Researching insurance screenings

This figure is my own representation of an exchange ― reconstructed from interviews with people working in insurance companies― between a possible user and an insurance seller who works for one of the health insurance firms in Chile. Probably this encounter happens after the salesperson, interested in increasing her client portfolio, contacts a possible user who has accepted to have an introductory meeting. When they meet, the seller asks certain socio-demographic information (sex, age, family number, income) from which it is possible to suggest the array of insurance policies available for the prospective user, and the premiums and type of coverage in each case. If the potential user is still interested; she will be asked to fill a ‘medical declaration’ which, for the most part, focuses on her previous medical history. The meeting finishes here. At the next meeting, the salesperson plays a different role; now her work is informing the outcomes of the medical declaration. There are three main options: accepted without restrictions; accepted but with a restricted policy; or not accepted. Restrictions and rejections are connected to the user’s medical history, or what is called ‘pre-existences’, that is, past medical events that suggest potential future medical expenses which insurers are legally allowed to not cover. This is not so different to many other commercial interactions we face every day, that are generally seen only interesting for the experts directly involved in these industries. However, I think, this opens at least three different research agendas of social studies of finance.

First, like other risk screening processes studied by Deville and Poon, this is an exchange that apart of human beings, involves many other type of actors, such as forms, objects, affects, and so on. In this case, when the seller gathered socio-demographical information and proposed certain policies, she was referring to an already assembled network. Here the main actor is the actuarial department. This department is in charge of developing new information systems by matching the available statistical information and potential costs of medical provisions. In order to do that, they produce a virtual object, namely, a population’s potential health situation and their potential costs. These are virtual because they are not material (a tendency in statistical software) yet they are regarded as objects because from the moment they are produced they are assumed as real, and cause a real impact upon the next stages of the network. The medical declaration is evaluated by a different section known as ‘medical comptrollers’. By using previous epidemiological information, they can predict the future risk of new users, determining the existence of relevant pre-existences. Here two virtual objects are produced: the past medical history of a potential user and her possible future health. What is produced in both cases is not just virtual but multiple. The medical history developed by medical comptrollers is not the same as the medical history presented by the seller or to the way in which past medical events are conceived by the prospective user. At the same time, medical history will change depending on the kind of formulas used to merge medical statistics, on the form that registers this information, or in the event of changes taking place in the statistical information at hand.

Second, this exchange is embedded in wider processes. As discussed in a previous post, a long chain of events, including economists as main actors, had been relevant in shaping the form of this exchange. At the same time, as the director of one of the first private health insurance companies in Chile explained to me, from the beginning of the system in the early eighties, the statistical information that is available (and its ability to predict future events) has dramatically increased, changing the landscape of this industry. In fact, this is not just a matter of available technologies, but actuaries themselves have been a very scarce resource. This is not a professional degree offered at Chilean universities; therefore, insurance firms mostly hire experts from Argentina, where this profession is one of the specialisations in schools of business and economics. And finally, like car insurance, these are compulsory insurance policies which are much more regulated than other type of policies. In this sense, the clear division between actuarial department and medical comptroller has to do with that that this system’s regulation allows considering only two factors in their pricing tables: age and sex (of course: the formula used to connect these two variables with the potential health cost is owned by each firms). Then, instead of being included in the premium, medical history has been connected to potential exclusions.

Finally, this exchange also opens new social connections to be followed. As scholars inspired by the late Foucault have shown insurance is a technology of risk, and as such, what it does is pooling or connecting people under a common fund. This is made in different layers. First, in their risk screenings, new users are included in statistical populations that allow estimating their potential health expenses. Second, in case the insurance policy is bought, users are connected with other usersof the same type of policy. Most probably, they don’t know you, but your monthly withdrawn can help to pay their hospital in case they have an accident or they can help you if you are the one sick. In this sense, insurance is really important in producing what Durkheim called “organic solidarity”, or the modern situation that tie us to those that we don’t know. However private insurance does not work in the same logic than national welfare regimes. Pooling is not about building a national population, but about producing more delimited funds. We are not connected to all the costumers of our chosen insurer, but with those that are in our same group (for instance: men, young, etc.). We are actually connected to others, but we cannot join our “colleagues” because we cannot really who they are, or even the categories that tie us together. In this sense, this third potential stream of research, is not just about how this insurance exchange is embedded in wider political events or entangled in heterogeneous networks, but about following how it is central in assembling new collectives and social categories.

