George Lennox Sharman Shackle, The Expectational Dynamics of the Individual (1943)

Shackle’s journal article grounds economic dynamics in the individual’s formation and revision of expectations. Moving from uncertain choice to investment, liquidity, and fluctuations, it argues that economic outcomes depend on imaginative judgments rather than mechanical responses to current prices and profits. Its methodological claim is explicit:

Yet there has been no open recognition so far in economics of the need to study the psychology of expectation as a process of the individual mind.

The central concept is potential surprise: the surprise an individual anticipates feeling if a hypothesis proves false or, when comparing possible outcomes, if it is realised. Several mutually incompatible outcomes may each carry no potential surprise. This does not establish their equal probability; it marks the range of possibilities the individual cannot confidently exclude.

The most we can do is to attach nil potential surprise to the fulfilment of any member of the sub-set.

Choice nevertheless requires attention to concentrate within this multiplicity. Shackle locates the incentive to act in the present enjoyment of imagined future success. An expectation motivates through its experiential force:

This must surely mean a life-like, vivid and active expectation, one which carries conviction by the realism and insistent presence, as it were "in the flesh", of the imagined thing.

Anticipatory pleasure increases with an outcome’s desirability but diminishes with its potential surprise. Anticipated distress similarly combines hurtfulness with credibility. The possibilities producing maximum pleasure and distress become the two focus-values. Applied to investment “blueprints,” these yield a focus gain and focus loss through which projects are compared. The formal construction describes selective attention to compelling possibilities, not an average of all conceivable returns.

Shackle then makes the timing of information central to investment. Investors consider both their present appraisal of a project and the appraisals they might form after an election, Budget, or other unresolved question is settled. Waiting preserves the possibility of undertaking a project under more favourable expectations. Liquidity matters because potential buyers need not share an owner’s valuation: constructing a plant can commit resources that cannot subsequently be recovered without a perceived sacrifice.

A further reason for delay concerns the duration of hope. Enjoyment by anticipation includes looking forward to future experiences of anticipation. Imminent news may destroy that prospective pleasure by reducing a project’s focus gain, even when its present focus-values seem attractive. Uncertainty about future expectations therefore influences present decisions independently of the terminal outcome currently imagined.

The aggregate implication is that investment may revive simply because an occasion for waiting has passed, without any improvement in projects’ focus gains or losses. Shackle distinguishes this release from the disruption caused by surprising news. Counter-expected events were considered but disbelieved; unexpected events never entered the individual’s hypotheses. Either can undermine existing judgments. During reassessment, provisional expectations admit a wider range of gains and losses, increasing the attraction of liquidity.

This mechanism produces an asymmetry. Favourable surprises may initially discourage investment while their implications are assimilated, whereas some adverse changes depress investment immediately. Shackle offers this as a partial explanation of why contraction after a boom can proceed faster than recovery after a slump.

The final sections turn from the consequences of expectations to their generation. Individuals classify historical circumstances into “symbol-situations” and use rules connecting sequences of these types with possible successors. Experience can modify both classifications and rules. This apparatus cannot support indefinite prediction because hypothetical futures branch too rapidly, but shared experience may create sufficient similarities between individuals to sustain economic generalisations.

Shackle calls the relevant historical sequence a gnomon. His concluding conjecture concerns its interpretability: rapid movement in one variable against a stable background more readily supports confident investment than simultaneous changes in many variables. He proposes a coefficient of contrast to characterise such sequences, while acknowledging the artificiality of the extreme case. The article’s distinctive contribution is to connect imagined possibilities, anticipated revisions of belief, and the time needed to understand events with liquidity and investment fluctuations. Its account of how expectations themselves arise remains exploratory.