Rationalist vs. Behavioralist Paradigm Problems
1. During the last five years, your instructor has discussed the emerging field of behavioral finance with many colleagues. The most common reaction has been for those colleagues to smile and say, "Behavioral finance? That's an oxymoron." Oxymoron is defined as a combination of contradictory or incongruous words (e.g. cruel kindness). Explain this reaction using a) the concept of paradigm and b) attributes of the behavioral and rational paradigms.
a) According to the concept of a paradigm, someone in finance would operate on a set of principles that their work is based upon. It is the method by which they analyze their data. Under ...view middle of the document...
He was accused of claiming that science is nothing more than “power politics” or “mob psychology.” “Look, I think that is nonsense, and I am prepared to argue that,” Kuhn says heatedly.
Kuhn has been even more distressed by those who admiringly misinterpret him. “I’ve often said that I am much fonder of my critiques than my fans,” he comments. In the 1960s his work was seized on by radicals opposed to science and its offspring, technology, and indeed to any “cognitive authority that might distort “pure experience.” Kuhn recalls students telling him, “Oh, thank you, Mr. Kuhn, for telling us about paradigms. Now that we know about them, we can get rid of them.”
a) How would Kuhn address the criticism that he is claiming science to be nothing more than “power politics” or “mob psychology?
b) He described it this way because sometimes scientists or people of science follow the convention of multiple people with valid theories. They follow what was tested or theorized and expand their research from that. It is similar to politics in that there is one individual that attempts to persuade the many to follow them and that their ideas are the truth through experimentation. He would address the criticism by reminding those that he still believes in science and that the idea of a paradigm is not completely a bad thing, for if you can identify it you can strive to get rid of it and progress in your thinking.
b) Did the 60s radicals rid the world of paradigms? Why or why not? No, the concept of a paradigm is one that I do not believe that one can be rid of. Even if you get rid of all the paradigms, you have trapped yourself into another where you assume everything that is done is done without any preconceived notions.
3. Richard Thaler has said that one way a scientific field advances is through funerals, as older members of a field die off. Assess the validity of his statement using Kuhn’s concept of paradigms.
a) According to Kuhn, scientists are influenced by leading people in their field. This creates a bias as they often use this to influence their theories, etc. Scientific experimentation continues in a path that follows from one scientist to the next until the a new paradigm is introduced or when there is a radical change in the thinking at the time. This could happen with the death of a scientist or leading mind, as Thaler hypothesizes.
4. In a study of portfolio allocation decisions, Moore, Kurtsberg, Fox, and Bazerman had 80 business students make decisions in a computer-based, mutual-fund-investing simulation. Each student performed the simulation by him/herself. The goal was to better understand why investors spend so much time and money on actively managed mutual funds despite the majority of those funds being outperformed by passively managed index funds (at least in recent years).
The researchers hypothesized that the illusion of control would lead students to overestimate their future...