nobel prize for developing the hypothesis of rational expectations

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Robert E. Lucas Jr., Nobel laureate and pioneering economist, 1937-2023

University of chicago scholar’s research on rational expectations transformed the field of macroeconomics.

Robert E. Lucas Jr., a Nobel Prize-winning economist whose revolutionary theories transformed the field of macroeconomics and our understanding of economic policy, died May 15. He was 85.

A member of the University of Chicago faculty for four decades, Lucas, AB’59, PhD’64, was the John Dewey Distinguished Service Professor Emeritus in Economics and the College. He won the Nobel Prize in 1995 for developing and applying the hypothesis of rational expectations, which holds that people make economic choices based on their previous experiences and future expectations. In announcing the Nobel , the Swedish Academy of Sciences called Lucas “the economist who has had the greatest influence on macroeconomic research since 1970.”

Lucas’ pioneering research had a profound effect on the field of economics. His work has shown that because people make rational decisions about their economic welfare, their actions can alter the expected results of government policies. It had ripple effects in macroeconomic analysis and economic policy, because it gave governments and central banks a more critical way to think about fiscal intervention.

The idea that economists cannot sufficiently predict the effects of policy changes unless they incorporate individual decisions, especially expectations of the policy itself, is known as the “Lucas critique.” It is one of several major contributions Lucas made to economic theory over his field-defining career—from areas ranging from investment to unemployment, economic growth to monetary policy.

“Bob leaves behind a legacy of revolutionary research, teaching and leadership that transformed the field of economics and this department,” said Prof. Robert Shimer, chair of the Kenneth C. Griffin Department of Economics at UChicago. “Bob was always curious about new ideas—even ideas that seemed opposed to his fundamental contributions to economic thought. He could talk economics for hours, with insights informed by his deep knowledge of economic history, economic data and economic theory. I will miss him.”

Hypothesis of rational expectations

Though theories about rational expectations had previously existed, Lucas’ pioneering work applied the theory to the economy as a whole. Throughout the 1970s, he published several papers which further developed the hypothesis, first created in 1961 by John Muth.

In 1972, Lucas published his groundbreaking paper “Expectations and the Neutrality of Money,” in which he applied rational expectations to the “Phillips curve,” which shows the relationship between inflation and unemployment.

Though the prevailing thought was that increased inflation could lower unemployment rates, Lucas’ dynamic model showed that inflation had no effect on the long-run-average—a breakthrough idea called the Lucas islands model.

Nobel laureate Edward Prescott once said he could “think of no paper in economics as important” as the 1972 paper. Lucas’ longtime UChicago colleague, Nobel laureate Gary Becker, once recalled that Lucas’ research “was initially met with hostility, but it came to be accepted as the view of the future.”

“The effect of his work is to really change the way economists think about macroeconomics,” said the late UChicago economist Sherwin Rosen in 1995, on the day Lucas won his Nobel Prize. “It kind of destroyed the Keynesian model. This really took a lot of the thunder out of the Keynesian way of thinking.”

In addition to his Nobel Prize-winning work on rational expectations, Lucas is also remembered for his contributions to New Classical economic theory and many other major contributions that include his name: the Uzawa-Lucas model of human capital accumulation, the “Lucas paradox,” which examines why capital does not flow to developing countries from developed ones as often as would be expected; the Lucas Tree, a foundational theory on asset prices; and the Lucas span-of-control, his read on the theory of the firm.

“It has been my privilege to have been Bob Lucas’ colleague since the early 1980s,” said Nobel laureate Lars Peter Hansen, the David Rockefeller Distinguished Service Professor in Economics, Statistics and the Booth School of Business. “Bob was truly an outstanding intellect in the group of scholars who made Chicago economics extraordinary. I remember many conversations with Bob that helped me address challenges in my own research.”

‘Chicago has been a marvelous place for me’

Born Sept. 15, 1937 in Yakima, Washington, Lucas at age 17 earned a scholarship to the University of Chicago. He traveled by train almost 2,000 miles to start his undergraduate degree in 1955—an experience Lucas recalled in his Nobel biography :

“When I began the 44-hour train trip ‘back east’ to Chicago,” he wrote, “I was pretty sure something interesting would turn up.”

As a history major, Lucas was fascinated by the economic lives of people living in the Roman Empire. He pivoted to economics for his doctorate, learning from pioneering economists including Milton Friedman. In 1962, he became a lecturer at UChicago and began his prolific research career.

Though he left Chicago to teach at Carnegie Mellon University in 1963, Lucas returned to UChicago in 1974 and remained there for the next 40 years—retiring from teaching in 2015 but continuing to conduct research and mentor students well into his 80s.

“Chicago has been a marvelous place for me, as I knew it would be from my student experiences,” Lucas wrote in 1995 . “I have been stimulated by colleagues and graduate teaching into research on monetary theory, international-trade, fiscal policy, and economic growth: all the basic topics in macroeconomics.”

He authored several books, including Studies in Business-Cycle Theory (1981), Rational Expectations and Econometric Practice (1981, with Thomas Sargent) and Recursive Methods in Economic Dynamics (1989, with Nancy Stokey and Edward Prescott). Lucas’ Lectures on Economic Growth were published in 2002, and his Collected Papers on Monetary Theory in 2013.

Lucas regularly attended workshops and faculty lunches at UChicago until earlier this year. Colleagues remember how he was welcoming of young scholars, helping mentor and co-author research with them. His former students included several distinguished scholars in academia and government.

“Bob Lucas was one of the architects of modern economics,” said Esteban Rossi-Hansberg, PhD’02, the Glen A. Lloyd Distinguished Service Professor in the Kenneth C. Griffin Department of Economics at UChicago. “His work provided key foundations for the way we understand virtually all topics in economics. To me, he was an intellectual father, a role model and a friend.”

The recipient of many honors, Lucas was a fellow of the Guggenheim Foundation, the American Academy of Arts and Sciences and the National Academy of Sciences, and a past president of the Econometric Society and the American Economic Association.

Lucas is survived by his partner Nancy Stokey, the Frederick Henry Prince Distinguished Service Professor of Economics at UChicago and a frequent co-author; his sons with his first wife, Rita Cohen Lucas: Stephen and Joseph; his sister Jenepher Spurr; his brother Peter J. Lucas; and grandchildren Lily, Ginger, Michael, Solomon and Sophia.

In lieu of flowers, the family requests donations in Lucas’ name to Doctors Without Borders . Information on a public memorial is forthcoming.

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Robert E. Lucas, Jr.

Nobel prize in economics, robert e. lucas jr..

nobel prize for developing the hypothesis of rational expectations

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1995

Born: 15 September 1937, Yakima, WA, USA

Affiliation at the time of the award: University of Chicago, Chicago, IL, USA

Prize motivation: “for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy.”

Contribution: Development and application of the theory of rational expectations in macroeconomic analysis.

