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 (Thinking, Fast and Slow), however the roots run deeper. In 1978, Herbert Simon received the primary Nobel Prize for behavioral economics. Thaler later introduced the sector into public view along with his “anomalies” articles within the Journal of Financial Views between 1987 and 1990.
The message was clear: Individuals act primarily based on their environments. Psychology had already demonstrated this in scientific apply; economics finally adopted.
With that, homo economicus—the hyperrational actor of business 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 onerous abilities, behavioral economics unfold. However the subject 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 constructive, speedy money flows depend as worth. All the things else is assessed as a price.
Meaning the best way an organization treats suppliers, workers, communities, and the surroundings is booked as a loss, disconnected from worth creation. Even ESG initiatives are paradoxically punished by the very programs that declare to encourage them.
Think about a sensible case: an organization with 10,000 Google evaluations averaging 4.6 stars.
From a statistical perspective, this dataset holds weight. It’s massive 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: Staff, suppliers, and communities are handled with respect and professionalism.
That quantity is not only a fame rating. It’s a direct indicator of ESG efficiency and long-term worth creation. It additionally alerts that management is competent and that the corporate is prone 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 coming into what might be known as hypermodernism, a mandatory mix of behavioral insights and rationalist rigor. However the dialogue has barely began.
Take HR practices, or immediately’s “individuals analytics.” Some firms nonetheless measure display screen time as a proxy for productivity. Few combine stakeholder suggestions on worker well-being, household high quality of life, or the precise worth of deliverables.
In the meantime, know-how has already solved issues of scale. Massive 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 includes hundreds of thousands of such sentences, throughout billions of parameters.
If AI programs can course of that complexity, organizations can actually design fashions with 100-200 parameters to determine expertise, monitor well-being, and measure actual efficiency.
They’ll even share these benchmarks throughout industries, simply because the scientific neighborhood shares open datasets.
With internet 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 a substitute deliver these very asymmetries into view by multiparameter fashions.
If we genuinely need to assign worth to variety, 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 foundations.
FURTHER READINGS
This debate isn’t remoted. Harvard’s Impact-Weighted Accounts Project is working to embed social and environmental externalities straight into monetary statements, whereas frameworks like Context-Based Sustainability argue that efficiency ought to be judged in opposition to ecological and social thresholds.
On the similar time, critiques of ESG ratings reveal how fragmented and inconsistent immediately’s measures are. New approaches—starting from relational metrics of belief and neighborhood well-being to AI-driven sentiment analysis—are rising.
All level to the identical conclusion: Accounting should evolve to deal with tradition, relationships, and affect not as prices, however as core drivers of long-term worth creation.
Rodrigo Magnago is researcher at RMagnago Crucial Considering.
