Robert Lucas shared the 1995 Nobel Memorial Prize in Economic Sciences for developing and applying the theory of rational expectations. The award recognized his influence on macroeconomic analysis and the study of economic policy.
Rational expectations means that people use available information when forming views about the future. They can still be wrong, but their errors are not assumed to follow a predictable pattern that policymakers can systematically exploit. This idea changed how economists analyzed inflation, unemployment, and stabilization policy.
Lucas also formulated the Lucas critique, which warns that relationships estimated from historical data may change when government policy changes. For example, a policy based on past behavior may produce different results once people adjust their expectations.
Lucas was the sole recipient of the 1995 prize. Thomas Sargent, another major expectations theorist, received the award in 2011, which is a frequent source of confusion between the two economists.