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The Review of Austrian Economics

, Volume 27, Issue 2, pp 199–214 | Cite as

An Austrian view of expectations and business cycles

  • Paul D. MuellerEmail author
Article

Abstract

Austrian economists have contributed several important concepts to business cycle theory including: inter-temporal coordination of production and consumption, heterogeneous specificity of capital, non-neutrality of money, and the capital structure of production. Noticeably lacking, however, is a clear theory of expectations. Recent Austrian responses to rational expectations critiques—such as positing a prisoner’s dilemma, heterogeneous entrepreneurs, and adverse selection—try to fill this gap. But much work remains to be done developing an Austrian theory of expectations, one where they are endogenous to the market process and market institutions. This paper explores how people adapt their expectations to changing market phenomena based upon their perceived costs and benefits of doing so. It then applies endogenous expectations to the 2008 financial crisis.

Keywords

Business cycles Expectations Financial crisis Information costs Austrian Economics Interpretive frameworks 

JEL Classification

E21 E22 E32 E43 E51 E52 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsGeorge Mason UniversityFairfaxUSA

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