Adaptive Expectations

Adaptive expectations is an economic theory that suggests people form their future expectations based on past experiences. For example, if inflation has been rising steadily, people will expect it to continue rising in the future. This approach implies that individuals adjust their forecasts as new information becomes available, but often with a lag, relying heavily on historical data. In essence, it highlights how past trends influence current beliefs and behaviors, particularly in areas like finance, where expectations about prices, wages, or economic conditions can shape decision-making processes.