Rational Expectations Neoclassical economists say people form expectations about what they think future prices will be. To do so is rational. Neoclassical theory, however, says people form these expectations differently than the way Keynesians say they form. According to Keynesians, people form expectations in a way called adaptive expectations. This means that when inflation begins, people only slowly increase their price expectations after prices have gone up.
Rational expectations form much more quickly.
According to rational expectations theory, people learn about how government economic policy affects them and they will use this knowledge to predict government behavior that will lead to price changes. Say, in the past, people learned that when the government increased the money supply inflation followed. Having learned that, when people see conditions that are associated with the government increasing the money supply, they will quickly increase their price expectations in anticipation of the inflationary effects of government monetary policy. Now, saying people will quickly form new price expectations does not mean they will correctly anticipate the new price level. They may get lucky and guess right or they may guess wrong.