of the Rational Expectations Hypothesis

14 Pages Posted: 16 Feb 2019

See all articles by Michael Emmett Brady

Michael Emmett Brady

California State University, Dominguez Hills

Date Written: February 2, 2019

Abstract

All Rational Expectation Theorists rely on the Fallacy of Conditional Apriorism (Long Runism)in order to operationalize the Objective Limiting Frequency Interpretation of Probability. However, such a limit only occurs in the far distant long run as the number of observations from Time Series data approached infinity. It is impossible to apply this in the short run because the long run limit, if it exists, is compatible with an infinite number of different answers.

Nicholas Rescher demonstrated the nature of this fallacy a number of times in the mid-1970’s to early 1980’s.

Standard Frequentist Hypothesis Testing using p-values (R. Fisher) and critical values (Neyman-Pearson) can never led to the acceptance of any hypothesis as true or correct. The only outcomes possible are to Reject the Null Hypothesis at some level of significance or to Do Not Reject the Null Hypothesis at some level of significance. Do Not Reject can never be interpreted as being Accepted, so that the hypothesis is regarded as being True, Right, or Correct.

Every application of the Rational Expectations Hypothesis in all academic journal articles is inherently flawed because of the explicit claim that the long run limit can be known in a short period of time. The claim that the long run limit value can be known in the short run by a decision maker is the Fallacy of Conditional Apriorism (Long Runism).

The rational expectations hypothesis attempts to claim that decision makers can identify in the short run what the long run limit is based on a faulty learning from experience argument, which is very similar to the same type of argument made by an opponent of the rational expectations hypothesis, Paul Davidson (see the references).Nicholas Rescher had already demonstrated that this is a fallacy.

Finally, no amount of Frequentist hypotheses testing can EVER lead one to the conclusion that the rational expectations hypothesis has been accepted as true. Only deductive arguments are true or false, correct or incorrect, right or wrong. Inductive arguments are only more or less probable.

Keywords: Rational Expectations, Fallacy of Conditional, Priorism Long Runism, Subjective Theory of Probability, Limiting Frequency Interpretation of Probability Savage

JEL Classification: B10, B12, B14, B16, B20, B22

Suggested Citation

Brady, Michael Emmett, Rational Expectations Theorists Rely Completely on the Fallacy of Conditional Apriorism (Long Runism), First Introduced by Charles Sanders Pierce and Hans Reichenbach in Their Objective Limiting Frequency Interpretations of Probability: No Frequentist Hypothesis Test Can Ever Lead to the Acceptance of the Rational Expectations Hypothesis (February 2, 2019). Available at SSRN: https://ssrn.com/abstract=3327722 or http://dx.doi.org/10.2139/ssrn.3327722

Michael Emmett Brady (Contact Author)

California State University, Dominguez Hills ( email )

1000 E. Victoria Street, Carson, CA
Carson, CA 90747
United States

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