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Toward a theory of behavioral finance: implications from the natural sciences

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  • Robert A. Olsen

Abstract

Purpose - The purpose of this paper is to identify common inclusive concepts that might help define the boundaries of a general theory of behavioral finance. Design/methodology/approach - A cross disciplinary review of relevant natural and social sciences is conducted to identify common foundational concepts. Findings - The overall findings are that a general theory must include assumptions of subjective perception, indeterminacy, and a financial decision process that is both logical and affective. Practical implications - Optimal financial decisions are not possible and significant market unpredictability will continue because of the dynamic complexity associated with disequilibrium. Social implications - The current financial paradigm is based upon radically incorrect assumptions and a general theory of behavioral finance cannot arise from minor corrections to the current financial paradigm. Originality/value - This paper is the first to attempt identifying foundational attributes of a behavioral financial paradigm.

Suggested Citation

  • Robert A. Olsen, 2010. "Toward a theory of behavioral finance: implications from the natural sciences," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 2(2), pages 100-128, June.
    • Handle: RePEc:eme:qrfmpp:v:2:y:2010:i:2:p:100-128
    DOI: 10.1108/17554171080000383
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    References listed on IDEAS

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