The Spirit of Financialism: Appadurai’s lecture at the London School of Economics

Arjun Appadurai, author of the famed Social Life of Things, will be giving a public lecture on “The Entrepreneurial Ethic and the Spirit of Financialism,” organized by the LSE’s department of anthropology.

Date: Tuesday 9 February 2010
Time: 6.15pm
Venue: Hong Kong Theatre, Clement House

From the lecture announcement:

Arjun Appadurai is a socio-cultural anthropologist with specializations in globalization, public culture, and urban studies. His major accomplishment has been the construction of anthropological frameworks for the study of global media, consumption, and migration. His current work focuses on poverty, violence, and social inclusion in mega-cities with a special focus on Mumbai (India). He currently serves as Senior Advisor for Global Initiatives at The New School in New York City, where he also holds a Distinguished Professorship as the John Dewey Professor in the Social Sciences

This event will be followed by a drinks reception in the Senior Common Room, 5th Floor, Old Building, LSE.

This event is free and open to all with no ticket required. Entry is on a first come, first served basis. For more information, email j.f.stone@lse.ac.uk.

Conference announcement: value, worth and valuation

I recently got an email from Juliane Reinecke, announcing a workshop that should be of close interest to readers of this blog. It is organized by the CRASSH group in Cambridge.

According to the organizers,

The purpose of the workshop is to debate the notions of value, worth and valuation from different disciplinary perspectives. This wants to examine philosophical, anthropological, sociological and political approaches to the question what value is, or what value should be and how it is interlinked processes of valuation and the attribution of worth. The main focus is theoretical; and its consequences possibly political. What are the effects of the domination of commodity values? What are alternative ways of thinking about value? And is there politically progressive potential in rethinking mechanisms of valuation and its underlying concepts that determine what is valuable, rational and legitimate?

Value is a key notion in exchange and few would disagreement with the claim that the “[m]arket has emerged as the most politically significant institution of valuation in the world today” (Gregory, 1997, p. 16). On the market, economic value is revealed through consumers’ subjective preferences. But value does not remain a purely economic concept, but is interlinked with notions of social worth. Individuals, organizations and whole nations are evaluated in terms of their capacity to create value.
Orthodox economists and business scholars devote their disciplinary energies to decipher the conundrum of value creation. But what is value and why is something valued? What does economic value mean in terms of individual lives and human flourishing? Against the neo-classical paradigm of rationality, new sociological approaches emphasize that what is seen as valuable, rational or legitimate is constituted by cultural norms (Meyer and Rowan, 1977), or economies of worth which allow for a plurality of
value spheres with their own valuation mechanisms (Boltanski and Thévenot, 2006[1991]). Citing Dewey, David Stark draws attention to the double meanings that words of economic value and social worth have in ordinary speech: “praise, prize and price are all derived from the same Latin word; that appreciate and appraise were once used inter-changeably” (Dewey in
Stark, 2009).

