Standard (efficient-market) financial theory assumes identical investors who share rational expectations of an asset’s future price, and who instantaneously and rationally discount all market information into this price. The market, in this standard theoretical view, is rational, mechanistic, and efficient.
Complex adaptive markets consist of heterogeneous agents who continually adapt their expectations to the market that these expectations aggregatively create.
Complex adaptive markets have a recursive nature in that some agents’ expectations are formed on the basis of their anticipations of other agents’ expectations, which precludes expectations being formed by deductive means.
Asset Pricing Under Endogenous Expectations in an Artificial Stock Market: W. Brian Arthur, John H. Holland, Blake LeBaron, Richard Palmer, and Paul Tayler