BEYOND RATIONAL-EXPECTATIONS - A CONSTRUCTIVE INTERPRETATION OF KEYNES ANALYSIS OF BEHAVIOR UNDER UNCERTAINTY

This paper suggests that behaviour under uncertainty depends not only on rational expectations but also the agent's evaluation of the adequa cy of the available evidence on which the expectations are based. It i s argued that behavioural functions need to be augmented by a credence variable. This proposition is derived from Keynes's argument in the G eneral Theory that investment depends on both the most probable foreca st and the state of confidence, reflecting the distinction between pro bability and weight in his A Treatise on Probability. The research imp lications of the proposed model are indicated.