Working with the Wrong Tools

  • Morten Arisson


Since the 1870s, six innovations have developed and shaped what we know today as Theory of Finance. They are also the basis of fundamental investing fallacies. These are the use of differential analysis, the use of general equilibrium theory, the use of probability theory, the (corruption of the) concept of liquidity, the misunderstanding of sovereign risk and, lastly, systemic risk. All six fallacies are discussed in this chapter.


Differential analysis General equilibrium theory Probability theory Liquidity Sovereign risk Sovereign default Systemic risk Contagion Correlation Ponzi scheme Fractional reserve banking Shadow banking ETF Exchange-traded fund Clearinghouse High-frequency trading HFT Basel III Lebac Argentina Modern Portfolio Theory MPT Beta Infinitesimal analysis Indeterminacy 


  1. Russell, Bertrand. (1922). The Problem of China. London. George Allen & Unwin Ltd.Google Scholar
  2. Li, Chi. (1922). Some Anthropological Problems of China. Baltimore: Chinese Students’ Monthly. Page 327Google Scholar
  3. Marshall, Alfred. (1890). Principles of Economics. London: Palgrave Classics in Economics, Eighth Edition.Google Scholar
  4. Hull, John. (1996). Options, Futures, and Other Derivatives. Third Edition. Upper Saddle River, NJ: Prentice Hall.Google Scholar
  5. Gaxotte, Pierre. (1970). La Révolution Française. Paris: Éditions Tallandier, 2014.Google Scholar
  6. Huerta de Soto, Jesús. (2014). Ensayos de Economía Política. Madrid: Unión Editorial.Google Scholar
  7. Huerta de Soto, Jesús. (2008). The Austrian School: Market Order and Entrepreneurial Creativity. Cheltenham, UK: Edward Elgar Publishing Ltd.Google Scholar
  8. Ferguson, Niall. (2008). The Ascent of Money. New York, NY: The Penguin Press.Google Scholar
  9. Cummings, Lewis Vance. (1940). Alexander The Great. New York, NY: Grove Press, 1968.Google Scholar
  10. Walras, Léon. (1926). Éléments d’Économie Politique Pure ou Théorie de la Richesse Sociale. Edition définitive revue et augmentée par l’auteur. Paris : H. Pichon et R. Durand –Auzias Éditeurs.Google Scholar
  11. Menger, Carl. (1892 – 1909). Collected Works of Carl Menger (in German). Volume IV. London: London School of Economics and Political Science, 1936. Retrieved August, 2015, from:
  12. Shafer, Glenn. (1996). The Significance of Jacob Bernoulli’s Ars Conjectandi for the Philosophy of Probability Today. Journal of Econometrics. vol. 75, issue 1, 15–32.Google Scholar
  13. Bernoulli, Jakob. (1713). Ars Conjectandi. Pars Quarta tradens Usum & Applicationem Praecedentis Doctrinae in Civilibus, Moralibues & Oeconomicis. Translated into English by Oskar Cheinine, Berlin 2005. Retrieved September, 2015, from
  14. Gaarder Haug, Espen & Taleb, Nassim N. (2010). Option traders use (very) sophisticated heuristics, never the Black-Scholes-Merton formula. Journal of Economic Behavior & Organization. Volume 77, Issue 2, February 2011, Pages 97–106.Google Scholar
  15. Fernholz, Robert & Karatzas, Ioannis. (2008). Stochastic Portfolio Theory: an Overview. Retrieved September 2015, from
  16. Hoppe, Hans-Hermann. (Spring 2007). The Limits of Numerical Probability: Frank H. Knight and Ludwig Von Mises and the Frequency Interpretation. The Quarterly Journal of Austrian Economics. Vol. 10, No. 1: 3–21. Retrieved September 2015, from
  17. Landro, Alberto. (2010a). Acerca del “Regellosigkeitsaxiom” de Von Mises. Cuadernos del CIMBAGE Nro. 12: 1–21. Retrieved September 2015, from
  18. Landro, Alberto. (2010b).Acerca de la existencia del verdadero valor de una probabilidad. Revista de Economía Política de Buenos Aires. Año 4, Vols. 7 y 8: 221–245. Retrieved September 2015, from
  19. Artzrouni, Marc. (2009). The Mathematics of Ponzi Schemes. Dept. of Mathematics, University of Pau. Retrieved October 2015 from: Scholar
  20. Lewis, Michael. (2014). Flash Boys. New York: W.W. Norton & Company Ltd.Google Scholar
  21. Basel Committee on Banking Supervision. (May 31, 2001). Operational Risk Consultative Document. Ch. V. Retrieved May, 2015 from:
  22. Bastos Boubeta, Miguel Anxo. (July 2015). Política Exterior Liberal. Presentation at the X Universidad de Verano, Instituto Juan de Mariana, Lanzarote. Retrieved October 2015 from:
  23. Von Mises, Richard. (1928). Probability, Statistics and Truth. Second revised English Edition, prepared by Hilda Geiringer. Mineola, NY: Dover Publications, Inc. Second revised English Edition, 1981.Google Scholar
  24. Sardone, Sergio. (2012). Los secuestros de las remesas americanas de particulares de Carlos V a través de los notarios sevillanos. Temas Americanistas, Número 29, pp. 21–64.Google Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Morten Arisson
    • 1
  1. 1.Credit Portfolio ManagerTorontoCanada

Personalised recommendations