What perspective do individuals hold according to the Rational Expectations theory?

The Rational Expectations theory posits that individuals form their expectations about the future based on all available information, including both current and historical data. This theory asserts that individuals do not simply rely on a limited set of past experiences; rather, they analyze trends, data, and information to make informed predictions about future events. This approach suggests that people are rational actors who use all relevant knowledge to anticipate the effects of economic policies and other variables, leading them to make well-informed decisions.

The emphasis on using a wide range of information aligns with economic modeling, which seeks to understand how people adjust their behaviors in response to new information or policy changes. As a result, expectations formed under this theory can lead to accurate forecasting, reflecting a more sophisticated understanding of economic dynamics. Thus, having expectations grounded in current and historical data is critical to the Rational Expectations framework, making this choice the most aligned with the theory's principles.