While discussions about rational expectations are pervasive in macroeconomics, they are surprisingly scarcer in the microeconomic context of game theory. However, since macroeconomic variables are obviously function of the economic agents' choices at the microeconomic level, expectations about the former necessarily depend on expectations about the latter. As a consequence, the appraisal of the rational expectation hypothesis must proceed through a critical examination of the status of the concepts of expectations and beliefs in a strategic context where agents must solve coordination problems.

This article proposes to tackle the issue of the status of rational expectations in a game-theoretic framework on the basis of Aumann and Dreze's (2008, 72) formalization of game situations: “a game played in a special context” and where “a player's expectation depends upon the context – the ‘situation'”. Aumann and Dreze's approach essentially consists in adding an information structure to the standard formalization of a game. Rational expectations basically follow from the assumption of a common prior over a state space such that the players coordinate over a correlated equilibrium. In this context, the paper will investigate the ontological and methodological status of the players' expectations (and thus, of the common prior assumption) and evaluate the relevance of the assumption of “rational” expectations. In particular, I will work through a peculiar view I call “Dennettian” that builds on Daniel Dennett's (1987) intentional stance functionalism and its interpretation within economics by Don Ross (2005). I argue that under such a view, expectations should not be understood as intrinsic properties of the players but rather as representational devices helping to rationalize the behavioral pattern (i.e. the equilibrium which is implemented) observed at the systemic level of the whole game situation. This plainly corresponds to an “externalist” interpretation of mental states where the semantic content of the latter (in particular, beliefs) depends upon the whole situation in which these states take place. This view is not instrumentalist though: behavioral patterns are real and so are the expectations that each player (and the game theorist) ascribe to others.

If one accepts this view, the status and the relevance of rational expectations in economics should be reassessed. They no longer depend on implausible assumptions regarding the cognitive machinery of the economic agents nor on the claim that they do not make systematic mistakes in predicting the value of macroeconomic variables. The rational component of expectations uniquely follows from the economist's retrospective judgment that it is possible to make sense of the players' behavior. If one assumes that such a rational appraisal is also available to the players themselves, then the rational expectations assumption seems to be rather uncontroversial. However, this last step requires a strong assumption regarding the intentional symmetry between the economist and the players. This assumption should be critically evaluated and this could cast some doubt over the value of the whole Dennettian view.

References

Aumann, Robert J., and Jacques H. Dreze. 2008. “Rational Expectations in Games.” The American Economic Review 98 (1): 72–86.

Dennett, Daniel. 1987. The Intentional Stance.

Ross, Don. 2005. Economic Theory And Cognitive Science: Microexplanation.