Programme

10.30 – 11.00 am

Registration
11.00 – 11.15 am

Welcome and Introduction
11.15 am- 1.00
Session 1: Brand Value and Value Consumption
“Kitchen tool or piece of art? Symbolic value and the design of product
forms”
Davide Ravasi, Department of Management, Università Bocconi
“Brand Valuation” (Title TBA)
Celia Lury, Sociology, Goldsmiths, University of London, Liz Moor
Department of Media and Communications, Goldsmiths,
University of London

1.00 – 2.00 pm
Lunch break

2.00 – 4.00 pm
Session 2: Anthropological Approaches: Value and its Other
“Value versus Debt – a possibly false antinomy for contemporary social
theory”
David Graeber, Department of Anthropology Goldsmiths, University of London
“What is in the plastic bag? Value and the informal economy of
anti-depressants”
Umut Yildirim, Department of Social Anthropology, University of Cambridge
“Capitalism and its Other: value, economy and religion in a Swazi
Pentecostal business town”
Vito Laterza, Department of Social Anthropology, University of Cambridge

4.00 – 4.15 pm
Tea break

4.15 – 6.00 pm
Session 3: Economic Sociology of Valuation Systems

“Ethical Economy. A Theory of value for the information society”, or
less ambitiously, “Ethics and value in the information economy”
Adam Arvidsson, Department of Social and Political Studies, University of Milan
“After the New Economy: Value, primitive accumulation and the global
division of labour”
Chris Land, Institute of Management, University of St Gallen / Essex Business School,
University of Essex
& Steffen Böhm, Essex Business School, University of Essex

6.00 – 6.15 pm
Closing

Robert C. Merton, the latest convert to the sociology of finance

This past December, Nobel laureate Robert C. Merton gave a talk at the Cultures of Finance Working Group at New York University.

The talk, solemnly introduced by Craig Calhoun, was addressed at a mix of sociologists, anthropologists and cultural studies scholars at the working group. It discussed a far-reaching range of issues — from Merton’s early work to his latest work with Andy Lo on credit crises. Arjun Appadurai gave interesting remarks Here are the complete transcripts, which I just received by email from Robert Wosnitzer.

I was there, and highly recommend it. In his closing remarks, Merton issued an open invitation to sociologists, anthropologists and others to enter the study of finance:

In getting good financial solutions, you need to do more than just the technical elements. You’ve got to recognize the environment you’re in. And the communications issue (…) if you’re trying to communicate with forty million people in California a message of why you did something, or are going to do something, it cannot be something that you couldn’t even explain to eight students in a class they would understand. So, your solutions are not only going to be influenced by technical questions and the rest. You have to look at the whole thing, which is to recognize when it has to be short, simple, and understandable. And if you can’t do that, even if it seems like the right answer, it probably isn’t. And we need research in all of these areas. And I…you know, as I said, I’m saying, “Please! This is a wonderful field!” But we do need it there.

All in all — brilliant, generous, inspiring. His was the type of talk that reconciles you with an intellectual opponent and with the academic pursuit in general.

Making calculation social. Or, how the iPad might reshape financial markets

The launch of Apple’s tablet has produced a large volume of misguided complaints. My favorites are about the lacking affordances of the iPad: underpowered, no multi-tasking, etc. But as we know from the academic literature on science and technology, the key to successful gadgets is to offer new “affordances” that are lacking in previous artifacts. The proverbial killer app. Of course, my research is not on science and technology. So here’s the question that I’m asking of the iPad… as a sociologist of finance. What possibilities does a tactile, mobile device like the iPad bring to securities trading?

I’ll venture a guess. By bringing together calculation and social interaction, numbers and people, judgement and logic, the iPad may rejuvenate financial exchanges, making them more calculative. And also reinvigorate trading rooms in banks, freeing arbs from their chains of their desks.

Before going into details, let me clarify why I laugh at the tabletskeptics. Essentially: because we cannot judge a new technology by how it fulfills our present needs. “No-one we know takes photos with the cellphone… who needs one?” Such was the reasoning by Nokia back in 2003. And thus Nokia got stuck with camera-less phones for too long, giving away part of its market to the Asian manufacturers. What Nokia missed was that people would take tons of photos with the phone if they had the ability to do so. New affordances create new needs. The challenge is to imagine those needs before they arise.

