A Comparative Analysis of the Epistemological Foundations of Classical and Behavioral Finance

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Hamid Hassanpour / PhD Student in Economics, University of Isfahan            hasanpour@ase.ui.ac.ir

@Mohammad Vaez Barzani / Associate Professor, Faculty of Administrative and Economic Sciences, University of Isfahan            vaez@ase.ui.ac.ir

Abdolhamid Mo'arefe Mohammadi / Assistant Professor, Faculty of Administrative and Economic Sciences, University of Isfahan                                                                                                                      a.h.mohammadi@ase.ui.ac.ir

Seyed Mehdi Emami Jomeh / Associate Professor, Faculty of Literature, Ahl-e-Bayt Department of Education, University of Isfahan                                                                                                                                     n.amam@ltr.ui.ac.ir

Received: 2020/04/11 - Accepted: 2020/09/10



The main purpose of this study is to answer the question on  the approach of classical and behavioral finance,  as two competing paradigms within financial economics, in the face of the problem of truth? These two paradigms have been reduced to epistemic justification for neglecting what knowledge is according to the results of this epistemological research. This negligence has made the issue of truth in the knowledge of financial economics unsolvable. Classical finance  has provided an inaccurate explanation of "economic man" as the subject of the science of financial economics, and for this reason, by neglecting the nature of knowledge, it has used the introverted approach of coherence in justifying knowledge, which leads to relativity in truth. Behavioral financial economics has also questioned the classical coherent collections of financial beliefs, but in this paradigm, truth is a function of observation and experience due to the extroverted approach of positivism, in justification. It is necessary to replace the current philosophical framework of a holistic introspective philosophical framework for solving the problem of truth, which in the first step provides a correct explanation of man and the essence of his economic action, and to prove basic beliefs about the nature of the economic man and with a fundamentalist approach to justification, arrive at honest statements about the structure of investor behavior.

Key words: Philosophy of economics, Epistemology, Classical finance, Behavioral finance, Coherence, Positivism.

JEL: B00, G00, G02.

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