Expectations are statements about future events that guide current economic behavior.
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Expectation in English is Expectation.
Economists define “expectations” as the set of assumptions people make about what will happen in the future. These assumptions guide individuals, businesses, and governments through their decision-making processes, making the study of expectations a central focus of economic research.
In the simplest terms, expectations are judgments about future events that guide current economic behavior.
Meaning of expectations
What people expect for the future affects every aspect of the economy.
A restaurant manager’s predictions about the number of potential customers during the summer can lead him to hire more staff or reduce food orders in the restaurant. Or a bond trader’s expectations about how the Federal Reserve will change interest rates will change her trading strategy.
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Therefore, economics is the study of how people make decisions. Expectations of what will happen in the future are at the heart of every choice, so they are at the heart of economics, and considered a discipline.
The Expectation Problem in Economics
?A major unresolved problem in economics is how to handle future uncertainty, especially when individuals have different perceptions. each other about the future.
As a result, many economic analyzes attach expectations to various models as a given variable, often under the hood leaving everything else unchanged or by assuming that individuals act in accordance with expected theoretical prices. reasonable.
Another problem is that expectations are associated with a period, and most economic analysis is static, meaning that one only observes the equilibria, not paying attention to their paths. A simple, but understandable form of expectation is the cobweb postulate.
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In economic theory, especially in Keynes’ work, expectations play an important role. Expectations are considered as the main variable that determines the business cycle and affects the demand for currency speculation. Expectations also have great significance when studying the term structure of interest rates.
To introduce expectations into economic theory, we can consider individual behavior to be adaptive as in the adaptive expectations hypothesis. Although this concept is easy to understand because expectations about the future are based on past and present experience, attempts to reflect on this reality have resulted in many models with complex structures.
(References: Economic Dictionary, National Economics University Publishing House; Bizfluent)