2007/05/29 by Robert Rougelot Prechter, Wayne D. Parker · 1 citation
Economics, Econometrics and Finance · #Behavioral economics #Complex Systems and Time Series Analysis #Context (archaeology) #Economic theories and models #Economics #Efficient-market hypothesis #Finance #Financial Markets and Investment Strategies #Financial economics #Financial market #General equilibrium theory #Herd behavior #Herding #Macroeconomics #Microeconomics #Perspective (graphical) #Rational expectations #Stock market
paper · doi:10.1080/15427560701381028
openalex publication_date 2007/05/29 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
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.