Footnote

Of course, it is an assumption, not a fact, that people are rational and have rational expectations about the value of their own labor. If we were to drop that assumption, we might think that people are biased and overestimate the market value of their own labor as a rule. That's pretty plausible as "common sense." We could call that the hypothesis of egotistical expectations.

Would it make any difference for the argument in the main text? Some, I think, but not much. Egotistical expectations could define the base-line of unemployment -- as workers in labor markets have to get turned down a few times to learn basic realism. But we are really concerned with the fluctuations around that base-line. In other words, we are concerned about times egotism is more than just average egotism, or less than average egotism -- and less than average is just as likely as more than average. That's what makes it an average!