A Synopsis

of
A Revolution in Finance?
Author: Jennifer K Gippel, Reserach School of finance, Actuarial studies and Applied Statistics,
College of Business and Economics, Australian National University, Australia
Journal: Australian journal of management, 2012
Introduction: This article attempts to examine the development of Finance over the last 50
years. Particularly, using Kuhns structure of scientific revolution as a framework, this article
delivers a framework of the fields development from pre-science to a period of normal science
and subsequently explains whether the field has progressed from normal science to extraordinary
science. In doing so, the author has examined the relationship of finance with other sub
disciplines such a psychology, evolutionary biology, neuroscience and sociology. Similarly, by
critically examining the nature of new approach, the article tends to determine the alternative
paradigm for acquiring knowledge.
Issue: The author is trying to propose the alternative paradigm for acquiring knowledge because
of various reasons. Firstly, the author feels that there is limitation in the scientific approach to
generate new knowledge due to transitioned period of finance from pre-science (or preparadigm) to a period of normal science dominated by the rational expectations paradigm.
Secondly, the challenge to the Black-Scholes-Merton Formula has wide implication for practice
and theory. Thirdly, due to increasing interaction of finance with other disciplines, there is a need
to study the impact of these various disciplines in finance. Fourth, there is a challenge to the
classical paradigm due to Global Financial crisis and continued financial instability. Lastly, it is
believed that the neoclassical finance can no longer help extract new knowledge from same
theory, data and methods due to which it is necessary to explore new paradigm for acquiring
knowledge.

Objective of the study:

1. To provide a framework for fields development from pre-science to normal science and
to extraordinary science stages.
2. To determine if finance is in the period of extraordinary science.

Methodology: The author has referred to various articles to examine the development of field
over the last 50 years. Observation and secondary data were used to examine the transition of
finance from pre-science to normal science and subsequently to extraordinary science. In doing
so, the author has referred literature from various fields like sociology, psychology, evolutionary
biology and neuroscience.
Findings: The article presents three period in development of modern finance. The first one is
Pre-science (pre-1960s) and transition (1960s and 1970s) period. This period is characterized by
the development of modern finance theory resulting in a emergence of financial economics
(natural su discipline of economics) followed by transition phase of 1960s and 70s. This was
followed by three decades of Normal Science era (1970s, 1980s and 1990s).

Finally,

extraordinary science era of 1990s and 2000s is dominating the modern finance.
The major finding of this paper is that the author believes that the field of finance has entered
into a period of extraordinary science. There are various reasons for making that claim. firstly,
the persistence of many anomalous pattern for decades, the end of the Great Moderation that has
provided evidence of a new world order not explained by the current paradigm and the
advancement in technologies that has facilitated new data collection techniques and data sharing
across various disciplines. The field of research is also changing. The researchers are now
shifting away from the traditionally accepted research method of hypothetico-deductive to
inductive qualitative research. Researchers are attempting to incorporate field interviews with
surveys. All this has culminated in various emerging approaches like behavioral finance,
evolutionary finance, sociological finance etc which are different from the rational expectations
paradigm.
Conclusion
This article has recognized that finance is in a period of extraordinary science. Even though the
rational expectations paradigm still underlies the bulk of research, extraordinary science is
evidenced by a growing number of finance scholars applying theories, concepts, and methods
from disciplines not traditionally associated with finance and presenting new ways of building
knowledge.
Submitted by: Asmita Sharma (Roll no. 5; MBA 4th Semester)