Prize share: 1/1

Photo from the Nobel Foundation archive.

Robert E. Lucas Jr., Nobel laureate and pioneering economist, 1937-2023

This story was originally published by UChicago News. Read the article on their site here.

University of Chicago scholar’s research on rational expectations transformed the field of macroeconomics

Robert E. Lucas Jr., a Nobel Prize-winning economist whose revolutionary theories transformed the field of macroeconomics and our understanding of economic policy, died May 15. He was 85.

Lucas is recognized at a 2012 conference held in his honor at the Becker Friedman Institute at UChicago.

Hypothesis of rational expectations

‘Chicago has been a marvelous place for me’

“When I began the 44-hour train trip ‘back east’ to Chicago,” he wrote, “I was pretty sure something interesting would turn up.”

“Bob leaves behind a legacy of revolutionary research, teaching and leadership that transformed the field of economics and this department.”

“Bob was truly an outstanding intellect in the group of scholars who made Chicago economics extraordinary.”

In lieu of flowers, the family requests donations in Lucas’ name to Doctors Without Borders . Information on a public memorial is forthcoming.

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Robert E. Lucas Won Nobel Prize in Economics - 1995

Robert E. Lucas , a Research Associate in the NBER's Program on Economic Fluctuations and professor of economics at the University of Chicago, won the Nobel Prize in Economics this year. The Royal Swedish Academy of Sciences awarded the prize to Lucas for his "insights into the difficulties of using economic policy to control the economy." They called him "the economist who has had the greatest influence on macroeconomic research since 1970." Lucas is the principal formulator of rational expectations theory, which shows how expectations about the future influence the economic decisions made by individuals, households, and companies. This theory assumes that people use available information about government policy when they make decisions. Thus, activist government policy to stabilize the economy, for example, could have either no effect, or could make matters worse.

More from NBER

In addition to working papers , the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter , the NBER Digest , the Bulletin on Retirement and Disability , the Bulletin on Health , and the Bulletin on Entrepreneurship — as well as online conference reports , video lectures , and interviews .

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Robert E. Lucas

R obert Lucas was awarded the 1995 Nobel Prize in economics “for having developed and applied the hypothesis of rational expectations , and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy.” More than any other person in the period from 1970 to 2000, Robert Lucas revolutionized macroeconomic theory. His work led directly to the pathbreaking work of finn kydland and edward prescott , which won them the 2004 Nobel Prize.

Before the early 1970s, wrote Lucas, “two very different styles of macroeconomic theory, both claiming the title of Keynesian economics , co-existed.” One was an attempt to make macroeconomics fit with standard microeconomics . The problem with this was that such models could not be used to make predictions. The other style was macroeconometric models (see forecasting and econometric models ) that could be fit to data and used to make predictions but that did not have a clear relationship to economic theory. Many economists were working to unify the two, but economists themselves saw the results as unsatisfactory.

Lucas thought he could do better. His major innovation in his seminal 1972 article was to get rid of the assumption (implicit and often explicit in virtually every previous macro model) that government policymakers could persistently fool people. Economists milton friedman and Edmund Phelps had pointed out that there should be no long-run trade-off between unemployment and inflation ; or, in economists’ jargon, that the long-run phillips curve should be vertical. 1 They reasoned that the short-run trade-off existed because when the government increased the growth rate of the money supply , which increased prices, workers were fooled into accepting wages that appeared higher in real terms than they really were; they accepted jobs sooner than they otherwise would have, thus reducing unemployment. Lucas took the next step by formalizing this thinking and extending it. He pointed out that in standard microeconomics, economists assume that people are rational. He extended that assumption to macroeconomics, assuming that people would come to know the model of the economy that policymakers use; thus the term “ rational expectations .” This meant that if, say, the government increased the growth rate of the money supply to reduce unemployment, it would work only if the government increased money growth more than people expected, and the sure long-term effect would be higher inflation but not lower unemployment. In other words, the government would have to act unpredictably.

In a 1976 article he introduced what is now known as the “Lucas critique” of macroeconometric models, showing that the various empirical equations estimated in such models were from periods where people had particular expectations about government policy. Once those expectations changed, as his theory of rational expectations said they would, then the empirical equations would change, making the models useless for predicting the results of different fiscal and monetary policies. So, for example, if an econometric model showed that for some time period a three-percentage-point drop in inflation was accompanied by a two-percentage-point increase in unemployment, one could not use this correlation to predict the effect of a future three-percentage-point drop in inflation, because people’s expectations would not be the same as they were in the time period for which this relation was estimated. One important implication of Lucas’s work, which was confirmed by Thomas Sargent, 2 is that a government that is credible—that is, a government that makes itself understood and believed—can quickly end a major inflation without a big increase in unemployment. The reason: government credibility will cause people to quickly adjust their expectations. The key to that credibility, wrote Sargent, is fiscal policy . If governments commit to balanced budgets, then one of their main motives for inflation is gone (see hyperinflation ).

Not all macroeconomists have agreed with Lucas, but all have found themselves needing to confront his critique in some way. Although many economists in the 1970s, for example, thought that Lucas had pounded the final nail in the Keynesian coffin, Keynesians responded with models that assume rational expectations (see new keynesian economics ).

In his Nobel lecture, one of the most readable Nobel economics lectures of the last twenty years, Lucas summed up his and others’ contributions in the 1970s:

The main finding that emerged from the research of the 1970s is that anticipated changes in money growth have very different effects from unanticipated changes. Anticipated monetary expansions have inflation tax effects and induce an inflation premium on nominal interest rates , but they are not associated with the kind of stimulus to employment and production that Hume described. Unanticipated monetary expansions, on the other hand, can stimulate production as, symmetrically, unanticipated contractions can induce depression. 3

Lucas has also been one of the leaders in the field of economic growth . In “On the Mechanics of Economic Development” (1988), he helped break down the barrier that had existed between economic development economics (applied to poor countries) and economic growth (the study of growth in already rich countries). He argued that the same basic economic framework should apply to each and that it was crucial to understand how poor countries could grow. Lucas wrote:

Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s? If so, what, exactly? If not, what is it about the “nature of India” that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else. (Lucas 1988, p. 5; italics in original)

Lucas also did important work on the optimal tax structure. His work led him to change a fundamental belief. In the early 1960s, he had believed that “the single most desirable change in the U.S. tax structure would be the taxation of capital gains as ordinary income.” By 1990 he believed that “neither capital gains nor any of the income from capital should be taxed at all.” He estimated that eliminating capital income taxation would increase the U.S. capital stock by about 35 percent. This belief in low or zero taxation of capital gains is often attributed to believers in so-called supply-side economics . Lucas wrote, “The supply side economists, if that is the right term for those whose research we have been discussing, have delivered the largest genuinely free lunch that I have seen in 25 years of this business, and I believe we would be a better society if we followed their advice.” 4

Politically, Lucas is libertarian. Asked by an interviewer in 1982 whether there is social injustice, Lucas replied, “Well, sure. Governments involve social injustice.” 5 Asked by another interviewer in 1993 to name the important issues on the economic frontier, Lucas answered, “In economic policy, the frontier never changes. The issue is always mercantilism and government intervention vs. laissez-faire and free markets.” 6

An interesting side note: when Lucas and his wife, Rita, got a divorce in 1988, she negotiated for 50 percent of any Nobel Prize money that he might receive, with an October 31, 1995, expiration date on this clause. He won the prize on October 10, 1995. Economists joked that Lucas’s model applied to his wife: she had rational—or at least correct—expectations.

