The formation of conventional expectations under strong uncertainty: a reply

This paper aims to reply to Dequech's comment in the International Journal of Social Economics on the analysis of the formation of conventional expectations under strong uncertainty, which was proposed in the present author's 2004 article in the International Journal of Social Economics.

The scope of this reply is to evaluate through a theoretical examination the validity of Dequech's claim contained in his comment that his initial analytical scheme of the state of expectations presented in his 1999 article was general enough to accommodate the psychological considerations, which were raised in the present author's 2004 article and which were associated with Keynes's analysis as well as with developments in the field of social psychology.

The paper demonstrates that both Dequech's initial article of the state of expectations and his subsequent comment on the present author's contribution on the conventional formation of expectations under strong uncertainty in the International Journal of Social Economics overlooked the psychological nature of the process of inferences, a fundamental factor in Keynes's discussion of the formation of conventional expectations. However, when social psychology considerations are introduced in the analysis (as it was the case with the present author's approach) and when the remarkable theoretical and empirical progress in the field of social psychology is taken into account, Dequech's claim of the generality of his framework is not justifiable because both the specific nature and the substantive impact of the social psychology issues associated with the role of inferences are overlooked across his analysis. It is proposed that a theoretical scheme that uses the wealth of evidence of contemporary social psychology is more promising for a rigorous development of a theory of expectations under strong uncertainty.

The paper sheds further light on expectancy theory.