Final answer:
The theory of rational behavior in economics posits that individuals make informed and consistent decisions based on their self-interest, but behavioral economics suggests that people often act irrationally. Adaptive expectations offer an alternative, indicating people learn from experience and gradually change their behavior.
Step-by-step explanation:
The theory of rational behavior can be understood through the lens of traditional economic models and behavioral economics. Traditional economic models assume that people take all available information and make consistent, informed decisions that are in their best interest, adhering to the principle of rationality. On the other hand, behavioral economics acknowledges that individuals sometimes exhibit irrational behavior, with decisions that may seem inconsistent and not in their own best self-interest.
An alternative to the principle of rational expectations is the concept of adaptive expectations. This suggests that people and firms adjust their expectations and behavior based on past experience and gradually adapt as circumstances change, rather than being perfect synthesizers of information and accurate predictors of the future. Adjustments in beliefs and actions occur over time in incremental steps, reflecting a more realistic view of human behavior within economic systems.