Contingent Expectations

Uncertainty, Risk, and Economic Behavior in Historical Perspective

Alexander Nützenadel, Jochen Streb

• Publisher: Princeton University Press
• Year: 2026
• Print ISBN:
  9780691248547
  9780691248530
• eBook ISBN:
  9780691286969
• Topic: Economics
• Subtopic: Financial Risk Management
• Index: Economics

An empirical analysis and new theoretical framework for understanding economic expectations and decision-making in different historical settings.

Expectations play a crucial role in shaping economic behavior. But how are expectations actually formed, and how has this changed over time? The financial crisis of 2007–08 cast doubt on traditional theories of expectation formation, particularly the rational expectations framework. In Contingent Expectations, Alexander Nützenadel and Jochen Streb examine the ways that past experiences influence the economic expectations and decision-making of households, investors, and policymakers through history, and offer an alternative perspective. Combining a comprehensive empirical analysis of expectation formation from the eighteenth century to the present day with an assessment of the relevant economic theory, Nützenadel and Streb present a new theoretical framework, contingent expectations, for understanding economic expectation.

Nützenadel and Streb show how economic actors developed new forecasting methods in response to rising uncertainty brought on by the Industrial Revolution, the expansion of global trade, financial market integration, and environmental crises. Tracing the evolution of economic theories on expectations, they find that when growing market volatility made forecasting more complex, economic agents often adapted with remarkable flexibility to changing circumstances. Challenging prevailing concepts of expectations, including rational choice and adaptive expectations, Nützenadel and Streb emphasize the heterogeneity of economic agents’ cognitive practices—in particular, the need to consider variation in information costs and historical experience. Expectation formation, they argue, is contingent on each individual’s current decision-making situation. Their account of the history of economic expectations has significant implications for current debates in economics.

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Preface and Acknowledgments
• 1. Contingent Expectations
• 2. Expectation Formation in the Premodern Era
• 3. Uncertainty, Risk, and the Probabilistic Revolution
• 4. World Wars: Sleepwalkers and Rational Agents
• 5. Expectation Shocks: Inflation, Depression, and Political Risks Between the World Wars
• 6. The Rise of Economic Prediction
• 7. Inflation Expectations, the Phillips Curve, and Heterogeneous Experience
• 8. Optimism and Pessimism
• 9. The Great Moderation
• 10. Heterogeneous Expectations in the Great Recession
• Conclusions
• Notes
• References
• Index