Rational Expectations Hypothesis

The Rational Expectations Hypothesis assumes that market participants make decisions based on all available information, past experiences, and their best forecasts of the future. It posits that people do not make systematic errors, meaning their predictions are on average correct, even if they are wrong in individual instances.

In the context of crypto-derivatives, this implies that prices should fully reflect all known data regarding protocol upgrades, macro events, and regulatory shifts. While real-world markets often deviate due to cognitive biases and asymmetric information, this hypothesis provides a baseline for evaluating market efficiency.

It suggests that persistent arbitrage opportunities are quickly eliminated by rational actors. It is a cornerstone of modern financial economics used to model how expectations drive market behavior.