Lucas earned his B.A. in history in 1959 and his Ph.D. in economics in 1964, both at the University of Chicago. From 1963 to 1974, he was an economics professor at Carnegie Institute of Technology and Carnegie Mellon University. From 1974 to the present, he has been a professor of economics at the University of Chicago.

About the Author

David R. Henderson is the editor of The Concise Encyclopedia of Economics . He is also an emeritus professor of economics with the Naval Postgraduate School and a research fellow with the Hoover Institution at Stanford University. He earned his Ph.D. in economics at UCLA.

Selected Works

2. Thomas Sargent, “The Ends of Four Big Inflations,” chap. 3 in Sargent, Rational Expectations and Inflation (New York: Harper and Row, 1986).

3. See http://nobelprize.org/economics/laureates/1995/lucas-lecture.pdf , p. 262.

4. Lucas, “Supply-Side Economics,” p. 314.

5. Arjo Klamer, Conversations with Economists (Totowa, N.J.: Rowman and Allanheld, 1983), p. 52.

6. Interview with Robert E. Lucas Jr., The Region, Federal Reserve Bank of Minneapolis (June 1993), online at: www.minneapolisfed.org/pubs/region/93-06/int936.cfm .

Robert E. Lucas: History, Contributions to Economics

Robert Emerson Lucas Jr. is a New Classical economist at the University of Chicago, renowned for his prominent role in developing microeconomic foundations for macroeconomics based on rational expectations.

Dr. Lucas won the Nobel Prize in Economics in 1995 for his contributions to the theory of rational expectations .

Key Takeaways

Dr. Robert E. Lucas Jr. is a New Classical economist and long-time professor at the University of Chicago.
Dr. Lucas is best known for his development of rational expectations theory and the eponymous Lucas Critique of macroeconomic policy.
His contributions to endogenous growth theory and to unifying growth theory were also notable.
Lucas received the Nobel Prize in 1995 for his contributions to economic theory.
He is also known for the Lucas-Uzawa model, which explains long-run economic growth as dependent on human capital accumulation, and the Lucas Paradox, which asks why capital does not appear to flow to regions where capital is relatively scarce as neoclassical growth theory would predict.

Investopedia / Hugo Lin

Early Life and Education

Robert E. Lucas Jr. was born the eldest child of Robert Emerson Lucas Sr. and Jane Templeton Lucas in Yakima, Washington, on Sept. 15, 1937. Lucas received a Bachelor of Arts in History from the University of Chicago in 1959. He initially pursued graduate studies at the University of California, Berkeley, before returning to Chicago for financial reasons. In 1964, he earned his Ph.D. in economics.

Initially, he believed his academic life would center around history, and only continued his economic studies after reaching the conclusion that economics is the true driving force of history. Significantly, Lucas claimed to have studied economics via a "Marxist" point of view, in the sense that Marx believed the vast, impersonal forces that drive history are largely a matter of economics.

Lucas became a professor at Carnegie Mellon University at the Graduate School of Industrial Administration, before returning to the University of Chicago in 1975. He is currently a professor emeritus at the University of Chicago.

Notable Accomplishments

Winner of the Nobel Memorial Prize in Economics, Dr. Lucas is most well known for his contributions to macroeconomics including the development of the New Classical school of macroeconomics and the Lucas Critique.

Lucas has spent much of his academic career investigating the implications of the rational expectations theory in macroeconomics. He also made important contributions to theories of economic growth .

Awards and Honors

In 1995, Lucas was awarded the Nobel Memorial Prize in Economics for developing the theory of rational expectations.

Theory of Rational Expectations

Lucas built his career applying the idea that people in the economy form rational expectations about future events and the impact of macroeconomic policies. In a paper in 1972, he incorporated the idea of rational expectations to extend the Friedman - Phelps theory of long-term vertical Phillips Curve . A vertical Phillips Curve implies that expansionary monetary policy will increase inflation , without boosting the economy.

Lucas argued that if (as is assumed in microeconomics) people in the economy are rational, then only unanticipated changes to the money supply will have an impact on output and employment; otherwise people will just rationally set their wage and price demands according to their expectations of future inflation as soon as a monetary policy is announced and the policy will only have an impact on prices and inflation rates.

Thus not only (per Friedman and Phelps) is the Phillips Curve vertical in the long run, it is also vertical in the short run except when monetary policymakers can make unannounced, unpredictable, or truly surprising moves that market participants are unable to anticipate.

The Lucas Critique

Dr. Lucas also developed the Lucas Critique of economic policymaking, which holds that relationships between economic variables observed in past data or estimated by macro-econometric models are not reliable for economic policymaking because people rationally adjust their expectations and behavior based on their understanding of the impact of economic policy.

The expectations about economic conditions and policy that shaped consumer, business, and investor behavior during the periods from which past data are drawn often will not hold once conditions and policies change.

This means that economic policymakers cannot reliably hope to manage the economy by tinkering with key variables, such as money supply or interest rates, because the act of doing so also changes the relationship between these variables and the variables that represent the targeted outcomes, such as GDP or unemployment rates. Thus the Lucas Critique argues against an activist macroeconomic policy aimed at managing the economy.

Other Contributions

Lucas also made contributions to endogenous growth theory and to unifying growth theory (which applied mostly to growth in developed economies) with development economics (applied to less developed economies).

His contributions include the Lucas-Uzawa model, which explains long-run economic growth as dependent on human capital accumulation, and the Lucas Paradox, which asks why capital does not appear to flow to regions of the globe where capital is relatively scarce (and thus receives a higher rate of return) as neoclassical growth theory would predict.

Nobel Media. " Robert E. Lucas Jr. - Biographical ." Accessed July 11, 2021.

Stanford Institute for Economic Policy Research. " Robert E. Lucas Jr. " Accessed July 11, 2021.

Daniel B. Klein and Ryan Daza. "Robert E. Lucas Jr.," Econ Journal Watch, Volume 10, Issue 3, 2013, Pages 434-435.

Robert E. Lucas Jr. " Curriculum Vitae - March 2018 ," Page 2. Accessed July 11, 2021.

Nobel Media. " The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1995 ." Accessed July 11, 2021.

