Complex and adaptive - from Behavioral Finance to New Finance
Financial markets are not because of the subject as such complex. They are complex because of the many millions of brains, which more or less based on the same data at more or less the same point in time confront themselves with these markets. The disparities are not in the data but in the brains, which – naturally, vary from individual to individual. Different brains interpret data divergingly.
These brains are adaptive because they try to figure out how other brains could react on certain patterns, which they have triggered by their own actions. Complexity and adaptation are leading elements in New Finance, a term which comprises Behavioral-, Neuro- and Evolutionary Finance. Behavioral Finance deals with the relationship of an individual vis à vis the market. Neuro Finance explores the neuro biological foundations which have been determined by Behavioral Finance as systematic behavioral norms. Evolutionary Finance, finally, analyses the interactions of investment rules in the markets. Evolutionary Finance does not grade the methods applied and the theories on which they base.
The analysis is designed to uncover the mindset and at best the theory behind the regime of the markets. For this purpose we apply a model based on data generated by the markets, which indicate to us the origin, the growth and disintegration of dominant regimes and supports us to - well ahead of its development recognise significant deferments of preferences among asset classes, currencies, countries, sectors and industries.