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      Chapter

      Finance and Financial Economics
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      Chapter

      Finance and Financial Economics

      DOI link for Finance and Financial Economics

      Finance and Financial Economics book

      A Philosophy of Science Perspective

      Finance and Financial Economics

      DOI link for Finance and Financial Economics

      Finance and Financial Economics book

      A Philosophy of Science Perspective
      ByMelissa Vergara-Fernández, Boudewijn de Bruin
      BookThe Routledge Handbook of Philosophy of Economics

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      Edition 1st Edition
      First Published 2021
      Imprint Routledge
      Pages 10
      eBook ISBN 9781315739793
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      ABSTRACT

      In this chapter, we introduce topics in finance and financial economics that should be of interest to philosophers of science and philosophers of economics, in particular. The chapter is divided in two parts. In the first part, we briefly discuss key elements of modern finance: the joint hypothesis problem as a problem of underdetermination and event studies as a method to cope with it; the relation between science and ideology; the performativity of financial models; and the role of models in finance as benchmarks or normative guidelines. In the second part, we delve deeper into the practice-oriented role of models. We focus on the influential model by Franco Modigliani and Merton Miller on the cost of capital to suggest that values held by modelers can often be the driving force of their model building and of the models’ potential relevance. Thus, values, we suggest, should be part of the philosophical appraisal of models, as opposed to the much narrower attention to their explanatoriness.

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