Robert E Lucas Jr. "Expectations and the neutrality of money." Journal of Economic Theory, Issue 4, 1972, Pages 103-124.

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Robert E. Lucas

Nobel 1995 | Rational Expectations: Is what we expect tomorrow affecting the economy today?

When you’re deciding to buy a house, a car, or to put your child through college, you’re thinking ahead. You’re wondering whether the price of the house or the car will go up or down, whether the child who goes to college will get a good job. Your considerations influence the decisions you end up making. There’s nothing new or surprising about this, yet this seemingly common wisdom wasn’t a part of economic modeling until the work of Bob Lucas.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (shared), 1995

At a glance

Born: 1937, Washington, USA

Field: Macroeconomics Prize-winning work: Development of the Rational Expectations Theory in macroeconomic analysis

Sports: Avid fan of the Chicago Cubs baseball team

Picture in his office: His 21-year-old cat

Books on his nightstand: Fiction he feels comfortable with, sometimes re-reading old classics like Tolstoy or Joyce

Way to stay fit: Regular gym visits

Before and after Bob Lucas

It’s not surprising that the Nobel Committee acknowledged Lucas’ work as the one that marks a clear watershed of before and after in the way macroeconomic analysis is done. While many contributions to economics, from policy analysis to finance to economic growth, come under Lucas’ name, there is one that stands out. It’s his 1972 paper “Expectations and the Neutrality of Money” that inspired a host of contributions and left a legacy unlike any other. Macroeconomic models now include the effect that future earnings and spending have on today’s decisions.

Trying to understand what people think

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What Lucas did was to take an idea of rational expectations and model it mathematically. Mathematics lies at the core of how he thinks about the world and things that matter to him. His workflow roughly goes as follows. First, he invents a fictional world, very similar to fiction writers, and works out mathematically how would this world operates under various circumstances. Second, he tries to see if there are analogies between the real world and this fictional world of mathematical modeling. "If we were to describe people’s behavior, we want our models to actually line up with what we’re doing," he says. “And Rational Expectations is a way to do that."

Economics for Lucas is about people and how they decide what to do. “Anything that happens in the economy happens because people do this or that or something else,” he continues. “If we’re trying to understand that, we have to get inside those people and ask what they’re thinking. The rational expectations answer is they’re thinking what they should be thinking. If they’re making a forecast they’re probably doing it well. People know their own business better than outsiders like economists do and we want to try and get into that."

Zooming into people’s lives, and zooming out to models

How is it that people and their decisions remain the focus of a rather abstract macroeconomics analysis in Lucas’ work? The answer reveals itself throughout the conversation at his 6th Avenue apartment overlooking New York City. As if visually supporting the subject of our conversation, the cars and pedestrians appear smaller and less relevant than they actually are in the bigger context of the city.

As a former student of history who’d been inspired by Karl Marx and Friedrich Engels’ 1848 The Communist Manifesto, he is profoundly interested in how ordinary people live, work and what they do.

“You’ve got to take people as they are and not as you might wish they were,” he says. “You’ve got to make it real. We’re trying to describe a whole economy through 300 million people in six or eight equations; that’s abstraction. There’s no question about that.”

Why aren’t we Marxists anymore?

How do you keep it simple when modeling an entire economy.

Keeping it simple is how mathematical modeling approximates the laboratory conditions in economic sciences. Playing around with the policies in models, like raising taxes or subsidizing industries, doesn’t put people’s lives in danger. When successful, Lucas suggests that the insights gleaned from models can be implemented in the real world. These connections through math are not simply a given, they’re something carefully constructed by economists.

Simplify, the Sir Isaac Newton way

Lucas suggests that getting down to something simple and practical is easier said than done. "The whole point of macroeconomics is to simplify on a couple of things and not get lost in the details," he says. "So we often talk about people as though everybody is acting exactly the same way for exactly the same reasons. There’s no such thing, obviously. But there’s no point in setting out complicated theories when you can’t work out their consequences. So complication is the enemy."

"I haven’t hit Newton’s level, I know," the economist says. "But when Newton looked at the Earth going around the sun, he neglected all the other planets because he couldn’t handle all 10 planets. He figured he’d get pretty close, which of course he did. That’s how you do it. You start with something simple and develop it as far as you can."

“Bob’s models reveal that he has a very unusual mastery of how to tell a story as simply as possible to contain the essence of the situation,” says Andrew Caplin, Lucas’ colleague at NYU. “He’s doing the simplest thing you could possibly do that wasn’t ridiculous.”

Seeing the world through discussing ideas

While Chicago is definitely "the only home I got," being at NYU is an intellectual treat for Lucas. "It’s stimulating to be here," the economist reveals. "At any place you work, you tend to have the same conversations over and over again after a while. Even if the people are smart and interesting. A place like NYU, it’s just an eye-opener: to talk to people who are smart, and doing good work I’ve never seen before. Something that’s really new and novel. It’s very useful, it’s good to get out to see the world. And NYU is a great place for that."

Why education is so important

As we see him off at Grand Central Station to catch his train to a conference in Philadelphia, Lucas opens up even more about what’s important to him in life, apart from economics. Socially, what matters to him is having a regular exchange of ideas with people who are similarly driven.

You want to hang around with idealistic people, people who really want the truth, who help you. You want to have people around who really care about what they’re doing and I’ve had great luck with that.

Why do countries have to find better ways to grow?

Hear Michael Spence's view on how countries can grow sustainably while having a long-lasting positive impact.

What does Lucas’ work mean for us?

"Lucas was someone who embodied the economic challenge, giving his name to the Lucas Critique."

Paul Donovan Global Chief Economist UBS Wealth Management

What determines human decisions?

Daniel Kahneman Nobel Laureate, 2002

How can we create better work and pension systems?

Peter A. Diamond Nobel Laureate, 2010

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Robert E. Lucas Jr., 1937-2023: Nobel Laureate and Pioneer of Rational Expectations

Robert “Bob” Lucas Jr., an economist, educator and Nobel Prize in Economics laureate, died May 15. He was 85.

Lucas’ work gained prominence in the 1970s, and he was one of the principal figures in new classical macroeconomics, a school of economic thought that challenges Keynesian economics, arguing market equilibrium occurs when supply and demand are equal.

He received the Nobel Prize in Economics in 1995 for developing and applying the hypothesis of rational expectations to the economy, which “transformed macroeconomic analysis and deepened our understanding of economic policy,” according to the Nobel website . His hypothesis argues that people make economic decisions based on the past and anticipated future of the economy.

Starting in the early 1970s, Lucas argued that the Phillips Curve , the idea (in shorthand) that inflation reduces unemployment, was creating false expectations for the economy. Lucas showed inflation has no effect on average unemployment in the long-term, an idea known as the Lucas islands model. He used the so-called Lucas critique to show the effects of economic policy changes shouldn’t only be dependent on previous data. Some of Lucas’ other research included advancements in investment theory, monetary theory, international finance and economic growth theory.

