Abstract

Simon’s bounded rationality notion has exerted a substantial influence in economics. This chapter considers some of the links between concepts of bounded rationality and the approaches followed by economists in their analysis of the role played by economic agents’ expectations in driving the evolution of the economy through time. Indeed, the relevance of expectations has been repeatedly underlined in macroeconomic theory and policy making. However, the economists’ degree of attention to how they are actually formed and to how they interact with the economic observables has followed high and low cycles. In recent years, the increasing availability of survey data and the failings of models based on purely rational representative agents have prompted renewed interest in inquiries into the direct measurement of expectations and empirical studies of their formation. The intellectual legacy of Herbert Simon provides a useful guide for both these activities, and new data and bigger computational power have paved the way for the massive and painstaking analyses at the level of individual decision makers that he had envisioned and advocated.