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Using Brouwer’s continuity principle to pick stocks

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  • Jack Stecher
  • Mark Atten

Abstract

This article shows that an apparent puzzle in finance and accounting is resolved by changing from classical to constructive (more specifically, intuitionistic) mathematics. Our position is that it is unproblematic if real-world actors behave inconsistently with nonconstructive mathematical results. Thus the solution to our puzzle lies in a deeper challenge to the standard view of how rational agents reason. The alternative we propose gives refutable predictions that find support in the empirical capital markets literature. Our main tool, intuitionistic mathematics, plays a similar role in the mathematical philosophy literature to that of ambiguity in decision theoretic work. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jack Stecher & Mark Atten, 2015. "Using Brouwer’s continuity principle to pick stocks," Annals of Operations Research, Springer, vol. 225(1), pages 161-171, February.
    • Handle: RePEc:spr:annopr:v:225:y:2015:i:1:p:161-171:10.1007/s10479-013-1404-6
    DOI: 10.1007/s10479-013-1404-6
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    References listed on IDEAS

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    1. Stephen H. Penman & Theodore Sougiannis, 1998. "A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation," Contemporary Accounting Research, John Wiley & Sons, vol. 15(3), pages 343-383, September.
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    4. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    5. Russell Lundholm & Terry O'Keefe, 2001. "Reconciling Value Estimates from the Discounted Cash Flow Model and the Residual Income Model," Contemporary Accounting Research, John Wiley & Sons, vol. 18(2), pages 311-335, June.
    6. Francis, J & Olsson, P & Oswald, DR, 2000. "Comparing the accuracy and explainability of dividend, free cash flow, and abnormal earnings equity value estimates," Journal of Accounting Research, Wiley Blackwell, vol. 38(1), pages 45-70.
    7. DeAngelo, Harry & DeAngelo, Linda, 2006. "The irrelevance of the MM dividend irrelevance theorem," Journal of Financial Economics, Elsevier, vol. 79(2), pages 293-315, February.
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    Cited by:

    1. K. Vela Velupillai, 2013. "Towards an Intuitionistic Constructive Mathematical Economics," ASSRU Discussion Papers 1304, ASSRU - Algorithmic Social Science Research Unit.

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