The coordination problem: expectations and inaction

Abstract

In a "Hayekian world," the market is a competitive exchange network that continuously solves a coordination problem. In this competitive context, expectations are endogenous, so planned actions are assumed to be mostly realizable. Nevertheless, economic crises are possible: not even spontaneously arising expectation-forming procedures avoid them. To show this, some Keynesian practical arguments concerning the beginning of recessions are applied. Moreover, Keynes's theory of liquidity preference shows that the Hayekian theory of expectations cannot deal with some key features of downturns—in particular, with inaction.

Keywords:

• coordination problem
• expectations
• Hayek
• inaction
• Keynes
• spontaneous order