Reciprocity as the foundation of Financial Economics
AbstractThis paper argues that the fundamental principle of contemporary financial economics is balanced reciprocity, not the principle of utility maximisation that is important in economics more generally. The argument is developed by analysing the mathematical Fundamental Theory of Asset Pricing with reference to the emergence of mathematical probability in the seventeenth century in the context of the ethical assessment of commercial contracts. This analysis is undertaken within a framework of Pragmatic philosophy and Virtue Ethics. The purpose of the paper is to mitigate future financial crises by reorienting financial economics to emphasise the objectives of market stability and social cohesion rather than individual utility maximisation.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1310.2798.
Date of creation: Oct 2013
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-HIS-2013-10-18 (Business, Economic & Financial History)
- NEP-HPE-2013-10-18 (History & Philosophy of Economics)
- NEP-PKE-2013-10-18 (Post Keynesian Economics)
- NEP-SOC-2013-10-18 (Social Norms & Social Capital)
- NEP-UPT-2013-10-18 (Utility Models & Prospect Theory)
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