Reciprocity as a Foundation of Financial Economics

70 Pages Posted: 2 Oct 2013 Last revised: 14 Oct 2015

Timothy C. Johnson

Heriot-Watt University - Maxwell Institute for Mathematical Sciences

Date Written: June 12, 2015

Abstract

This paper argues that the subsistence of the fundamental theorem of contemporary financial mathematics is the ethical concept `reciprocity'. The argument is based on identifying an equivalence between the contemporary, and ostensibly 'value neutral', Fundamental Theory of Asset Pricing with theories of mathematical probability that emerged in the seventeenth century in the context of the ethical assessment of commercial contracts in a framework of Aristotelian ethics. This observation, the main claim of the paper, is justified on the basis of results from the Ultimatum Game and is analysed within a framework of Pragmatic philosophy. The analysis leads to the explanatory hypothesis that markets are centres of communicative action with reciprocity as a rule of discourse. The purpose of the paper is to reorientate financial economics to emphasise the objectives of cooperation and social cohesion and to this end, we offer specific policy advice.

Keywords: Financial Economics, Reciprocity, Communicative Acion, Pragmatism

JEL Classification: G13, A13, B16, C02

Suggested Citation

Johnson, Timothy C., Reciprocity as a Foundation of Financial Economics (June 12, 2015). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2334127 or http://dx.doi.org/10.2139/ssrn.2334127

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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