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Wednesday, 13 March 2019

Contrasting Models of Finance

Contrasting Models of Finance: Efficient Market Hypothesis vs. Socionomic Theory of Finance

Efficient Market Hypothesis (EMH)
Socionomic Theory of Finance (STF)
1. Objective, conscious, rational decisions to maximize utility determine financial values 1. Subjective, unconscious, pre-rational impulses to herd determine financial values
2. Financial markets tend toward equilibrum and revert to the mean 2. Financial markets are dynamic and do not revert to anything
3. Investors in financial markets typically use information to reason 3. Investors in financial markets typically use information to rationalize emotional imperatives.
4. Investors' decisions are based on knowledge and certainty 4. Investors decisions are fraught with ignorance and uncertainty
5. Exogenous variables determine most investment decisions 5. Endogenous social processes determine most investment decisions
6. Financial prices derive from individual decisions about value 6. Financial prices derive from trends in social mood
7. Financial prices are random 7. Financial prices adhere to an organizing principle at the aggregate level

Source: https://www.socionomics.net/2012/06/contrasting-models-of-finance/

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Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.
Trading carries a high level of risk, and may not be suitable for all investors. You should never invest money that you cannot afford to lose.