Interestingly, Steve Jobs does not get this simple point. Or at least that’s what I got from watching his presentation of the iPad. For the tablet to be justified, Jobs said, it should let you browse the web better than a computer and a phone. Actually, it’s the opposite. The tablet should focus on new things that only a widescreen mobile wireless device can do. Social web browsing, for instance. Or situated problem-solving. Marrying mobility and Excel, flicker and pubs. (It is also puzzling, by the way, that Jobs presented a social, mobile device sitting by himself on a comfy chair).

On that front, discussion on the media about the iPad has been rather boring. Self-centered. A media debate about the effects of the tablet… on the media. And, sure enough, charging for reading webs, combining movies and text — all those points are adequate. (Indeed, I recommend this smashing video about what Sports Illustrated could look be on the iPad.) But my passion is markets. Do I care about publishers?

So — enough digressing. My real interest is understanding the implications of the tablet for financial markets. Traditionally, the introduction of computing into trading led to a sharp divide: work standing up, and work sitting at a desk. Those who stood up, e.g., floor brokers and specialists at the NYSE, did not use computation heavily. And those who sat down — e.g., arbitrageurs in hedge funds — had the benefit of the desk. And of being able to use the computer or Bloomberg as a calculation device. They got models, charts, algos. The downside for them was relative isolation: they could talk to far fewer people face to face than a floor broker. As a result, those who moved around were heavy users of judgment and social cues. Those who sat down were more focussed on models and algorithms. Or spent their day talking on the phone (to a doughnut, as Tow Wolfe famously described).

That divide held for a time. Exchanges had people standing. Banks and hedge funds had them sitting down. But soon enough technology arrived to trading floors at financial exchanges. One unnecessary (and sad) approach to the mix the two was to replace people by computers. Witness the empty floors of the Paris Bourse, aptly captured in the research of Fabian Muniesa. Or the Bolsa de Madrid. (And to really witness… here are my pics of the Bolsa).

So one approach — get rid of the people. Another, far more interesting approach, has been to endow floor brokers and specialists with technological tools that give them extra calculative possibilities. The New York Stock Exchange has recently been working on this. It produced a revolutionary plan to introduce desks inside the trading floor. Instead of taking people out, they bring the furniture in. See here video here.

This is a very interesting development, but not the only one. Yet another possibility is to place the large screen on the hands of the mobile floor traders. I first witnessed such endowing in 2005. I was in a guided tour of the New York Mercantile Exchange (NYMEX). Squinted from the observation deck, we saw traders at the pits carrying white, Kindle-looking devices on the arms, which they tapped with a stylus.

Manufactured by Fujitsu (I did ask), these machines allowed the traders to see “the market” and trade from their screen without leaving the desk. The machine was light and sturdy enough to be carried into a physically threatening environment — the pit. Used in this manner, the handheld brought together the affective insights produced by a social pit (and masterfully described by Kate Zaloom) with the calculative possibilities created by the computer. It also allowed traders to better handle the anonymity, as they could trade from their tablet without signaling their operation to the crowd. Or do the opposite, and attempt to influence the price.

My point is, the tablet mixes like no other device the possibilities of mobility and calculability. It adds context to the screen. And it brings numbers to the stuff around you. It is conceivable that the introduction of tablets will make professional trading environments simultaneously more intellectual and more social than ever in the past.

Economics and insurance in Chile: a one-way mirror

One year ago I met Daniel Beunza in an economic sociology event at Goldsmiths. He told me that I could post sometimes here. The same January I had my PhD thesis viva, and since then I have been quite busy by teaching and writing a research fund application to follow the consumer credit industry in Chile. Now before being overwhelmed by this new research I’m finally trying to write some articles out of my PhD thesis. The thesis attempted to understand how the private health insurance in Chile ended up having it actual shape. There are a couple of ideas connected with this case, but I think also of more general interest, that I would like to share here and in two other posts.

