The Mecca of Finance

What must the world be like for asset pricing anomalies to be possible?
 
Specifically, in the Arrow-Debreu equilibrium theory, the consumption CAPM and the investment CAPM should deliver identical expected returns. Why then does the consumption CAPM fail, but the investment CAPM succeed in the data?
 
I call this problem the hard problem of asset pricing, inspired by David Chalmers’s (1996) hard problem of consciousness.
 
I have been obsessed with this problem since February 2021 after being told the investment CAPM is “a bit misleading.” Clearly, my prior arguments have all failed.

Surveying the wreckage, I zero in on the only one thing I have not done. In Lakatosian terms, enough protective belt, time for me to smash the core of equilibrium theory.

After studying about 350 books on history and philosophy of science and related fields, I deduce that the world is not a machine in equilibrium. Rather, the world is a system of open, adaptive systems in evolution.
 
The investment CAPM literature fits much better with systems theory (with bounded rationality) than with equilibrium theory (with rational expectations).

My Wittgensteinian turn. This maturity thing is so hard.
 
The consumption CAPM does not exist in the reality of micro finance. Just like temperature does not exist in molecules in statistical mechanics.
 
This systems worldview has entered my writing for the first time, please see “Firm-level Irreversibility” (Section 4, only 3 pages) newly circulated on SSRN:
 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4653045