Imagined futures: How fictional expectations drive the dynamics of economic developments

2008 the market for mortgage-backed securities from US mortgage loans imploded. The writedowns required and the payments due from credit insurance policies brought the financial system to the brink of collapse. Why had economists failed to spot the warning signs of the incipient worldwide financial crisis? The rationality assumptions behind economic theory founder on the complexity of the economy; expectations cannot be understood rationally but are contingent visions of the future. Such “fictional” expectations play a central role in decisions and in the dynamics of economic developments.