His critique upsetting a traditional viewpoint was at first put him on the outside, but his field warmed to his critique and later made it the norm. As the University of Chicago News Service noted in its obituary on Lucas:

Colleagues, students and members of the economic community took to Twitter to remember Lucas’ legacy. Macroeconomist and professor of economics at the London School of Economics Benjamin Moll shared an anecdote from 2009 when he was a University of Chicago graduate student and Lucas was on his thesis committee. Moll recalled asking Lucas for help with a paper, and Lucas left Moll thorough notes that helped improve his writing.

“One point here is about Bob’s immense generosity toward young researchers. While he makes it look so easy, writing these comments must have taken some proper time. What other Nobel laureate gives a grad student such detailed comments? It’s also just one example of many,” the post reads . “Another point is about the art of good writing in economics. Bob was the absolute master of this art. Just pick up some of his writing and read it today.”

Robert Emerson Lucas Jr. was born Sept. 15, 1937, in Yakima, Washington, the oldest son of an initially blue-collar family who – despite being Republicans – supported President Franklin Roosevelt’s New Deal. He attended the University of Chicago on scholarship and graduated with a bachelor’s degree in history in 1959. He went on to attend the University of California Berkeley, intent on continuing his studies in classical history but where courses in economic history sparked his interest in economics.

“Though I had no real idea what a professional historian does, I had learned that one can make a living by pursuing one’s intellectual interests and writing about them,” Lucas said in a Nobel Prize autobiography . “I began thinking about an academic career.”

After spending a year at Berkeley, Lucas returned to the University of Chicago, where he received his Ph.D. in economics in 1964.

From 1963 to 1974, Lucas taught economics at Carnegie-Mellon University, and he returned to the University of Chicago in 1975, where he served as a professor of economics for 40 years. In 2016, he received the Phoenix Prize , a University of Chicago award that recognizes faculty who have impacted research in the social sciences. From 1980 until his retirement in 2015 he was the John Dewey distinguished professor emeritus in economics at Chicago.

“Chicago,” he wrote in his autobiography , “has been a marvelous place for me, as I knew it would be from my student experiences, and I have been simulated by colleagues and graduate teaching into research on monetary theory, international-trade, fiscal policy and economic growth; all the basic topics in macroeconomics.”

Throughout his career, Lucas published various major research articles, including that 1972 article “ Expectations and the Neutrality of Money ,” 1977’s “ Understanding Business Cycles ,” 1987’s “Models of Business Cycles,” and 1988’s “ On the Mechanics of Economic Development. ” His books include Studies in Business-Cycle Theory from 1981, Rational Expectations and Econometric Practice, also from 181 and co-authored with Thomas Sargent, and 1989’s Recursive Methods in Economic Dynamics , co-authored with Nancy Stokey and Edward Prescott.

“The consequences for human welfare involved in questions about human capital spillovers are simply staggering,” said Lucas in On the Mechanics of Economic Development. “Once one starts to think about them, it is hard to think about anything else.”

He was president of the Econometric Society in 1997 and of the American Economic Association in 2002. He was a member of the American Academy of Arts and Sciences, the National Academy of Sciences and the American Philosophical Society.

Lucas is survived by wife and co-author Nancy Stokey, herself the Frederick Henry Prince Distinguished Service Professor of Economics at Chicago; sons Stephen and Joseph; sister Jenepher Spurr; brother Peter J. Lucas; and grandchildren Lily, Ginger, Solomon and Sophia.

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The New Palgrave Dictionary of Economics pp 3806–3810 Cite as

Lucas, Robert (born 1937)

Levon Barseghyan
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First Online: 01 January 2017

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In 1995, Robert E. Lucas, Jr received the Nobel Prize in Economic Sciences ‘for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy’ (Press Release announcing the Nobel Prize, 1995; repr. in Svensson, 1996, p. 1).

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Barseghyan, L. (2008). Lucas, Robert (born 1937). In: Durlauf, S.N., Blume, L.E. (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-58802-2_996

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Thomas Sargent's Rational Expectations

Hoover’s newest Nobel Prize winner discovered a way to put actual human beings back into economic theory. By Art Rolnick .

Thomas Sargent's Rational Expectations

All scholars strive to make important contributions to their discipline. Thomas J. Sargent irrevocably transformed his.

In the early 1970s, inspired by the groundbreaking work of Robert Lucas, Sargent and colleagues at the University of Minnesota rebuilt macroeconomic theory from its basic assumptions and micro-level foundations to its broadest predictions and policy prescriptions.

This “rational expectations revolution,” as it was later termed, fundamentally changed the theory and practice of macroeconomics. Prior models had assumed that people respond passively to changes in fiscal and monetary policy; in rational-expectations models, people behave strategically, not robotically. The new theory recognized that people look to the future, anticipate how governments and markets will act, and then behave accordingly in ways they believe will improve their lives.

Therefore, the theory showed, policy makers can’t manipulate the economy by systematically “tricking” people with policy surprises. Central banks, for example, can’t permanently lower unemployment by easing monetary policy, as Sargent demonstrated with Neil Wallace, because people will (rationally) anticipate higher future inflation and will (strategically) insist on higher wages for their labor and higher interest rates for their capital.

This perspective of a dynamic, random macroeconomy demanded deeper analysis and more sophisticated mathematics. Sargent pioneered the development and application of new techniques, creating precise econometric methods to test and refine rational expectations theory.

But by no means has Sargent limited himself to rational expectations. Among his dozen books and profusion of research articles are key contributions to learning theory (the study of the foundations and limits of rationality) and economic history, including influential work on monetary standards and international episodes of inflation.

Sargent, a Hoover senior fellow, was awarded the Nobel Prize in economics in 2011, along with Christopher Sims, a professor at Princeton University. Here are excerpts of an interview conducted before they were awarded their shared Nobel.

MODERN MACROECONOMICS UNDER ATTACK

Art Rolnick: You have devoted your professional life to helping construct and teach modern macroeconomics. After the financial crisis that started in 2007, modern macro has been widely attacked as deficient and wrongheaded.

Thomas J. Sargent: I know that I’m the one who is supposed to be answering questions, but perhaps you can tell me what popular criticisms of modern macro you have in mind.

Rolnick: OK, here goes. Examples of such criticisms are that modern macroeconomics makes too much use of sophisticated mathematics to model people and markets; that it incorrectly relies on the assumption that asset markets are efficient in the sense that asset prices aggregate information of all individuals; that the faith in good outcomes always emerging from competitive markets is misplaced; that the assumption of rational expectations is wrongheaded because it attributes too much knowledge and forecasting ability to people; that the recent financial crisis took modern macro by surprise; and that macroeconomics should be based less on formal decision theory and more on the findings of “behavioral economics.” Shouldn’t these be taken seriously?

