1 - Patterns and Expectations

Summary

This book is a contribution to a new way of doing economics. It will show that when taking fundamental insights from psychology into account, we can develop a bottom-up approach to the understanding of economic behavior. Instead of making a priori assumptions on human rationality, we draw on insights from cognitive psychology to elicit such behavior in the laboratory. The concrete behavior thus studied and modeled is the formation of expectations. The book will explain in detail how a model of expectations is built, starting from measurement of expectations under experimental conditions and then proceeding to apply the data thus elicited to real-world situations. With its focus on expectations regarding inflation, this text is a contribution to behavioral macroeconomics. It will appeal to readers who demand more from behavioral economics than just a critique of mainstream economics, thanks to its emphasis on bottom-up quantification and modeling.