[js8]

I disagree - by coincidence, the Blatt's book I mentioned elsewhere has a nice model of decision-making under uncertainty that is different from rational expectations. It's not more complicated.

Same goes for Keen's models, they are dynamic and pretty simple. He even writes in his books, to paraphrase, "equilibrium is feasible" was a good excuse at the beginning of 20th century, when Marshall came up with supply/demand model, but it's not today, when we can actually analyze dynamical systems mathematically.

[obastani]

The GP is saying that rational expectations is used not because it's simple, but because it makes the weakest assumptions about human behavior. However, I'm not sure this is entirely accurate since if some agents deviate from the equilibrium, there is no reason you couldn't end up with totally different outcomes (either better or worse).

[js8]

> but because it makes the weakest assumptions about human behavior

My memory on that is little hazy (it's been maybe 15 years ago I read about it), but as I remember this was the case about Blatt's model as well. And IIRC it's based on earlier ideas by Keynes (uncertainty is a different thing than risk).

I also recall nice idea from Paul Ormerod (but it could have been somebody else or folklore) who had an interesting model of economic agents - do either one of the 3 things:

- the thing that you always did

- the thing that others are doing

- another thing that you think might work

This also leads to an interesting class of models (different from rational expectations) and it's not making too much assumptions about humans.

Again, this shows that Blatt and Keen (and other post-keynesians) are woefully underappreciated in economics.

[notahacker]

I'm unfamiliar with Blatt's book (sounds interesting) but assumptions about humans attempting to predict the future don't really get any simpler than human misjudgements of the future don't follow a pattern an economist can predict (and to a lesser extent, companies try to make more profit where possible is also a pretty weak assumption). Especially when the whole reason this came to be popular was the analytical tearing apart of theories which used reasonable sounding alternatives people will base their expectations on what happened last time by pointing out that some people - even a minority - would make enormous amounts of money if chose to behave differently from how the economist said people would would behave, or that "I would like my wages to be the same as last year" would be a really stupid thing for workers to bargain for if the government has stated they're trying to boost the economy by purposely creating inflation. The other side of that argument is there are some conclusions drawn from some rational expectations models which are a bit too dependent on the assumption that people [on average] won't make prediction errors at all.

I've got plenty of time for the post-Keynesians but most of them (particularly in the Keen Godley/Lavoie Social Accounting Matrix style) really aren't doing more complicated mathematics so much as choosing to have models far more sensitive to specified lag structures and/or using different assumptions about human behaviour (The flip side is that Keen's hypersensitive-to-how-it's-specified banking system is better in many respects than a macro model with no banking system or credit constraints) For much of the last century the Cambridge post Keynesians distinguished themselves by doing a lot less modelling than their neoclassical counterparts.