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Behavior Paradigms

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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 this philosophy the statement is considered an oxymoron because under the colleagues point of view they view those that study finance one that does not act on behavior. They assume that anything that involves finance automatically dictates numbers and thinking ogically in steps. It is not until there is a shift in the paradigm and that they see it from a finance position do they see the possibility of a behavioral implications.
b) According to the rational paradigm, one that is interested in finance is well educated, has some predisposition towards the acclimation of wealth and is focused on the market. By the definition this means that they are rational and not behavioral.

2. The Structure of Scientific Revolutions triggered diverse reactions. Most “hard” scientists shrugged and went about their business. But many in the soft, or social, sciences “loved” the book, Kuhn says, perhaps because it offered a hope that they could attain the same level of legitimacy (or illegitimacy) as physicists or chemists. “Some of them even said, ‘Wow, all we have to do is to figure out what our paradigm is and enforce it.,’” Kuhn explains. Some philosophers, on the other

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