In economics parlance, rational expectations is defined by Thomas Sargent as the following in “The Concise Encyclopedia of Economics”:
"The theory of rational expectations was first proposed by John F. Muth of Indiana University in the early 1960s. He used the term to describe the many economic situations in which the outcome depends partly on what people expect to happen. The price of an agricultural commodity, for example, depends on how many acres farmers plant, which in turn depends on the price farmers expect to realize when they harvest and sell their crops. As another example, the value of a currency and its rate of depreciation depend partly on what people expect that rate of depreciation to be. That is because people rush to desert a currency that they expect to lose value, thereby contributing to its loss in value. Similarly, the price of a stock or bond depends partly on what prospective buyers and sellers believe it will be in the future"
In frequent flyer terms, this has to do with whether or not to hoard your miles. If you observe that airlines have found their FF programs to be a piggybank which allows them to generate their own form of “fiat currency”, then you must expect that with the money supply increasing, the purchasing power will decrease over time, hence the move towards using miles now rather than booking them for later.
Incredible Southwest Companion Pass Offer For California Residents - California sure has become a competitive market for Southwest. With Alaska's takeover of Virgin America, Alaska and Southwest are battling over who is mo...