Rational expectations and adaptive expectations

 Differences between Rational expectation and Adaptive expectation

Adaptive Expectations	Rational Expectation
. Adaptive expectation means the prediction made on the basis of past trend of the variable concemed.	.Rational expectations mean the best or optimal prediction made by economic agents on the basis of all the information with them at the time of doing prediction.
. Adaptive expectations are not free of systematic errors.	.Rational expectations mean the best or optimal prediction made by economic agents on the basis of all the information with them at the time of doing prediction
. Adaptive expectations are not free of systematic errors.	. Rational expectations are free of systematic errors. However,random errors may arise.
. Adaptive expectation causes inertia in the one or happened to stop/remove such inertia. Thus,if the unemployment rate is at its natural rate and if there are no supply shocks, the price level will continue to increase at the rate it has been increasing	. Rational expectations are free of systematic errors. However,random errors may arise.

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