Financial Market Analysis and Behaviour: The Adaptive Preference Hypothesis

Description

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. 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