The cracks in postmodern financial theories are seen. They’ve spilled into politics, with governments slashing budgets worldwide.
The spark got here from Richard Thaler (Nudge) and Daniel Kahneman (Pondering, Quick and Sluggish), however the roots run deeper. In 1978, Herbert Simon gained the primary Nobel Prize for behavioral economics. Thaler later introduced the sector into public view together with his “anomalies” articles within the Journal of Financial Views between 1987 and 1990.
The message was clear: Folks act based mostly on their environments. Psychology had already demonstrated this in scientific observe; economics finally adopted.
With that, homo economicus—the hyperrational actor of commercial modernity—died. Together with him went the playbook of meritocracy, technical determinism, and chilly rationality.
In his place rose ideas like tradition, establishments, function, inclusive HR, gender equality, quotas, and language—social dynamics grounded in behavioral insights.
As service economies expanded, requiring smooth abilities greater than industrial arduous abilities, behavioral economics unfold. However the discipline made a serious oversight: It by no means invited accounting to the dialog.
THE ACCOUNTING BLIND SPOT
Accounting frameworks from FAF and IFRS are nonetheless designed for industrial modernity: Solely optimistic, quick money flows depend as worth. Every little thing else is assessed as a value.
Meaning the best way an organization treats suppliers, staff, communities, and the atmosphere is booked as a loss, disconnected from worth creation. Even ESG initiatives are paradoxically punished by the very methods that declare to encourage them.
Think about a sensible case: an organization with 10,000 Google opinions averaging 4.6 stars.
From a statistical perspective, this dataset holds weight. It’s giant sufficient to fall underneath the regulation of enormous numbers—legitimate, consultant, and statistically important.
It’s a voluntary response pattern with real-world significance, combining quantitative and qualitative depth. Most significantly, it suggests correlation with causation: Workers, suppliers, and communities are handled with respect and professionalism.
That quantity isn’t just a status rating. It’s a direct indicator of ESG efficiency and long-term worth creation. It additionally indicators that management is competent and that the corporate is more likely to maintain future money flows, impacting valuation itself.
But none of that is captured on the steadiness sheet.
FROM BEHAVIORISM TO HYPER-MODERNISM
We’re getting into what could possibly be known as hypermodernism, a needed mix of behavioral insights and rationalist rigor. However the dialogue has barely began.
Take HR practices, or right now’s “individuals analytics.” Some firms nonetheless measure display time as a proxy for productiveness. Few combine stakeholder suggestions on worker well-being, household high quality of life, or the precise worth of deliverables.
In the meantime, expertise has already solved issues of scale. Giant language fashions like ChatGPT course of information in methods much more complicated than company metrics. A easy 10-word sentence is represented by round 257,000 parameters, calculated in hundredths of a second. Coaching entails hundreds of thousands of such sentences, throughout billions of parameters.
If AI methods can course of that complexity, organizations can actually design fashions with 100-200 parameters to establish expertise, monitor well-being, and measure actual efficiency.
They will even share these benchmarks throughout industries, simply because the scientific neighborhood shares open datasets.
With net scraping, API mining, sentiment evaluation, metadata extraction, and time-series monitoring, organizations can measure behaviors and relationships with a precision unavailable to earlier generations.
MEASURE WHAT TRULY CREATES VALUE
That is the chance: to maneuver past the hard-line modernist fashions constructed to exclude unexplainable asymmetries from the steadiness sheet, and as an alternative deliver these very asymmetries into view by way of multiparameter fashions.
If we genuinely wish to assign worth to range, inclusion, and the social dynamics that generate wealth, we should measure these results, not dismiss them as “bills.”
That requires accounting to catch up, and for Nobel-winning thinkers to assist rewrite the principles.
FURTHER READINGS
This debate isn’t remoted. Harvard’s Impression-Weighted Accounts Undertaking is working to embed social and environmental externalities straight into monetary statements, whereas frameworks like Context-Based mostly Sustainability argue that efficiency ought to be judged towards ecological and social thresholds.
On the similar time, critiques of ESG rankings reveal how fragmented and inconsistent right now’s measures are. New approaches—starting from relational metrics of belief and neighborhood well-being to AI-driven sentiment evaluation—are rising.
All level to the identical conclusion: Accounting should evolve to deal with tradition, relationships, and influence not as prices, however as core drivers of long-term worth creation.
Rodrigo Magnago is researcher at RMagnago Important Pondering.
