Explore by…


Roman Frydman


Roman Frydman is Professor of Economics at New York University and Chair of the Program on Imperfect Knowledge Economics (IKE) at the Institute for New Economic Thinking. He was one of the early critics of the Rational Expectations Hypothesis, arguing in the 1982 article in the American Economic Review that REH models do not provide an adequate representation of rational decision making.

Over the last decade, Frydman has worked with Michael Goldberg on a new approach to representing rationality in formal macroeconomic analysis that rests on the core premise that rational individuals recognize that they cannot fully anticipate the consequences of their decisions.They presented their approach in their book Imperfect Knowledge Economics (Princeton University Press, 2007).

In subsequent articles and a follow-up book, Beyond Mechanical Markets (Princeton University Press, 2011), Frydman and Goldberg developed an alternative approach to modeling rational decision-making and applied it to the analysis of a number of outstanding problems in macroeconomics and finance that have confounded the prevailing approaches for decades. They also showed how IKE leads to a new way of thinking about state intervention – and, more broadly, the market-state balance – in modern economies.

Recently, Frydman co-edited (with Edmund Phelps), Rethinking Expectations: The Way Forward for Macroeconomics (Princeton University Press, 2013), which examines alternative approaches that aim to shape the post-REH research agenda in macroeconomics and policy analysis.


By this expert

New Evidence for the Present-Value Model of Stock Prices: Why the REH Version Failed Empirically

Paper Working Paper Series | | Feb 2015

Shiller (1981) and others have shown that the quantitative predictions of the REH present-value model are inconsistent with time-series data on stock prices and dividends. In this paper, we assess the empirical relevance of the model without explicitly representing how a rational market participant forecasts dividends and interest rates.

Did Capitalism Fail? Looking Back Five Years After Lehman

Article | Sep 17, 2013

How could reputable ratings agencies – and investment banks – misjudge things so badly?

The Contingent Expectations Hypothesis: Rationality and Contingent Knowledge in Macroeconomics and Finance Theory

Paper Conference paper | | Apr 2013

For macroeconomists, an individual is rational if she uses her understanding of the way the economy works in making decisions that do not conflict with her objectives.

Opening Models of Asset Prices and Risk to Non-Routine Change

Article | Apr 17, 2012

Paper revised for the Institute’s Plenary Conference in Berlin

Featuring this expert