This theory starts with Friedman's permanent income hypothesis and Lucas's rational expectation hypothesis. Before this theory was made, other expectation theories basically assume that people irrationally think sometimes making decision based on the past (already reflected in the market) facts or falling into the illusion. But Lucas argued that the market players use all the information available at the moment in order to pursuit utility maximization. Permanent income hypothesis supposes people try to decide the amount of consumption expecting the impacts of a certain incident throughout the whole periods of time.