Expectations and reflexiveness

Abstract

This chapter starts by reconstructing an argument from Oskar Morgenstern against the possibility of economic forecasting which explains economic forecast failure by pinpointing forecast reflexiveness. Subsequently, two lines of attack against this argument are presented. One of them consists in the proposal by Grunberg & Modigliani to construct self-fulfilling forecasts. The other one is based on the rational expectations hypothesis. However, it is shown that both of these counterarguments either fail or give rise to new explanations of forecast failure. Thus, whether the critiques are appropriate or not, forecast failure can be explained with reference to expectations and reflexiveness.