Beyond rationality: A pragmatist review of behavioral finance and individual investment decision-making

Abstract

This review examines how the Pragmatist philosophical approach provides a dynamic and in-depth framework to understand financial decision-making and investors’ behavior. The traditional financial model utilized in studies just explains how behavioral anomalies deviate from rationality, but the pragmatist approach reframes such behaviors as part of the adaptive learning process led by uncertainty, experiences, and environmental changes. Incorporating thoughts from behavioral finance and pragmatist thought, this review highlights the evolution of investor behavior according to the change in market conditions. This review addresses the gaps in the literature and specifies the area that can be explored, like empirical research by applying a pragmatist approach, and technological advancements in the financial world can be studied as adaptive behavior of investors. The paper influences the attention to investor behavior formation through evolution by experience, concluding by proposing future studies by integrating cross-disciplinary approaches such as philosophy, behavioral economics, and data science to build more rigorous and dynamic models to explain financial decision-making.