Reciprocity as the foundation of Financial Economics
This 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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William Goetzmann, 2003.
"Fibonacci and the Financial Revolution,"
Yale School of Management Working Papers
ysm432, Yale School of Management, revised 01 Mar 2004.
- Murnighan, J. Keith & Saxon, Michael Scott, 1998.
"Ultimatum bargaining by children and adults,"
Journal of Economic Psychology,
Elsevier, vol. 19(4), pages 415-445, August.
- Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
- D. Arnold & F. Maier-Rigaud, 2012. "The Enduring Relevance of the Model Platonism Critique in Economics and Public Policy," Post-Print hal-00800713, HAL.
- J. Graafland, 2010.
"Calvin’s Restrictions on Interest: Guidelines for the Credit Crisis,"
Journal of Business Ethics,
Springer, vol. 96(2), pages 233-248, October.
- Graafland, J.J., 2009. "Calvin's Restrictions on Interest : Guidelines for the Credit Crisis," Discussion Paper 2009-90, Tilburg University, Center for Economic Research.
- Luigi L. Pasinetti, 2005. "The Cambridge School of Keynesian Economics," Cambridge Journal of Economics, Oxford University Press, vol. 29(6), pages 837-848, November.
- Geoffrey Poitras, 2000. "The Early History of Financial Economics, 1478–1776," Books, Edward Elgar Publishing, number 2151.
- Arnold, Darrell & Maier-Rigaud, Frank P., 2012. "The enduring relevance of the model Platonism critique for economics and public policy," Journal of Institutional Economics, Cambridge University Press, vol. 8(03), pages 289-294, September.
- Irene Van Staveren, 2007. "Beyond Utilitarianism and Deontology: Ethics in Economics," Review of Political Economy, Taylor & Francis Journals, vol. 19(1), pages 21-35.
- David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Brigitte Sloth, 2009.
"The Financial Crisis and the Systemic Failure of Academic Economics,"
Middlebury College Working Paper Series
0901, Middlebury College, Department of Economics.
- D. COLANDER & al., 2010. "The Financial Crisis and the Systemic Failure of Academic Economics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
- Colander, David C. & Föllmer, Hans & Haas, Armin & Goldberg, Michael & Kirman, Alan & Jusélius, Katarina & Lux, Thomas & Sloth, Brigitte, 2009. "The financial crisis and the systemic failure of academic economics," Kiel Working Papers 1489, Kiel Institute for the World Economy (IfW).
- David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Birgitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Discussion Papers 09-03, University of Copenhagen. Department of Economics.
- David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Brigitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Kiel Working Papers 1489, Kiel Institute for the World Economy.
- Nuno Martins, 2011. "The Revival of Classical Political Economy and the Cambridge Tradition: From Scarcity Theory to Surplus Theory," Review of Political Economy, Taylor & Francis Journals, vol. 23(1), pages 111-131.
- Paul A. Samuelson, 1970. "The Fundamental Approximation Theorem of Portfolio Analysis in terms of Means, Variances and Higher Moments," Review of Economic Studies, Oxford University Press, vol. 37(4), pages 537-542.
- Jason West, . "2012-04 Ethics and Quantitative Finance," Discussion Papers in Finance finance:201204, Griffith University, Department of Accounting, Finance and Economics.
- Hirschman, Albert O, 1982. "Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1463-84, December.
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
- Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
- de Roover, Raymond, 1958. "The Concept of the Just Price: Theory and Economic Policy," The Journal of Economic History, Cambridge University Press, vol. 18(04), pages 418-434, December.
- Paul Davidson, 2008. "Securitization, Liquidity, and Market Failure," Challenge, M.E. Sharpe, Inc., vol. 51(3), pages 43-56, June.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Haug, Espen Gaarder & Taleb, Nassim Nicholas, 2011. "Option traders use (very) sophisticated heuristics, never the Black-Scholes-Merton formula," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 97-106, February.
- Levy, Jonathan, 2012. "Freaks of Fortune: The Emerging World of Capitalism and Risk in America," Economics Books, Harvard University Press, number 9780674047488.
- K. J. Arrow, 1964. "The Role of Securities in the Optimal Allocation of Risk-bearing," Review of Economic Studies, Oxford University Press, vol. 31(2), pages 91-96.
- Fabio Caccioli & Matteo Marsili & Pierpaolo Vivo, 2009. "Eroding market stability by proliferation of financial instruments," Papers 0910.0064, arXiv.org.
- Henderson, Vicky & Hobson, David, 2007. "Horizon-unbiased utility functions," Stochastic Processes and their Applications, Elsevier, vol. 117(11), pages 1621-1641, November.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Fabio Monsalve, 2014. "Scholastic just price versus current market price: is it merely a matter of labelling?," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(1), pages 4-20, February.
- Jack Barbalet, 2008. "Pragmatism and economics: William James' contribution," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 797-810, September.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Tony Lawson, 2009. "The current economic crisis: its nature and the course of academic economics," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 759-777, July.
- J. Graafland, 2010. "Do Markets Crowd Out Virtues? An Aristotelian Framework," Journal of Business Ethics, Springer, vol. 91(1), pages 1-19, January.
- F. Caccioli & M. Marsili & P. Vivo, 2009. "Eroding market stability by proliferation of financial instruments," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 71(4), pages 467-479, October.
- Donald MacKenzie, 2008. "An Engine, Not a Camera: How Financial Models Shape Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633671, March.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1310.2798. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.