Which theory argues that individuals' economic decisions are based on historical data?

The correct answer is based on the concept of adaptive expectations, which suggests that individuals form their expectations about future economic variables based on past experiences and historical data. This theory indicates that people adjust their expectations gradually as new data about economic trends becomes available, rather than using all information instantaneously or making decisions based on a set theoretical model.

In contrast to adaptive expectations, the rational expectations theory posits that individuals use all available information, both current and historical, to form expectations and make decisions accordingly. Individuals are assumed to act on their beliefs about the future based on a rational analysis of available data, which can lead to more accurate predictions, assuming they have the full ability to process information correctly.

The efficient market hypothesis argues that asset prices reflect all available information, suggesting that it is impossible to consistently achieve higher returns than the overall market through expert stock selection or market timing.

Keynesian economics emphasizes active government intervention in the economy and does not primarily focus on how individuals form their economic expectations based on historical data.

Thus, adaptive expectations best encapsulates the idea that individuals' economic decisions are heavily influenced by historical data, allowing them to make incremental adjustments based on past experiences.