A Context for Financial Economics: Ethics in the Face of Uncertainty

79 Pages Posted: 6 Jul 2013 Last revised: 26 Mar 2014

Timothy C. Johnson

Heriot-Watt University - Maxwell Institute for Mathematical Sciences

Date Written: July 5, 2013

Abstract

This paper investigates the relationship between ethics and financial economics and presents financial economics as being embedded in a framework of Virtue Ethics.

Specifically, this paper argues that the Fundamental Theorem of Asset Pricing, on which modern approaches to derivative pricing are based, is entangled with the virtue Justice. This association has been hidden because society failed to appreciate the significance of randomness throughout much of the nineteenth and twentieth centuries and on this basis established a fact/value dichotomy. Placing uncertainty at the heart of epistemology leads to Pragmatic philosophy and an ethical approach based on Virtue and when these perspectives are adopted the ethical basis of financial economics becomes explicit.

Keywords: pragmatism, virtue ethics, asset pricing, probability theory, financial crises

JEL Classification: A13, B50, C0, G13

Suggested Citation

Johnson, Timothy C., A Context for Financial Economics: Ethics in the Face of Uncertainty (July 5, 2013). Available at SSRN: https://ssrn.com/abstract=2290180 or http://dx.doi.org/10.2139/ssrn.2290180

Timothy C. Johnson (Contact Author)

Heriot-Watt University - Maxwell Institute for Mathematical Sciences ( email )

Edinburgh EH14 4AS Scotland
United Kingdom

HOME PAGE: http://www.ma.hw.ac.uk/~timj/

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