Sargent: Sorry, Art, but aside from the foolish and intellectually lazy remark about mathematics, all of the criticisms that you have listed reflect either woeful ignorance or intentional disregard for what much of modern macroeconomics is about and what it has accomplished. That said, it is true that modern macroeconomics uses mathematics and statistics to understand behavior in situations where there is uncertainty about how the future will unfold from the past. But a rule of thumb is that the more dynamic, uncertain, and ambiguous is the economic environment that you seek to model, the more you are going to have to roll up your sleeves, and learn and use some math. That’s life.

Rolnick: Putting aside fear and ignorance of math, please say more about the other criticisms.

Sargent: I have two responses to your citation of criticisms of rational expectations. First, note that rational expectations continues to be a workhorse assumption for policy analysis by macroeconomists of all political persuasions. To take one good example, in the spring of 2009, Joseph Stiglitz and Jeffrey Sachs independently wrote op-ed pieces incisively criticizing the Obama administration’s proposed PPIP (Public-Private Investment Program) for jump-starting private sector purchases of toxic assets. Both Stiglitz and Sachs executed a rational-expectations calculation to compute the rewards to prospective buyers. Those calculations vividly showed that the administration’s proposal represented a large transfer of taxpayer funds to owners of toxic assets. That analysis threw a floodlight onto the PPIP that some of its authors did not welcome.

Hoover senior fellow Thomas J. Sargent teaches a graduate course on macroeconomics at Princeton on October 10, the day the economics Nobel was announced. In an interview about his role on the frontiers of research, he said, “We try to experiment in our models before we wreck the world.”

And second, economists have been working hard to refine rational-expectations theory. For instance, macroeconomists have done creative work that modifies and extends rational expectations in ways that allow us to understand bubbles and crashes in terms of optimism and pessimism that emerge from small deviations from rational expectations.

Rolnick: What about the most serious criticism—that the recent financial crisis caught modern macroeconomics by surprise?

Sargent: Art, it is just wrong to say that this financial crisis caught modern macroeconomists by surprise. That statement does a disservice to an important body of research to which responsible economists ought to be directing public attention. Researchers have systematically organized empirical evidence about past financial and exchange crises in the United States and abroad. Enlightened by those data, researchers have constructed first-rate dynamic models of the causes of financial crises and government policies that can arrest them or ignite them. The evidence and some of the models are well summarized and extended, for example, in Franklin Allen and Douglas Gale’s 2007 book Understanding Financial Crises. Please note that this work was available well before the U.S. financial crisis began in 2007.

THE 2009 FISCAL STIMULUS

Rolnick: A January 2009 article quotes you as saying, “The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last sixty years of macroeconomic research.” What calculations had you seen?

Sargent: I said something like that to a reporter. I had just read an Obama administration Council of Economic Advisers document e-mailed to me by my friend [Hoover senior fellow and Stanford University economist] John Taylor. I agreed with John that the CEA calculations were surprisingly naive for 2009. They were not informed by what we learned after 1945. But I suspect that the council was asked to do something quickly, and they did what they thought was “good enough for government work,” as some of us said during my days at the Pentagon in 1968 and 1969. Back-of-envelope work can be a useful starting point or benchmark. But it does mischief when it is oversold.

In early 2009, President Obama’s economic advisers seem to have understated the substantial professional uncertainty and disagreement about the wisdom of implementing a large fiscal stimulus. In early 2009, I recall President Obama as having said that while there was ample disagreement among economists about the appropriate monetary policy and regulatory responses to the financial crisis, there was widespread agreement in favor of a big fiscal stimulus among the vast majority of informed economists. His advisers surely knew that was not an accurate description of the full range of professional opinion. President Obama should have been told that there are respectable reasons for doubting that fiscal stimulus packages promote prosperity, and that there are serious economic researchers who remain unconvinced.

PERSISTENT UNEMPLOYMENT

Rolnick: Let me go on to another set of questions that I have struggled to answer. Is U.S. unemployment in this recession special? Is it different from the previous ten recessions? If so, do you have any explanation for why that might be the case? Why it went so high and why it’s staying there as long as it is, relative to the pattern of other recoveries? I haven’t heard many economists expound on this, but clearly the labor markets are behaving much differently than they did in previous recoveries, and it’s not obvious to me why. I’m curious what you might say about that.

Sargent: I have little new to say about the details of the big rise in U.S. unemployment since 2008, although the financial crisis was a huge adverse shock to the labor market, so I suspect that we’ll be able to explain the rise. But the main thing that concerns me is the threat of persistent high unemployment, and here the European experience of the last three decades fills me with dread.

The prospect that concerns me might sound like I’m hardhearted, but that’s just the opposite of my feelings. What you’ve seen in the recent recession—and it’s quite natural, because it’s been so severe—is a tendency of Congress to expand unemployment benefits, over and over again. If, in the United States, we create a system where unemployment and disability benefits are permanently extended in their generosity and their duration, we will inadvertently put ourselves into the situation that much of Europe has suffered for three decades. I don’t know enough about politics to predict whether that’s likely to happen. The unfortunate thing is you can see a multiple equilibrium trap here. Low unemployment rates enabled the United States politically to sustain a modest unemployment compensation system. But the politics of the current situation can imply that so long as unemployment is high, we’re going to extend the duration and generosity of benefits. And that extension, done out of the best of motives, is exactly what can lead to the trap of persistently high unemployment. An intriguing thing is that some European countries like Sweden and Denmark are now moving exactly in the opposite direction.

EUROPE AND “UNPLEASANT ARITHMETIC”

Rolnick: Let me ask another question about events in Europe. Some people believe there’s a serious conflict between fiscal and monetary policy, that it’s the result of the Europeans having asked monetary policy to do things it can’t without real fiscal discipline. And as you and Neil Wallace pointed out thirty years ago—was it that long ago?—in “Some Unpleasant Monetarist Arithmetic,” you’d better worry about those links. Is that the way you would interpret what’s going on in Greece, or Europe in general, and concern over Europe’s ability to maintain the euro, that they face some unpleasant arithmetic that could undermine the euro?

Sargent: The people who set up the euro clearly knew about the unpleasant arithmetic and they strove to set things up to protect the euro from any adverse consequences of that arithmetic. Indeed, the whole system was designed to force governments to balance their budgets in a present value sense, adjusting appropriately for growth. Indeed, the Maastricht treaty actually put in fiscal rules that amounted to overkill in the interests of creating a fail-safe system.

Rolnick: So what’s the problem now?

Sargent: Here is what went haywire. In the 2000s, France and Germany, the two key countries at the center of the EU, violated the fiscal rules year after year. Of course, an intriguing thing about the unpleasant arithmetic is that it’s about present values of government primary deficits, and not just deficits for one, two, or three years. And remember that the overkill Maastricht treaty rules are sufficient but not necessary to sustain present-value budget balance, adjusted for real economic growth, so maybe there was no cause for alarm at that time. But in hindsight, there was cause for alarm. The reason is that France and Germany lost the moral authority to say that they were leading by example. They lost the moral high ground to hold smaller countries to the fiscal rules intended to protect monetary policy from the need to monetize government debt.

