Explaining Financial Markets in Terms of Complex Systems

Philosophy of Science 81 (5):1117-1130 (2014)
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Large changes of financial market prices without exogenous causes deviate significantly from the Gaussian behavior of random variables. This indicates that financial markets should be treated as complex systems, for which nonlinear interactions of its subunits/agents are crucial. I focus on how the complex systems perspective impacts the notion of explanations in economics. The mechanistic model seems to fit the bill, but problems surface on closer scrutiny. One characteristic of complex systems is that their behavior is surprisingly independent from microscopic details. Thus, mechanistic explanations in the microreductionist manner seem unavailable. Despite these conflicts, I defend a modified structural mechanistic approach.



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Meinard Kuhlmann
Bielefeld University

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References found in this work

Thinking about mechanisms.Peter Machamer, Lindley Darden & Carl F. Craver - 2000 - Philosophy of Science 67 (1):1-25.
Explanation: a mechanist alternative.William Bechtel & Adele Abrahamsen - 2005 - Studies in History and Philosophy of Biological and Biomedical Sciences 36 (2):421-441.
Rethinking mechanistic explanation.Stuart Glennan - 2002 - Proceedings of the Philosophy of Science Association 2002 (3):S342-353.
Rethinking Mechanistic Explanation.Stuart Glennan - 2002 - Philosophy of Science 69 (S3):S342-S353.

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