This book addresses the functioning of financial markets, in particular the financial market model, and modelling. More specifically, the book provides a model of adaptive preference in the financial market, rather than the model of the adaptive financial market, which is mostly based on Popper's objective propensity for the singular, i.e., unrepeatable, event. As a result, the concept of preference, following Simon's theory of satisficing, is developed in a logical way with the goal of supplying a foundation for a robust theory of adaptive preference in financial market behavior.
The book offers new insights into financial market logic, and psychology: 1) advocating for the priority of behavior over information - in opposition to traditional financial market theories; 2) constructing the processes of (co)evolution adaptive preference-financial market using the concept of fetal reaction norms - between financial market and adaptive preference; 3) presenting a new typology of information in the financial market, aimed at proving point (1) above, as well as edifying an explicative mechanism of the evolutionary nature and behavior of the (real) financial market; 4) presenting sufficient, and necessary, principles or assumptions for developing a theory of adaptive preference in the financial market; and 5) proposing a new interpretation of the pair genotype-phenotype in the financial market model.
The book's distinguishing feature is its research method, which is mainly logically rather than historically or empirically based. As a result, the book is targeted at generating debate about the best and most scientifically beneficial method of approaching, analyzing, and modelling financial markets.
Author(s): Emil Dinga, Camelia Oprean-Stan, Cristina-Roxana Tănăsescu, Vasile Brătian, Gabriela-Mariana Ionescu
Series: Routledge Studies in Economic Theory, Method and Philosophy
Publisher: Routledge
Year: 2022
Language: English
Pages: 298
City: London
Cover
Half Title
Series
Title
Copyright
Contents
List of figures
List of tables
Preface
Acknowledgement
1 Adaptive preference
Introduction
Rationality, expectation, belief, preference
Behaviour led by rationality
Behaviour led by expectation
Behaviour led by belief
Behaviour led by preference
The concept of economic preference
The role of economic preference in economic behaviour
The concept of adaptation
The concept of adaptive preference
State of the art
The neoclassical perspective
The behavioural perspective
The institutional perspective
The evolutionist (evolutionary) perspective
Setting of the problem
Discussion
Topic I: The logical content of the concept of adaptive preference
Topic II: Typology of adaptive preference
On the basis of the cause
According to the scope criterion
By criterion of origin
Topic III: The three P’s of total risk management and the adaptive preference
Concerning the price
Concerning the probabilities
Concerning the preferences
Topic IV: Double adaptability on the financial market
Topic V: Elasticity and plasticity in adaptive preference
Elasticity
Plasticity
Topic VI: Competitiveness, cooperativeness, and indifference in the kinematics of adaptive preference
The win-win case
The win-loss case
Topic VII: Co-evolution in adaptive preference
Topic VIII: Adaptive preference and automatic stabilizers
Topic IX: Adaptive preference and natural values on the financial market
The concept of natural value in economics
Natural values and the financial market
Adaptive preference and financial market natural values
Topic X: Adaptive preference and double selection on the financial market
Topic XI: Autopoietic adaptive preference
Suggestions for future research topics
2 Mechanism of adaptive preference
Introduction
Preamble
The concepts of modelling and model
Modelling
Model
The concept of logical model/logical modelling
The predicates of the logical model
Conditions for configuring logical models
Financial market and the logical model
The necessity for a logical modelling of the financial market
Preliminaries
The necessity for a logical modelling of the financial market
The possibility of logical modelling of the financial market
Remarkable logical models of the financial market in the specialty literature
The Efficient Market Hypothesis
Adaptive Market Hypothesis
Preliminaries to a logical model of adaptive preference
Adaptive preference and adaptive market
Information and behaviour
Adaptation and reaction norm
The concept of reaction
Reaction classification criteria
Classes of reactions
Reaction norms
Adaptation and exaptation
Co-adaptation and co-evolution
Expectation and anticipation
Exogeneity and endogeneity in the functioning of adaptive preference
Adaptive preferences and level of aggregation
Adaptive preferences and synergy
Selection and self-organization/autopoieticity
Adaptation, specialization, and success
The internal logic of financial market models
A draft of a logical model of adaptive preference in the financial market
Preamble
Principles
Logical analysis of the principles
The general mechanism of the principles operationalization
Catalysts, cycles, and hypercycles
Catalysts
Cycles and hypercycles
Feedback
Outline of a logical model of adaptive preference
Generalities and assumptions
Synoptic
Short discussion
A short Kuhn-ian examination of EMH and AMH
Preliminaries
General background
The concept of paradigm
On the criteria to assess a logical model qua paradigm
Paradigmatically assessing EMH
Institutive condition
Conservative condition
Regulative condition
Paradigmatically assessing AMH
Institutive condition
Conservative condition
Regulative condition
Results
Conclusions
Suggestions for future research topics
3 A (stylized) modelling of adaptive preference
Propensities
Preamble
The purpose of equational adaptive preference modelling
Propensity theory
The concept of propensity
Main propensity issues
Assumptions of the equational model of adaptive preference
Theoretical assumptions
Methodological assumptions
Analysis of assumptions
Analysis of theoretical assumptions
Analysis of methodological assumptions
The mix information-behaviour on the financial market
Preliminaries
General notations
Available informational mix
Conceptual aspects
Specific notation
Quantitative relationships
Discussion
Short conclusions
Accessible informational mix
Conceptual aspects
Specific notations
Quantitative relationships
Discussion
Conclusion
Accessed informational mix
Propensity and adaptive preference on the financial market
Preliminary hypotheses
Auxiliary discussion
Suggestions for future research topics
Financial market analysis and behaviour: The adaptive preference hypothesis
Annex 1: Analogy in modelling
Annex 2: Brief summary of the probability problem
Index
