The Rational Expectations Revolution and Finite, Scarce Cognition

The Rational Expectations Revolution: Bob Lucas, Tom Sargent, Neil Wallace & John Muth Argued that you'd get macroeconomics wrong unless you carefully modeled expectations. They were right about this. But then they went too far, assuming fully rational expectations. Humans are smart, but not that smart. They make mistakes. We need to learn how to model medium-smart.