Robert E. Lucas Jr.

Robert E. Lucas Jr.
(1937)

American economist who won the 1995 Nobel Prize for Economics for developing and applying the theory of rational expectations, an econometric hypothesis which suggests that individuals may affect the expected results of national fiscal policy by making private economic decisions based on past experiences and anticipated results. His work, which gained prominence in the mid-1970s, questioned the influence of John Maynard Keynes in macroeconomics and the efficacy of government intervention in domestic affairs.
Lucas graduated from the University of Chicago with degrees in history (A.B., 1959) and economics (Ph.D., 1964). He taught at Carnegie Mellon University, Pittsburgh, Pa., from 1963 to 1974 before returning to Chicago to accept a professorship of economics in 1975. Lucas' Studies in Business-Cycle Theory (1981) reprints his research from the 1970s, and Models of Business Cycles (1987) provides an overview of his economic theory.

The rational expectations hypothesis was first formulated in 1961 by John F. Muth to explain how traditional models of Keynesian economics fail to predict prices in speculative markets. One such Keynesian model, the Phillips curve, proposes that a government can lower the rate of unemployment by stimulating inflation and thereby encouraging companies, which anticipate higher revenues, to raise wages and attract more workers. Lucas' critique of the Phillips curve shows that inflation may continue to rise in the long run without a corresponding drop in unemployment because higher production costs and higher consumer prices can eventually offset higher revenues and higher wages, thereby dampening the expectations of both companies and workers. Lucas was also known for his contributions to investment theory, international finance, and economic growth theory.