The Financial/Economic Dichotomy in Social Behavioral Dynamics: The Socionomic Perspective
- 29 May 2007
- journal article
- research article
- Published by Taylor & Francis in Journal of Behavioral Finance
- Vol. 8 (2) , 84-108
- https://doi.org/10.1080/15427560701381028
Abstract
Neoclassical economics does not offer a useful model of finance, because economic and financial behavior have different motivational dynamics. The law of supply and demandoperates among rational valuers to produce equilibrium in the marketplace for utilitarian goods and services. The efficient market hypothesis (EMH) is a related model applied to financial markets. The socionomic theory of finance (STF) posits that contextual differences between economics and finance produce different behavior, so that in finance the law of supply and demand is irrelevant, and EMH is inappropriate. In finance, uncertainty about valuations by other homogeneous agents induces unconscious, non-rational herding, which follows endogenously regulated fluctuations in social mood, which in turn determine financial fluctuations. This dynamic produces non-mean-reverting dynamism in financial markets, not equilibrium.Keywords
This publication has 73 references indexed in Scilit:
- The Context of Uncertainty Modulates the Subcortical Response to PredictabilityJournal of Cognitive Neuroscience, 2001
- The Social UnconsciousPublished by Wiley ,2001
- The biological affects: A typology.Psychological Review, 1999
- A prototype model of stock exchangeEurophysics Letters, 1997
- On Persistence in Mutual Fund PerformanceThe Journal of Finance, 1997
- Do Noise Traders "Create Their Own Space?"Journal of Financial and Quantitative Analysis, 1997
- Deciding Advantageously Before Knowing the Advantageous StrategyScience, 1997
- Mean Reversion and Consumption SmoothingThe Review of Financial Studies, 1990
- Speculative bubbles, crashes and rational expectationsEconomics Letters, 1979
- Existence of an Equilibrium for a Competitive EconomyEconometrica, 1954