A Methodological Critique of Classical Financial : Behavioral financial considerations

Standard finance, is based on methodological individualism within the framework of Cartesian epistemology. Based on this rationalist structure, the investor enjoys Perfect rationality, Perfect selfishness and Perfect willpower. Based on these three assumptions, the basic principles of investor's behavior are formalized in the form of a thematic principle, and all theories are produced with a logical inference of this thematic principles. This methodological approach claims to have been able to descriptively and prescriptively describe, explain and predict the investor's behavior in the form of the principle of Optimizer Agent, but in practice, the observed data is significantly different the theories predict, especially since the observation of numerous financial crises and the inability of this knowledge to explain them, makes a skepticism approach into validity of standard finance. Heterodox paradigms such as structuralism, institutionalism, behaviorism, etc have tried to provide an explanation for financial crises. Behavioral finances, meanwhile, claims that the agents don’t choice in accordance with the standard model. Actually their behavior has a predictable bias. In the past three decades, behavioral finance has identified and categorized the types of biases in investors' behavior and provided rich literature in this regard. The question that why should we focus on investors' behavior and consider the Economists as rational agents? Since classical finance theorists are human beings and their method of study is based on rationality. This study examines historical process of methodological and philosophical foundations of standard finance in abductive approach. According to the results of the research, classical financial theorists have been involved bias in two ways: "methodology " and "mathematical tools" that along with investors' biases, has resulted validation crisis. The prerequisite for solving these problems is methodological modification, which is not possible in the philosophical structure of conventional economics.