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Toward a theory of behavioral finance: implications from the natural sciences

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  • Robert A. Olsen
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    Abstract

    Purpose – The purpose of this paper is to identify common inclusive concepts that might help define the boundaries of a general theory of behavioral finance. Design/methodology/approach – A cross disciplinary review of relevant natural and social sciences is conducted to identify common foundational concepts. Findings – The overall findings are that a general theory must include assumptions of subjective perception, indeterminacy, and a financial decision process that is both logical and affective. Practical implications – Optimal financial decisions are not possible and significant market unpredictability will continue because of the dynamic complexity associated with disequilibrium. Social implications – The current financial paradigm is based upon radically incorrect assumptions and a general theory of behavioral finance cannot arise from minor corrections to the current financial paradigm. Originality/value – This paper is the first to attempt identifying foundational attributes of a behavioral financial paradigm.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Qualitative Research in Financial Markets.

    Volume (Year): 2 (2010)
    Issue (Month): 2 (October)
    Pages: 100-128

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    Handle: RePEc:eme:qrfmpp:v:2:y:2010:i:2:p:100-128

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    Related research

    Keywords: Behavioural economics; Decision making; Finance; Sciences;

    References

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