Darwinian rational expectations

ABSTRACT The rational expectations hypothesis holds that agents should be modeled as not making systematic forecasting errors and has become a central model-building principle of modern economics. The hypothesis is often justified on the grounds that it coheres with the general methodological principle of economic rationality. In this article, I propose a novel Darwinian market justification for rational expectations which does not require either structural knowledge or statistical learning, as is commonly required in the economic literature. Rather, this Darwinian market account reconceives rationality as a market level phenomenon instead of as an individualistic property.