Rational Expectation Theory and Ideological Factor of National Security

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Contract Arguments One way to connect individual rational action with Ideology principle is through a social contract argument. The basic idea, which goes back to Thomas Hobbes (2), is that rational individuals will subscribe to a social agreement to behave morally. They will do so because the alternative is anarchy, in which life is “solitary, poore, nasty, brutish, and short.” More importantly, they will continue to comply with the agreement, because (according to Hobbes) they will voluntarily install an authoritarian government that gives them strong incentive to do so. In a modern economic context, a Hobbesian perspective might see commercial firms as lobbying on behalf of business regulation to avoid the chaos of an unregulated environment. Aware that business often has an incentive to flout regulations, they advocate substantial penalties and strong enforcement to make sure it is in their interest to comply. This sometimes occurs, but many would deny that it is required by a firm’s rational self-interest. A social contract argument need not appeal to self-interest. John Rawls, for example, argued in a Kantian vein that it is rational for individuals to agree on a social order that maximizes the welfare of the least advantaged (3). The argument may be roughly put as follows. If I agree to a particular social order, then I must have reasons for doing so. These reasons must be equally convincing to any rational person who agrees, including those on the bottom of society. But rational individuals can agree with a social order that puts them on the bottom only if no other social order would make them better off. It follows that a rational individual must endorse a maximin solution: one that maximizes the welfare of the worst-o... ... middle of paper ... ...on the rules of the fame in which people are participating. Since much human behavior is purposeful, it makes sense to expect that it will change to take advantage of changes in the rules. This principle is so familiar to fans of football and other sports that it hardly bears mentioning. however the principle very much deserves mentioning in the context of foreign policy because here it have been routinely ignored- and with some devastating results. Adherents of the theory of rational expectations believe, in fact, that no less than the field of macroeconomics must be reconstructed in order to take account of this principle of human behavior. Their efforts to do that involve basic changes in the ways economists formulate , simulate , and predict with econometric models. They also call for substantial changes in the ways economic policymakers frame their options.(9)
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