Entrepreneurship, knowledge and employment

Expectations and Anticipation: Useful lessons from Adam Smith

Witztum Amos, London School of Economics

There is a difference between an expectation that something would materialise and the anticipation of what this may mean to the agent. The latter, as a principle, may even become a reason for the agent to change his or her behaviour. Modern economics is mainly concerned with the former assuming the latter to be guaranteed. Classical economics, on the other hand, was mainly concerned with the latter. We show in this paper that the modern presumption as if the cunning of reason can work—in the context of rational expectations (broadly conceived)—is predicated on the anticipation of benefits to be unaffected. However, neither in essence (due to the problem of incomplete markets), nor in process (the cunning of reason as a substitute to stability conditions) is this really true. Moreover, if we contextualise the economic system within the social one, then even if the materialisation of the Walrasian equilibrium were guaranteed, some social (or moral) anticipations may still be violated. This raises the question of whether one can meaningfully separate rational expectations (about the ‘is’) from moral anticipations (about the ‘ought to’). It also opens the possibilities that the economic model becomes conditioned on the social or moral system within which it operates. In this respect, Adam Smith is an example of a conceptual framework within which, expectations are complex and include both personal and social dimensions which lead to a situation where the cunning of reason generates material well-being—-which was an aspect of the expectations—-but fails to deliver on the social front. In principle, this should have led to a change of behaviour, but this does not happen through a complex notion of the human character who may, temporarily, be blinded by the beauty of the system.

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Keywords: Expectations, Adam Smith, Deception by nature, Cunning of reason

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