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Adaptive expectations

Adaptive expectations is the theory that behaviour changes because of what people expect will happen: so workers ask for more pay because they believe inflation will rise, and this increase in pay actually fuels an increase in inflation; similarly economists will exaggerate their inflation forecasts to take into account errors they made in previous forecasts. Such adaptive expectations always exaggerate upward or downward trends.

Adaptive expectations is the expectations of a variable based on an average of past values of the variable.

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