Emergence and Evolution of Financial Economics

This paper aims to deliver a comprehensive analysis of the theories and concepts that have formed the foundational link between two separate academic fields: finance and economics, resulting in the emergent field of financial economics. The main schools of thought can be divided, with a considerable amount of simplification, into two categories: neoclassical and behavioural financial economics. Neoclassical economics is based on the assumption of rationality and uses normative mathematical models that predict how people should behave. Behavioural economics, on the other hand, is more descriptive and uses economic experiments to investigate how and why subjects behave in a certain way.