Rolnick: And so . . .

Sargent: So, a number of countries at the European Union economic periphery—Greece, in particular—violated the rules convincingly enough to unleash the threat of unpleasant arithmetic in those countries. The telltale signs were persistently rising debt-GDP ratios in those countries. Of course, the unpleasant arithmetic allows them to go up for a while, but if that goes on too long, eventually you’re going to get a sovereign debt crisis.

Rolnick: What could the European Central Bank do then?

Sargent: Well, here is one thing that you can imagine the ECB doing (which it hasn’t). It could take the stance, “If the government of Greece wants to try to issue euro-denominated bonds, let them do it, or try to do it. And if investors want to hold euro-denominated bonds that are understood to be liabilities of the Greek government, and not of the ECB, let them do it. It’s not any of the ECB’s business. If those bonds threaten to go bad, if Greece just isn’t a good risk, that’s the bondholders’ problem. Let the investors bear that risk. And if Greece defaults or renegotiates, that’s the investors’ problem, not the ECB’s problem.”

Rolnick: Of course, the ECB hasn’t said that, or at least not yet!

Sargent: Well, one reason the ECB hasn’t said that yet is that after the financial crisis of 2008, what seemed to some European banks to be a promising source of higher-yielding instruments was sovereign debt in the form of euro-denominated bonds issued by countries like Greece. The banks located in the center of the euro area, France and Germany, hold Greek-denominated debt, so a threat of default on Greek government debt threatens the portfolios of those banks in other European countries. Because it is the lender of last resort, now it is the ECB’s business.

Rolnick: Did things have to get to this point?

Sargent: Ultimately, that’s a question about politics, about which I know too little. But in purely economic terms, things could have gone differently. Here’s a “virtual history” of what could have happened: France and Germany stay holier than thou from beginning to end, and always respect the fiscal limits imposed by the Maastricht treaty. They thereby acquire the moral authority to lead by example, and the central core of euro-area countries are running budgets that without doubt are balanced in a present-value sense. Therefore, the euro is strong. The banks of the core countries (France and Germany again) are well regulated, so the banks in France and Germany are not holding any dodgy bonds issued by governments of dubious peripheral countries that have adopted the euro but that flirt with violating the Maastricht treaty rules. In this virtual history, the ECB could play tough and let the Greek government default on its creditors by renegotiating terms of the debt. For the euro, letting the Greek bondholders suffer would actually be therapeutic; it would strengthen the euro by teaching peripheral countries that the ECB means business.

Rolnick: Right. Although if that scenario had been foreseen, Greece might not have been able to issue that debt in the first place.

Sargent: Aha! The plot thickens. So then we confront again the issue of how separate can monetary and fiscal policy be? In the spirit of your observation, remember that there were huge capital gains on Italian debt after it became clear that it would be allowed to join the euro area. So, what really was the reason for those capital gains? Were they based on expectations of a reformed and more disciplined fiscal policy in Italy? Or was it rather an expectation that by joining the euro, Italy had gained access to bailouts from other euro-zone countries? Note that a related point pertains to the 2009 stress tests in the United States. What did it truly mean when a bank passed the stress test? Did it mean that the bank’s balance sheet was solid? Or did it mean that since the Fed said that bank had passed the stress test, the Fed would make sure that henceforth that bank would have access to lender-of-last-resort facilities? It’s difficult to sort these things out.

But notice that throughout our discussion, Art, we’ve been using the vocabulary of rational expectations. In our dynamic and uncertain world, our beliefs about what other people and institutions will do play big roles in shaping our behavior.

Rolnick: Indeed. Thank you again, Tom.

Excerpted by permission from the September 2010 issue of the Region , a publication of the Minneapolis Fed. The full interview is available at www.minneapolisfed.org/pubs/region/10-09/sargent.pdf.

View the discussion thread.

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Rational Expectations and Inflation: Third Edition

In this Book

Thomas J. Sargent
Published by: Princeton University Press

A fully expanded edition of the Nobel Prize–winning economist's classic book This collection of essays uses the lens of rational expectations theory to examine how governments anticipate and plan for inflation, and provides insight into the pioneering research for which Thomas Sargent was awarded the 2011 Nobel Prize in economics. Rational expectations theory is based on the simple premise that people will use all the information available to them in making economic decisions, yet applying the theory to macroeconomics and econometrics is technically demanding. Here, Sargent engages with practical problems in economics in a less formal, noneconometric way, demonstrating how rational expectations can satisfactorily interpret a range of historical and contemporary events. He focuses on periods of actual or threatened depreciation in the value of a nation's currency. Drawing on historical attempts to counter inflation, from the French Revolution and the aftermath of World War I to the economic policies of Margaret Thatcher and Ronald Reagan, Sargent finds that there is no purely monetary cure for inflation; rather, monetary and fiscal policies must be coordinated. This fully expanded edition of Rational Expectations and Inflation includes Sargent's 2011 Nobel lecture, "United States Then, Europe Now." It also features new articles on the macroeconomics of the French Revolution and government budget deficits.

Title Page, Copyright
List of Figures
List of Tables
pp. xiii-xiv
Acknowledgments
Preface to the Third Edition
pp. xvii-xviii
Preface to the Second Edition
Preface to the First Edition
pp. xxi-xxiii
1. Rational Expectations and the Reconstruction of Macroeconomics
2. Reaganomics and Credibility
3. The Ends of Four Big Inflations
4. Stopping Moderate Inflations: the Methods of Poincaré and Thatcher
pp. 111-161
5. Some Unpleasant Monetarist Arithmetic
with Neil Wallace
pp. 162-196
6. Interpreting the Reagan Deficits
pp. 197-210
7. Speculations About the Speculation Against the Hong Kong Dollar
with David T. Beers, Neil Wallace
pp. 211-227
8. Six Essays in Persuasion
pp. 228-247
9. Macroeconomic Features of the French Revolution
with François R. Velde
pp. 248-296
10. United States Then, Europe Now
pp. 297-338
pp. 339-356
Author Index
pp. 357-360
Subject Index
pp. 361-364

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IMAGES

What is Rational Expectations Theory?
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What is the rational expectations theory? Definition and meaning
Rational Expectations and the Efficient Market Hypothesis Role
What is the rational expectations theory? Definition and meaning
Rational Expectations: Theory And Policy Implications

