The profits the company is expected to make. If expectations are rational, the price at any point in

Time is based on expectations which have taken into consideration all possible information about the

company. This has two consequences. The first consequence is that if some “news” arrives that indicates

the company’s fortunes are likely to change, that information will cause the price to change immediately.

Secondly, however, as the “news” that arrives can reflect only random, not systematic, events, the

price of the company’s shares must follow a random path (random walk).

The interesting implications of rational expectations should not necessarily make them appear

a plausible description of men’s behaviour. Nevertheless, like perfect competition in microeconomics,

Rational expectations provide a model of an extreme form of human behaviour that provides

A benchmark against which the behaviour of people in the real world can be judged.

Commentary and Notes to Text 17.7.1.4

Foresight — предвидение

Adaptive expectations — адаптивные ожидания

Perpetually lag behind... — постоянно отставать от...

Biased forecasts — необъективные, пристрастные, смещенные прогнозы

Controversial implications — спорные положения

To demolish — подрывать

Fortune — судьба (фортуна)

Random events — случайные события