Equilibrium: an Expectational Concept

Abstract

Economic equilibrium, at least as the term has traditionally been used, has always implied an outcome, typically from the application of some inputs, that conforms to the expectations of the participants in the economy. Many theorists, especially those employing the ‘economic man’ postulate, have also required the further condition for equilibrium that every participant be optimizing in relation to those correct expectations. However, it is the former condition, correct expectations, that appears to be the essential property of equilibrium, at least in the orthodox use of the term. Economic equilibrium is therefore not defined in the same terms as physical equilibrium. The rest positions or damped oscillations of pendulums cannot be economic equilibria nor disequilibria since pendulums have no expectations.