COMMENTS

Robert E. Lucas, Jr.
financial system. theory of rational expectations. (Show more) Robert E. Lucas, Jr. (born September 15, 1937, Yakima, Washington, U.S.—died May 15, 2023, Chicago, Illinois) was an American economist who won the 1995 Nobel Prize for Economics for developing and applying the theory of rational expectations, an econometric hypothesis.
Robert E. Lucas Jr.
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1995 was awarded to Robert E. Lucas Jr. "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy"
The Prize in Economic Sciences 1995
Press release. 10 October 1995. The Royal Swedish Academy of Sciences has decided to award the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, 1995, to. Professor Robert E. Lucas, Jr., University of Chicago, USA, for having developed and applied the hypothesis of rational expectations, and thereby having transformed ...
Robert Lucas Jr.
Widely regarded as the central figure in the development of the new classical approach to macroeconomics, he received the Nobel Prize in Economics in 1995 "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy".
Robert E. Lucas Jr., Nobel laureate and pioneering economist, 1937-2023
He won the Nobel Prize in 1995 for developing and applying the hypothesis of rational expectations, which holds that people make economic choices based on their previous experiences and future expectations. ... Hypothesis of rational expectations. Though theories about rational expectations had previously existed, Lucas' pioneering work ...
Advanced information
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1995 was awarded to Robert E. Lucas Jr. "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy"
Nobel Prize in Economics
Robert E. Lucas Jr. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1995. Affiliation at the time of the award: University of Chicago, Chicago, IL, USA. Prize motivation: "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our ...
Robert E. Lucas Jr., Nobel laureate and ...
He won the Nobel Prize in 1995 for developing and applying the hypothesis of rational expectations, which holds that people make economic choices based on their previous experiences and future expectations. ... Lucas won a Nobel Prize in 1995 for "having developed and applied the hypothesis of rational expectations, and thereby having ...
Robert E. Lucas Won Nobel Prize in Economics
October 10, 1995. Robert E. Lucas, a Research Associate in the NBER's Program on Economic Fluctuations and professor of economics at the University of Chicago, won the Nobel Prize in Economics this year. The Royal Swedish Academy of Sciences awarded the prize to Lucas for his "insights into the difficulties of using economic policy to control ...
Robert E. Lucas
Robert Lucas was awarded the 1995 Nobel Prize in economics "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy." More than any other person in the period from 1970 to 2000, Robert Lucas revolutionized macroeconomic theory. His work led directly […]
Robert E. Lucas: History, Contributions to Economics
Robert E. Lucas Jr.: An American economist who won the 1995 Nobel Memorial Prize in Economic Sciences for his research on rational expectations. Lucas Jr. was heavily influenced by Milton Friedman ...
Robert Lucas wins Nobel Prize in Economics
Lucas, who is the John Dewey Distinguished Service Professor in Economics and the College and who received both his undergraduate and graduate degrees at Chicago, won the Nobel "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of ...
Robert Lucas
At a glance. Born: 1937, Washington, USA. Field: Macroeconomics. Prize-winning work: Development of the Rational Expectations Theory in macroeconomic analysis. Sports: Avid fan of the Chicago Cubs baseball team. Picture in his office: His 21-year-old cat. Books on his nightstand: Fiction he feels comfortable with, sometimes re-reading old ...
Nobel Laureate Robert E. Lucas, Jr.: Architect of Modern Macroeconomics
I n the late 1960s and early '70s, Robert E. Lucas, Jr., wrote a number of papers which have rightly been revered as modern classics. For this body of work, Lucas received the Nobel Memorial Prize for Economic Science in the fall of 1995. The purpose of this review is to place Lucas's work in a historical context and to evaluate the effect ...
Robert Lucas Winner of the 1995 Nobel Prize in Economics
R OBERT L UCAS. 1995 Nobel Laureate in Economics. for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy. Background. Born: 1937 Residence: U.S.A. Affiliation: University of Chicago, IL, U.S.A. Book Store.
Robert E. Lucas Jr., 1937-2023: Nobel Laureate and Pioneer of Rational
He received the Nobel Prize in Economics in 1995 for developing and applying the hypothesis of rational expectations to the economy, which "transformed macroeconomic analysis and deepened our understanding of economic policy," according to the Nobel website. His hypothesis argues that people make economic decisions based on the past and ...
Robert Lucas, Economist Who Won 1995 Nobel Prize, Dies at 85
2:03. Robert Lucas, who won a Nobel Prize for his path-breaking work on rational expectations that questioned the efficacy of government intervention in the economy, has died. He was 85. His death ...
PDF A FULLY EXPANDED EDITION OF Rational Expectations THE NOBEL PRIZE
for which thomas sargent was awarded the 2011 nobel prize in economics. rational expectations theory is based on the simple premise that people will use all the information avail-able to them in making economic decisions, yet applying the theory to macroeconomics and econometrics is technically demanding.
PDF The beginning of the rational expectations revolution ...
In 1995, Robert E. Lucas, Jr received the Nobel Prize in Economic Sciences 'for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy' (Press Release announcing the Nobel Prize, 1995; repr. in Svensson, 1996, p.
The efficient market hypothesis and rational expectations
5 Stanley Fischer, in a piece celebrating Lucas' Nobel Memorial Prize, ... 1961, 322-330) did indeed refer to the problem of speculation (in the case of inventories) and did present his rational expectations hypothesis as describing a situation where "there would be no opportunities for the 'insider' to profit from knowledge" (Muth ...
List of Nobel Memorial Prize laureates in Economic Sciences
Leiden University. Erasmus University. Econometrics, Policy instruments. 1970. Paul Samuelson. (1915-2009) United States. "for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science" [8] Harvard University.
Thomas Sargent's Rational Expectations
This "rational expectations revolution," as it was later termed, fundamentally changed the theory and practice of macroeconomics. Prior models had assumed that people respond passively to changes in fiscal and monetary policy; in rational-expectations models, people behave strategically, not robotically. The new theory recognized that ...
Project MUSE
Buy This Book in Print. summary. A fully expanded edition of the Nobel Prize-winning economist's classic book. This collection of essays uses the lens of rational expectations theory to examine how governments anticipate and plan for inflation, and provides insight into the pioneering research for which Thomas Sargent was awarded the 2011 ...
Daniel Kahneman, Nobel Prize-winning psychologist, 1934-2024
The single biggest exception was Daniel Kahneman, the social psychologist who was awarded the 2002 Nobel Memorial prize in economic science for how he revolutionised the field.

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Robert E. Lucas Jr., Nobel laureate and pioneering economist, 1937-2023

Hypothesis of rational expectations

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Robert E. Lucas, Jr.

Robert E. Lucas Jr., Nobel laureate and pioneering economist, 1937-2023

Hypothesis of rational expectations

‘Chicago has been a marvelous place for me’

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Robert E. Lucas Won Nobel Prize in Economics - 1995

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Robert E. Lucas

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Robert E. Lucas: History, Contributions to Economics

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Robert E. Lucas

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Trying to understand what people think

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Robert E. Lucas Jr., 1937-2023: Nobel Laureate and Pioneer of Rational Expectations

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