Uncertainty and Expectations

Abstract

Expectations about the future are critical in economics, and they have long been central to the Post Keynesian construction of economics. We have already seen evidence of this in Chapter 5 which dealt with the Keynesian theory of aggregate supply. It is only by an appeal to belief in a future that we can begin to explain why agents engage in activities such as saving and investment, why they are willing to make loans, and why they are willing to accept intrinsically worthless money in exchange for goods and services. The future would therefore be critical even if it were known with complete certitude, but the fact that it is known only with uncertainty, if it is known at all, makes its representation and effects even more important.

Subject to minor modifications, this chapter first appeared as “Uncertainty, Expectations, and the Future: If we don’t know the answers, what are the questions?”, Journal of Post Keynesian Economics, 16 (Fall 1993b).