“These ideas have implications not only for theoretical and econometric practices but also for the ways in which policymakers and their advisers think about the choices confronting them. In particular, the rational expectations approach directs attention away from particular isolated actions and toward choices among feasible rules of the game, or repeated strategies for choosing policy variables. While Keynesian and monetarists macroeconomic models have been used to try to analyze what the effects of isolated actions would be, it is now clear that the answers they have given have necessarily been bad, if only because such questions are ill-posed.”

—  Thomas J. Sargent

"Rational expectations and the dynamics of hyperinflation." 1973

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Thomas J. Sargent 10
American economist 1943

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Olivier Blanchard photo

“Lucas and Sargent’s main argument was that Keynesian economics had ignored the full implications of the effect of expectations on behavior. The way to proceed, they argued, was to assume that people formed expectations as rationally as they could, based on the information they had. Thinking of people as having rational expectations had three major implications, all highly damaging to Keynesian macroeconomics. …
The first implication was that existing macroeconomic models could not be used to help design policy. … The second implication was that when rational expectations were introduced in Keynesian models, these models actually delivered very un-Keynesian conclusions. … The third implication was that if people and firms had rational expectations, it was wrong to think of policy as the control of a complicated but passive system. Rather, the right way was to think of policy as a game between policy makers and the economy. …
To summarize: When rational expectations were introduced, Keynesian models could not be used to determine policy; Keynesian models could not explain long-lasting deviations of output from the natural level of output; the theory of policy had to be redesigned, using the tools of game theory.”

Olivier Blanchard (1948) French economist

Source: Macroeconomics (7th Edition, 2017), Ch. 24 : Epilogue: The Story of Macroeconomics

“One troublesome aspect is the place of rational expectations macroeconomics in the often political debate over Keynesian economics. At least implicitly, many people feel that what's bad for the rational expectations viewpoint is good for the Keynesian one, and vice versa. But it is hard to see how the problems in using the rational expectations approach to explain monetary nonneutrality can alleviate the theoretical and empirical shortcomings of the Keynesian model.”

Robert Barro (1944) American classical macroeconomist

Robert J. Barro, "Rational Expectations and Macroeconomics in 1984" (1984).

Olivier Blanchard photo

“Using the popular macroeconomic models of the time, Lucas and Sargent showed how replacing traditional assumptions about expectations formation by the assumption of rational expectations could fundamentally alter the results…. Most macroeconomists today use rational expectations as a working assumption in their models and analyses of policy. This is not because they believe that people always have rational expectations. Surely there are times when people, firms, or financial market participants lose sight of reality and become too optimistic or too pessimistic… But these are more the exception than the rule, and it is not clear that economists can say much about those times anyway. When thinking about the likely effects of a particular economic policy, the best assumption to make seems to be that financial markets, people, and firms will do the best they can to work out the implications of that policy. Designing a policy on the assumption that people will make systematic mistakes in responding to it is unwise.”

Olivier Blanchard (1948) French economist

Source: Macroeconomics (7th Edition, 2017), Ch. 16 : Expectations, Output, and Policy

“Throughout the social sciences today, the dominant form of modeling is based upon the rational-choice paradigm. Game theory, in particular, is typically based upon the assumption of rational choice. In my view, the reason for the dominance of the rational-choice approach is not that scholars think it is realistic. Nor is game theory used solely because it offers good advice to a decision maker, because its unrealistic assumptions undermine much of its value as a basis for advice.”

Robert Axelrod book The Complexity of Cooperation

Introduction
The Complexity of Cooperation (1997)

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“The implication of game theory, which is also the implication of the third image, is, however, that the freedom of choice of any one state is limited by the actions of the others.”

Kenneth N. Waltz book Man, the State, and War

Source: Man, the State, and War (1959), Chapter VII, Some Implications Of The Third Image, p. 204

“Every time you have to make a choice about anything, think "Does this go toward or away from what I want?" Always choose what goes toward what you want.”

Barbara Sher (1935) American writer

Source: I Could Do Anything If I Only Knew What It Was: How to Discover What You Really Want and How to Get It

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“Not only is it possible to devise complete models of the economy on hypotheses other than rationality, but in fact virtually every practical theory of macroeconomics is partly so based. The price- and wage- rigidity elements of Keynesian theory are hard to fit into a rational framework, though some valiant efforts have been made. … But if the Keynesian model is a natural target of criticism by the upholders of universal rationality, it must be added that monetarism is no better. I know of no serious derivation of the demand for money from a rational optimization. … The use of rationality in these arguments is ritualistic, not essential.”

Kenneth Arrow (1921–2017) American economist

1970s-1980s, "Rationality of Self and Others in an Economic System", 1986

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“Monetarism—both of the older Friedman version stressing adherence to money stock targets and of the newer rational expectations variety—has been badly discredited. The stage has been set for recovery in the popularity of Keynesian diagnoses and remedies. I do not mean to imply, of course, that there is some Keynesian truth, vintage 1936 or 1961, to which economists and policymakers will or should now return, ignoring the lessons of economic events and of developments in economics itself over these last turbulent fifteen years. I do mean that in the new intellectual synthesis which I hope and expect will emerge to replace the divisive controversies and chaotic debates on macroeconomic policies, Keynesian ideas will have a prominent place.”

James Tobin (1918–2002) American economist

James Tobin, "Keynes' Policies in Theory and Practice", Challenge (1983).
1970s and later

“Hayek emphasized the importance of rules. He thought that what society should do is not to direct the individual in his or her particular actions, but to create a metaphysical structure, as it were, enforced by rules or laws, that create stable expectations and thus allow rational action.”

Alan O. Ebenstein (1959) American political scientist, educator and author

Hayek's Journey: The Mind of Friedrich Hayek (2003)

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“Accounting for the artificial boom and the consequent bust is not part of Keynesian income-expenditure analysis, nor is it an integral part of monetarist analysis. The absence of any significant relationship between boom and bust is an inevitable result of dealing with the investment sector in aggregate terms. The analytical oversight derives from theoretical formulation in Keynesian analysis and from empirical observation in monetarist analysis. But from an Austrian perspective, the differences in method and substance are outweighed by the common implication of Keynesianism and monetarism, namely, that there is no boom-bust cycle of any macroeconomic significance.”

Roger Garrison (1944) American economist

Pages 136–137.
"Is Milton Friedman a Keynesian?" (1992)

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