The “Lachmann Problem” Is the Problem of Building a Radically Subjectivist Theory of Expectations

What produced this great personal achievement of Lachmann? It was not, I think, his solution to any economic problem, but his identification of one. The problem Lachmann drew our attention to was the need for a theory of expectations in which each person’s actions are animated by the spontaneous activity of a free human mind. I will call the problem of building a radically subjectivist theory of expectations, the ‘Lachmann problem.’

It is not obvious how such a thing is to be done. How can I let the agents of my model be free and still predict anything—even within the model! If we take seriously the ‘subjectivism of active minds,’ we seem to fall into the horrible pit of open possibility with no ladder upon which to get out. This, we have been told, is nihilism.

I think there is a way out. We can combine the radical subjectivist attention to human thoughts with a more ‘objective’ understanding of the evolution of rule-governed action. Doing so may permit us to correlate observable market conditions with certain properties of economic expectations. It may help us learn when economic expectations will be more prescient and when less. It may help us learn when markets are driven mostly by fundamentals and when they are more subject to fads and fashion. To anticipate, my proposal for solving the Lachmann problem puts Schutz and Hayek together. (Alfred Schutz was a sociologist notable for his use of Husserl’s phenomenology. F.A.Hayek, of course, was one of the leading figures of Austrian economics.)

—Roger Koppl, “Lachmann on the Subjectivism of Active Minds,” in Subjectivism and Economic Analysis: Essays in Memory of Ludwig M. Lachmann, ed. Roger Koppl and Gary Mongiovi, Routledge Frontiers of Political Economy (London: Routledge, Taylor and Francis e-Library, 2003), 61-62.