Table Of ContentFinancial Market Analysis
and Behaviour
This book addresses the functioning of financialmarkets, in particular, the financial
market model, and modelling. More specificall , 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, that is, unrepeatable, event. As a result, the concept of proference, 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 financialmarket behaviour.
The book offers new insights into financial market logic and psychology:
(1) advocating for the priority of behaviour over information – in opposition
to traditional financial market theories; (2) constructing the processes of
(co)evolution between adaptive preference and financial market, by using the
concept of fetal reaction norms; (3) presenting a new typology of information in
the financialmarket, aimed at proving point (1), as well as edifying an explicative
mechanism of the evolutionary nature and behaviour of the (real) financialmarket;
(4) presenting sufficient and necessary, principles or assumptions for developing
a theory of adaptive preference in the financialmarket; 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, analysing, and modelling financial markets.
Emil Dinga is Senior Researcher at the Centre for Financial and Monetary
Research, Romanian Academy, Bucharest, Romania.
Camelia Oprean-Stan is Professor of Finance at the Lucian Blaga University of
Sibiu, Romania.
Cristina-Roxana Tănăsescu is Professor of Economic Methodology at the
Lucian Blaga University of Sibiu, Romania.
Vasile Brătian is Associate Professor at the Faculty of Economics at the Lucian
Blaga University of Sibiu, Romania.
Gabriela-Mariana Ionescu is an economist and a PhD student in the School of
Advanced Studies of the Romanian Academy, Bucharest, Romania.
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Financial Market Analysis and Behaviour
The Adaptive Preference Hypothesis
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For more information about this series, please visit: www.routledge.com/
Routledge-Studies-in-Economic-Theory-Method-and-Philosophy/book-series/
RSEMTP
Financial Market Analysis
and Behaviour
The Adaptive Preference Hypothesis
Emil Dinga, Camelia Oprean-Stan,
Cristina-Roxana Tănăsescu, Vasile
Brătian, and Gabriela-Mariana Ionescu
First published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa
business
© 2023 Emil Dinga, Camelia Oprean-Stan, Cristina-Roxana Tănăsescu,
Vasile Brătian, and Gabriela-Mariana Ionescu
The right of Emil Dinga, Camelia Oprean-Stan, Cristina-Roxana
Tănăsescu, Vasile Brătian, and Gabriela-Mariana Ionescu to be identified
as authors of this work has been asserted in accordance with sections 77
and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Dinga, Emil, author. | Oprean-Stan, Camelia, author. | Tănăsescu,
Cristina-Roxana, 1951– author. | Brătian, Vasile, author. | Ionescu,
Gabriela-Mariana, author.
Title: Financial market analysis and behaviour : the adaptive preference
hypothesis / Emil Dinga, Camelia Oprean-Stan, Cristina-Roxana
Tănăsescu, Vasile Brătian, and Gabriela-Mariana Ionescu.
Description: Milton Park, Abingdon, Oxon ; New York, NY : Routledge,
2022. | Series: Routledge studies in economic theory, method and
philosophy | Includes bibliographical references and index.
Identifiers: LCCN 202200 158 (print) | LCCN 2022001159 (ebook) |
ISBN 9781032255163 (hardback) | ISBN 9781032255187 (paperback) |
ISBN 9781003283690 (ebook)
Subjects: LCSH: Finance—Research—Methodology. | Finance—Decision
making—Methodology.
