In an earlier era, Irish economistW. Brian Arthur ofthe Santa Fe Institute was fond of hoisting a pint or two on weekly outings to hear these memories of his youth. But he wasn't fond of doing so in the midst of a madhouse of pushing-and-shoving, shouting drinkers and lounge lizards. So Arthur's problem each Thursday was to decide whether the crowd at El Farol would be so large that the spiritual uplift he received from the music would be outweighed by the irritation of having to listen to the performance drowned in the shouts, laughter, and raucous conversation. Being a man oflogical leanings, Arthur attacked the question of whether to attend or not in analytical terms. In the process he came to some striking conclusions about that bugaboo ofthe economic profession, rational expectations.

Assume there are 100 people in Santa Fe, each of whom, like Arthur, would like to listen to the music. But none of them wants to go if the bar is going to be too crowded. To be specific, suppose that all 100 people know the attendance at the bar over the past several weeks. For example, such a record might be... 44, 78, 56, 15, 23, 67, 84, 34, 45, 76, 40, 56, 23, and 35 attendees. Each individual then independently employs some prediction procedure to estimate how many people will appear at the bar on the coming Thursday evening. Typical predictors of this sort might be: