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In one of our foregoing columns, we had argued that standard Finance models as they currently stand, with their emphasis on objective statistical processes, are going to be more and more questioned. Notably, the famous notion of rational expectations equilibrium (REE) which is one of the joint assumptions behind the efficient markets hypothesis (EMH), is highly questionable. Implicitly, there is the idea that model predictions are somehow objective. This can be questioned from an econometric as well as a decision-theoretic viewpoint. Maenhoudt (2006), Hansen et al. (2006) as well as Maccheroni et al. (2006) develop so-called alternative approaches where the decision maker faces a set of models and has to decide on the best decision rule. This means that the decision maker faces model as...
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