Should-Read: Daniel Davies (2002): Two Cheers for This Year's Nobel Prize: "What the hell is an "ergodic process" when it's at home?... http://blog.danieldavies.com/2002/10/
...Ergodicity is a statistical property.... With ergodic stochastic processes, collecting more data gets you a better and better estimate of what the underlying parameters of the process are, as the "noise" cancels itself out in some statistically well-defined way.... [But] to talk about "expectations" of the future states of a nonergodic system are meaningless; people might have opinions about the future, but there aren't the solid linkages between these views and the actual data which one would need to call them "expectations". Certainly, there isn't enough to support the trick used by economists in using the expectations operator to make dynamic processes static so that they can be modelled tractably.
So what? Well, so this: Most processes which are characterised by positive feedback are nonergodic. Most economic processes of interest are subject to significant, destabilising positive feedback
It's a real problem, and in my opinion, Paul Davidson ought to be looking at something like a Nobel Prize for being one of the few economists to take it seriously. (He won't get it, of course, because this is way out of the mainstream of academic economics, where it is still considered the mark of a clever young man to say that "chaos theory never amounted to much"). Kahneman's work is important, but in order to be a constructive contribution to some future correct theory of economics, it needs to be thought of as a description of human decision making and behaviour forming, not as a way of rescuing the broken models of expectations economics. So a hearty "Hip hip" from me, but I'll be keeping the champagne on ice for the meantime...