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Explaining Financial Markets in Terms of Complex Systems

Published online by Cambridge University Press:  01 January 2022

Meinard Kuhlmann
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Abstract

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.

Type
Complex Systems
Information
Philosophy of Science , Volume 81 , Issue 5 , December 2014 , pp. 1117 - 1130
Copyright
Copyright © The Philosophy of Science Association

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Footnotes

†

I would like to thank Mark Bedau, Paul Humphreys, and Margaret Morrison, as well as an anonymous referee and my colleagues at Bielefeld University, in particular Martin Carrier, Stephan Kopsieker, and Christian Nimtz, for very helpful feedback and discussions.

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