The 5 Key Insights of "Austrian Finance," an Alternative Theory to Modern Finance

Chapter 11 presents the main building blocks to an alternative theory to Modern Finance, which I call Austrian Finance. As explained above, economics and finance are social sciences. They need to analyze and describe the patterns of behavior of individuals, groups and societies, in order to make qualitative predictions. The key insights of this analysis are: (1) people base their action on subjective knowledge; (2) they minimize the time it takes to reach their objectives and hence have positive time preferences and positive "natural" interest rates; (3) markets are in a continuous dynamic disequilibrium; (4) uncertainty is radical and cannot be measured; (5) the diversification of portfolios serves the purpose of reducing the consequences of errors and follows the rule of diminishing benefits from diversification.

--Thomas Mayer, introduction to Austrian Economics, Money and Finance, Banking, Money and International Finance 8 (London: Routledge, 2018), Kobo e-book.