Contrasting Models of Finance
Efficient Market Hypothesis (EMH)
Socionomic Theory of Finance (STF)
Objective, conscious, rational decisions to maximize utility determine financial values.
Subjective, unconscious, pre-rational impulses to herd determine financial values.
Financial markets tend toward equilibrium and revert to the mean.
Financial markets are dynamic and do not revert to anything.
Investors in financial markets typically use information to reason.
Investors in financial markets typically use information to rationalize emotional imperatives.
Investors’ decisions are based on knowledge and certainty.
Investors’ decisions are fraught with ignorance and uncertainty.
Exogenous variables determine most investment decisions.
Endogenous social processes determine most investment decisions.
Financial prices derive from individual decisions about value.
Financial prices derive from trends in social mood.
Financial prices are random.
Financial prices adhere to an organizing principle at the aggregate level.
Financial prices are unpredictable.
Financial prices are probabilistically predictable.
Changing events presage changes in the values of associated financial instruments.
Changing values of financial instruments presage changes in associated events.
Economic principles govern finance.
Socionomic principles govern finance.