IDEAS home Printed from https://ideas.repec.org/p/zbw/fsfmwp/105.html
   My bibliography  Save this paper

The naturalistic turn in economics: implications for the theory of finance

Author

Listed:
  • Herrmann-Pillath, Carsten

Abstract

Economics is increasingly adopting the methodological standards and procedures of the natural sciences. The paper analyzes this 'naturalistic turn' from the philosophical perspective on naturalism, and I discuss the implications for the field of finance. The theory of finance is an interesting case in point for the methodological issues, as it manifests a paradigmatic tension between the pure theory of finance and Behavioral Finance. I distinguish between three kinds of naturalism: mark I, the reduction of behavior on psychoneural phenomena, mark II, the transfer of patterns of causal explanations from the natural sciences to the social sciences, mark III, the enrichment of the ontology from observer-independent to observer-relative facts. Building an integrated naturalistic paradigm from these three ingredients, I show that naturalism in economics will only be completed by a simultaneous linguistic turn, with language being analyzed from the naturalistic viewpoint. I relate this proposition with recent results of research into finance, especially connecting Behavioral Finance with the sociology of finance.

Suggested Citation

  • Herrmann-Pillath, Carsten, 2008. "The naturalistic turn in economics: implications for the theory of finance," Frankfurt School - Working Paper Series 105, Frankfurt School of Finance and Management.
    • Handle: RePEc:zbw:fsfmwp:105
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/27874/1/588456985.PDF
    Download Restriction: no

    References listed on IDEAS

    as
    1. Faruk Gul & Wolfgang Pesendorfer, 2005. "The Case for Mindless Economics," Levine's Working Paper Archive 784828000000000581, David K. Levine.
    2. Davis, John B., 2006. "The turn in economics: neoclassical dominance to mainstream pluralism?," Journal of Institutional Economics, Cambridge University Press, vol. 2(01), pages 1-20, April.
    3. John B. Davis, 2007. "Akerlof and Kranton on identity in economics: inverting the analysis," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 349-362, May.
    4. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 715-753.
    5. Joseph Henrich, 2000. "Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining among the Machiguenga of the Peruvian Amazon," American Economic Review, American Economic Association, vol. 90(4), pages 973-979, September.
    6. George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
    7. Don Ross, 2007. "Economic Theory and Cognitive Science: Microexplanation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262681684, January.
    8. Sugden, Robert, 2000. "Team Preferences," Economics and Philosophy, Cambridge University Press, vol. 16(02), pages 175-204, October.
    9. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
    10. Donald MacKenzie, 2006. "An Engine, Not a Camera: How Financial Models Shape Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134608, January.
    11. Earl, Peter E, 1990. "Economics and Psychology: A Survey," Economic Journal, Royal Economic Society, vol. 100(402), pages 718-755, September.
    12. McCloskey,Deirdre N., 1994. "Knowledge and Persuasion in Economics," Cambridge Books, Cambridge University Press, number 9780521436038, October.
    13. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    14. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
    15. McCloskey,Deirdre N., 1994. "Knowledge and Persuasion in Economics," Cambridge Books, Cambridge University Press, number 9780521434751, October.
    16. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    17. van der Sar, Nico L., 2004. "Behavioral finance: How matters stand," Journal of Economic Psychology, Elsevier, vol. 25(3), pages 425-444, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Naturalism; causation in economics; neuroeconomics; behavioral finance; social ontology; sociology of finance;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • G00 - Financial Economics - - General - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:fsfmwp:105. 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: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/hfbfide.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.