A Revolution in Finance?
Posted: 19 Apr 2013 Last revised: 2 May 2013
Date Written: November 7, 2012
This paper investigates the nature of the academic field of finance as it looks in the early 21st century. Using Kuhn’s structure of scientific revolutions as a framework, the paper examines the development of the field over the last 50 years with particular emphasis on intellectual shifts in the last decade: shifts emanating from cross-disciplinary research that are manifesting in approaches at odds with the traditional rational expectations paradigm. These approaches are based on previously disparate fields, such as psychology, neuroscience, evolutionary biology, and sociology. By critically examining the nature of the new approaches, the article determines whether they indeed offer ‘alternative’ paradigms as claimed. In light of the variation of these new approaches, the paper also makes a case for finance to engage more meaningfully in dialogue on epistemological issues and engage in self-appraisal as a force for change and innovation.
Keywords: Adaptive market hypothesis, behavioural finance, epistemology, evolutionary finance, Kuhn, neurofinance, rational expectations
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