Classification: LCC HG152 .D56 2022 (print) | LCC HG152 (ebook) |
DDC 332.63/2042—dc23/eng/20220118
LC record available at https://lccn.loc.gov/2022001158
LC ebook record available at https://lccn.loc.gov/2022001159
ISBN: 978-1-032-25516-3 (hbk)
ISBN: 978-1-032-25518-7 (pbk)
ISBN: 978-1-003-28369-0 (ebk)
DOI: 10.4324/9781003283690
Typeset in Times New Roman
by Apex CoVantage, LLC
Contents
List of figures x
List of tables xii
Preface xiii
Acknowledgement xv
1 Adaptive preference 1
Introduction 1
Rationality, expectation, belief, preference 1
Behaviour led by rationality 2
Behaviour led by expectation 2
Behaviour led by belief 3
Behaviour led by preference 3
The concept of economic preference 4
The role of economic preference in economic behaviour 5
The concept of adaptation 6
The concept of adaptive preference 7
State of the art 9
The neoclassical perspective 10
The behavioural perspective 10
The institutional perspective 11
The evolutionist (evolutionary) perspective 12
Setting of the problem 13
Discussion 15
Topic I: The logical content of the concept of adaptive
preference 15
Topic II: Typology of adaptive preference 17
On the basis of the cause 18
According to the scope criterion 19
By criterion of origin 19
vi Contents
Topic III: The three P’s of total risk management and the
adaptive preference 19
Concerning the price 20
Concerning the probabilities 20
Concerning the preferences 21
Topic IV: Double adaptability on the financial market 22
Topic V: Elasticity and plasticity in adaptive preference 23
Elasticity 23
Plasticity 24
Topic VI: Competitiveness, cooperativeness, and indifference
in the kinematics of adaptive preference 26
The win-win case 26
The win-loss case 27
Topic VII: Co-evolution in adaptive preference 29
Topic VIII: Adaptive preference and automatic stabilizers 31
Topic IX: Adaptive preference and natural values on the
financial market 33
The concept of natural value in economics 33
Natural values and the financial market 34
Adaptive preference and financial market natural
values 35
Topic X: Adaptive preference and double selection on the
financial market 35
Topic XI: Autopoietic adaptive preference 37
Suggestions for future research topics 39
2 Mechanism of adaptive preference 55
Introduction 55
Preamble 55
The concepts of modelling and model 55
Modelling 55
Model 57
The concept of logical model/logical modelling 59
The predicates of the logical model 60
Conditions for configuring logical models 60
Financial market and the logical model 61
The necessity for a logical modelling of the financial
market 61
Preliminaries 61
The necessity for a logical modelling of the financial
market 61
Contents vii
The possibility of logical modelling of the financial
market 62
Remarkable logical models of the financial market in the
specialty literature 63
The Efficient Market Hypothesis 64
Adaptive Market Hypothesis 69
Preliminaries to a logical model of adaptive preference 75
Adaptive preference and adaptive market 75
Information and behaviour 78
Adaptation and reaction norm 79
The concept of reaction 80
Reaction classification criteria 81
Classes of reactions 81
Reaction norms 82
Adaptation and exaptation 83
Co-adaptation and co-evolution 84
Expectation and anticipation 86
Exogeneity and endogeneity in the functioning of adaptive
preference 87
Adaptive preferences and level of aggregation 89
Adaptive preferences and synergy 91
Selection and self-organization/autopoieticity 93
Adaptation, specialization, and success 94
The internal logic of financial market models 97
A draft of a logical model of adaptive preference in the financial
market 98
Preamble 98
Principles 99
Logical analysis of the principles 100
The general mechanism of the principles
operationalization 102
Catalysts, cycles, and hypercycles 102
Catalysts 102
Cycles and hypercycles 104
Feedback 105
Outline of a logical model of adaptive preference 107
Generalities and assumptions 107
Synoptic 109
Short discussion 110
A short Kuhn-ian examination of EMH and AMH 117
Preliminaries 117
viii Contents
General background 118
The concept of paradigm 118
On the criteria to assess a logical model qua
paradigm 121
Paradigmatically assessing EMH 124
Institutive condition 124
Conservative condition 126
Regulative condition 126
Paradigmatically assessing AMH 129
Institutive condition 129
Conservative condition 131
Regulative condition 132
Results 134
Conclusions 135
Suggestions for future research topics 136
3 A (stylized) modelling of adaptive preference 166
Propensities 166
Preamble 166
The purpose of equational adaptive preference
modelling 166
Propensity theory 167
The concept of propensity 167
Main propensity issues 171
Assumptions of the equational model of adaptive
preference 176
Theoretical assumptions 177
Methodological assumptions 177
Analysis of assumptions 178
Analysis of theoretical assumptions 178
Analysis of methodological assumptions 186
The mix information-behaviour on the financial market 194
Preliminaries 194
General notations 197
Available informational mix 197
Conceptual aspects 197
Specific notation 198
Quantitative relationships 198
Discussion 198
Short conclusions 208
Contents ix
Accessible informational mix 208
Conceptual aspects 208
Specific notations 212
Quantitative relationships 213
Discussion 214
Conclusion 218
Accessed informational mix 218
Propensity and adaptive preference on the financial
market 218
Preliminary hypotheses 228
Auxiliary discussion 229
Suggestions for future research topics 232
Financial market analysis and behaviour: The adaptive
preference hypothesis 252
Annex 1: Analogy in modelling 252
Annex 2: Brief summary of the probability problem 255
Index 276
