<P> The fact that agents with adaptive expectations may make ever - increasing errors over time has led many economists to conclude that it is better to assume rational expectations, that is, expectations consistent with the actual structure of the economy . However, the rational expectations assumption is controversial since it may exaggerate agents' understanding of the economy . The cobweb model serves as one of the best examples to illustrate why understanding expectation formation is so important for understanding economic dynamics, and also why expectations are so controversial in recent economic theory . </P> <Table> <Tr> <Td> </Td> <Td> This article may be confusing or unclear to readers . Please help us clarify the article . There might be a discussion about this on the talk page . (May 2017) (Learn how and when to remove this template message) </Td> </Tr> </Table> <Tr> <Td> </Td> <Td> This article may be confusing or unclear to readers . Please help us clarify the article . There might be a discussion about this on the talk page . (May 2017) (Learn how and when to remove this template message) </Td> </Tr> <P> The German concepts which translate literally "adjustment to lower" and "screw to lower" are known from the works of Hans - Peter Martin and Harald Schumann, the authors of The Global Trap . Martin and Schumann see the process to worsened living standards as screw - shaped . Mordecai Ezekiel's The Cobweb Theorem (1938) illustrate a screw - shaped expectations - driven process . Eino Haikala has analyzed Ezekiel's work among others, and clarified that time constitutes the axis of the screw - shape . Thus Martin and Schumann point out that the cobweb theorem works to worsen standards of living as well . The idea of expectations - variation and thus modeled and induced expectations is shown clearly in Oskar Morgenstern's Vollkommene Voraussicht und Wirtschaftliches Gleichgewicht . This article shows also that the concept of perfect foresight (vollkommene Voraussicht) is not a Robert E. Lucas or rational expectations invention but rests in game theory, Morgenstern and John von Neumann being the authors of Theory of Games and Economic Behavior . This does not mean that rational expectations hypothesis is not game theory or separate from the cobweb theorem, but vice versa . The "there must be" a random component claim by Alan A. Walters alone shows that rational (consistent) expectations is game theory, since the component is there to create an illusion of random walk . </P>

With the aid of relevant diagrams discuss the types of cobweb model we have