| Abstract: | In recent years, political scientists have tested for the existenceof rational expectations (RE) using survey-based aggregate dataon subjective economic perceptions. These tests suffer fromseveral conceptual shortcomings of a nontrivial nature. In thisstudy, the meaning of RE is clarified, and also a test for strongrational expectations (SRE) where citizens possess heterogeneousinformation levels is set forth. These empirical tests provideinsights into what kinds of information citizens use in formingexpectations from that which they do not utilize but could employto arrive at more accurate forecasts. Using inflation expectationsdata for the period January 1978–December 1993, the empiricalfindings indicate that citizens can benefit from greater relianceon objective economic and political conditions when formulatingtheir inflation expectations. The broader implications of thiswork pertain not only to the execution of RE tests in politicalscience, but also to distinguishing which types of informationpeople do and do not (but could) incorporate in their decision-makingcalculus. |
