Subjectivism of Expectations and the Process of Error Correction: The Views of Lachmann and Mises G.P. Manish Assistant Professor

Ludwig Lachmann famously stressed that expectations are inherently subjective, resulting in the phenomenon of divergent expectations, i.e., differing interpretations of market conditions on the part of market participants; a phenomenon that, coupled with the ceaseless change characterizing market data, greatly undermines the presence of any process of error correction on the marketplace. This paper compares the views of Lachmann on this subject with those of Mises. It argues that Mises too viewed expectations to be subjective and believed that the phenomenon of divergent expectations could arise on the market. But contrary to Lachmann, he did not conclude that this phenomenon undermines the presence of a process of error correction. Thus, in Mises’ view of the market process, a thoroughgoing subjectivism goes hand in hand with a belief in the existence of a process of equilibration.