Epistemic Limits of Empirical Finance: Causal Reductionism and Self-Reference

[2311.16570] Epistemic Limits of Empirical Finance: Causal Reductionism and Self-Reference Skip to main content Search Submit Donate Log in Search arXiv Press Enter to search · Advanced search Quantitative Finance > General Finance arXiv:2311.16570 (q-fin) [Submitted on 28 Nov 2023 ( v1 ), last revised 16 Aug 2026 (this version, v6)] Title: Epistemic Limits of Empirical Finance: Causal Reductionism and Self-Reference Authors: Daniel Polakow , Tim Gebbie , Emlyn Flint View a PDF of the paper titled Epistemic Limits of Empirical Finance: Causal Reductionism and Self-Reference, by Daniel Polakow and 2 other authors View PDF HTML (experimental) Abstract: The clarion call for causal reduction in the study of capital markets is intensifying. However, in self-referencing and open systems such as capital markets, the idea of unidirectional causation (if applicable) may be limiting at best, and unstable or fallacious at worst. In this work, we critically assess the use of scientific deduction and causal inference within the study of empirical finance and financial econometrics. We then demonstrate the idea of competing causal chains using a toy model adapted from ecological predator/prey relationships. From this, we develop the alternative view that the study of empirical finance, and the risks contained therein, may be better appreciated once we admit that our current arsenal of quantitative finance tools may be limited to ex post causal inference under popular assumptions. Where these assumptions are challenged, for example in a recognizable reflexive context, the prescription of unidirectional causation proves deeply problematic. Comments: 9 pages, 2 figures; minor mathematical corrections to the do-operator notation and logistic-map footnote, with no change to the argument or results Subjects: General Finance (q-fin.GN) ; General Economics (econ.GN); Adaptation and Self-Organizing Systems (nlin.AO) MSC classes: 91B28 ACM classes: J.4 Cite as: arXiv:2311.16570 [q-fin.GN] (or arXiv:2311.16570v6 [q-fin.GN] for this version) https://doi.org/10.48550/arXiv.2311.16570 Focus to learn more arXiv-issued DOI via DataCite Journal reference: Journal of Economic Methodology (2026) Related DOI : https://doi.org/10.1080/1350178X.2026.2670997 Focus to learn more DOI(s) linking to related resources Submission history From: Tim Gebbie [ view email ] [v1] Tue, 28 Nov 2023 07:28:08 UTC (104 KB) [v2] Tue, 5 Dec 2023 15:44:00 UTC (105 KB) [v3] Mon, 29 Jan 2024 08:02:03 UTC (106 KB) [v4] Tue, 26 Mar 2024 10:42:54 UTC (135 KB) [v5] Thu, 5 Sep 2024 06:47:18 UTC (136 KB) [v6] Sun, 16 Aug 2026 07:07:13 UTC (129 KB) Full-text links: Access Paper: View a PDF of the paper titled Epistemic Limits of Empirical Finance: Causal Reductionism and Self-Reference, by Daniel Polakow and 2 other authors View PDF HTML (experimental) TeX Source view license Current browse context: q-fin.GN < prev | next > new | recent | 2023-11 Change to browse by: econ econ.GN nlin nlin.AO q-fin q-fin.EC References & Citations NASA ADS Google Scholar Semantic Scholar export BibTeX citation Loading... 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