Review and Critique of Scientism and the Use of Models in Finance

Abstract

In this article, with an overview of the need to pay attention to the ontological and epistemological movements in science and scientism in finance. First, the financial paradigms are described. Then, by explaining positive and normative science, the comparison of their concepts along with the useful interpretation in the application of models in finance is considered. Also, in expressing the distance with science, the issue of using instruments and art in finance is raised. The following is a critique of financial positivism in a statement expressing the similarities between rationalism and instrumentalism. Theories that are the main paradigms in finance and their weaknesses are explicated Finally, the positive or normative nature of financial models is examined with respect to the effects of how they interact with data. At the same time, there is a problem of translation in the model from common language to formal and theoretical language, which is due to the impossibility of demarcating between logical and irrational phenomena. Therefore, epistemology is considered in the use of models in finance instead of a purely positive science approach.

Keywords

• financial models
• financial scientism
• positive finance
• normative finance