This introductory text is devoted to exposing the underlying nature of
price formation in financial markets as a predominantly sociological
phenomenon that relates individual decision-making to emergent and
co-evolving social and financial structures.
Two different levels of this sociological influence are considered:
First, we examine how price formation results from the social dynamics
of interacting individuals, where interaction occurs either through the
price or by direct communication. Then the same processes are revisited
and examined at the level of larger groups of individuals.
In this book, models of both levels of socio-finance are presented, and
it is shown, in particular, how complexity theory provides the
conceptual and methodological tools needed to understand and describe
such phenomena. Accordingly, readers are first given a broad
introduction to the standard economic theory of rational financial
markets and will come to understand its shortcomings with the help of
concrete examples. Complexity theory is then introduced in order to
properly account for behavioral decision-making and match the observed
market dynamics.
This book is conceived as a primer for newcomers to the field, as well
as for practitioners seeking new insights into the field of complexity
science applied to socio-economic systems in general, and financial
markets and price formation in particular.
