In practice, in virtually all our transactions, whether with customers or with colleagues, we rely on the word of those with whom we do business. If we could not do so, goods and services could not be exchanged efficiently. The trillions of dollars of assets that are priced and traded daily in our financial markets before legal confirmation illustrates the critical role of trust.
This is because the promise of inflation overshooting raises inflation expectations and therefore lowers real interest rates. [2] While make-up strategies may be less successful when people are not perfectly rational in their decisions[3] – which is probably a good approximation of the reality we face – the usefulness of such an approach could be examined.