Perhaps one of the main issues in social sciences in Latina America in the last decade or so has been the “ubiquitous rise” of economists and economics in the sub-continent. Said very simple, this literature has aimed to explain their role in three main phenomena: the technocratization of governmental elites, the institutional isomorphism centered on market liberalization, and the production of a sharp boundary between economy and those elements that are within the reach of direct government intervention. Of course, existing research combines these elements in different forms, some of my favorites are: Babb, Cárcamo-Huechante, Fourcade&Babb, Mitchell, Neiburg, and Valdés. The case of Private Health Insurance (PHI) in Chile, I studied in my PhD research (and particularly in a chapter that I would be happy to circulate), touches few elements from these different types of questions, however, it also illustrates another dimension of the multiple parts played by economists in Latin America recent history, that I would like to highlight here.

The creation of PHI in 1981, in the context of the Chicago Boys reforms in Pinochet’s Chile, followed one basic assumption: a combination between free choice consumers and competition between insurers would produce insurance policies that would optimize efficient health expenses and good protection to users. However, talking with economists experts in this system today, it is easy to realize that this equation turned to be quite problematic. Just to mention three of the most controversial issues: (i) ten years after it was created most of health policies were covering highly probably but not very expensive events, leaving users finally unprotected; (ii) risk screening -and the exclusion of pre-existing medical events- in new insurance policies made an important group of users unable to actually choose between the available goods; and (iii) the amount of choices in this market is so large that rational calculation is almost impossible. In order to solve these problems different solutions had been figured out: today each insurance policy includes a catastrophic coverage, contracts are aimed to be long lasting, and there is agreement that the range of insurance policies in this market needs to be simplified.

Economists see this story as a matter of lack of knowledge. When the system was created the sub-section of economics particularly interested in this type of issues (health economics) was not very developed, and concepts that are today so influential in framing this type of discussions (such as moral hazard, adverse selection) were not widely available. In other words, there is now new information that would allow a better market design. I think, however, this is also a very particular case of performativity of economics. Perhaps, economists would agree that when the PHI was developed members of very few professions would imagine a new market as a solution for health policies, but, at the same time, the role played by this expertise would decrease together with the development of this industry. Nevertheless, after the unexpected consequences of this development, there is a consensus on that the PHI market needs to be regulated to fulfill its original aims: efficient health administration and protection. Regulation, here has specifically meant that the thing traded in this market – the insurance policy- has been standardized, and, competition today is less about singularizing each policy, and more about the prestige –or other properties – of the insurers.

Borrowing a metaphor used by Harrison White in his book on markets, I think there is a one-way mirror in this case. The shape of the product exchanged is not just the outcome of the interaction between supply and demand – and other elements highlighted by economic sociologists such as political struggles or networks – but it also reflects economics. However, those who represent this market – and are those who almost exclusively regulate it – economists, cannot see the role their knowledge play in the development of this industry. I believe this case shows the relevance to expand the discussion about economists and economics in Latin America to analyzing their role as market makers, but at the same, that it is also needed to increase the attention to the dynamic relationship between economics and the economy in those markets that has been created as a form of policy making.

José Ossandón

The Problem with Economics

Blog readers interested in an ANT-ish refreshment on the infamous topic of the “performativity of economics” may find this little contribution amusing (PDF here).

What is a “market movement”?

A recent conference announcement has piqued my curiosity. Annelise Riles, an anthropologist at Cornell Law School, is organizing a conference titled “Techniques of Hope”.

According to the organizers:

This conference aims to set in motion what we call a “market movement”—an analog to recently successful social or political movements. One of the hallmarks of recent political movements has been the understanding that each of our actions have larger consequences. “Think globally, act locally” is the slogan of the environmental movement, or “the personal is political” has been the slogan of the feminist movement. In the recent presidential campaign, Barack Obama called this move “hope”: hope for him is the realization that each of us has power to effectuate real change. So our question is, if this is true for politics and society, could it also be true for the market?

To date, we have not thought of markets in this way. Economics takes a fairly cynical view of human motivations, and the currently dominant approach to market regulation assumes that market participants’ self-interest leads to disaster—and hence that their behavior must be controlled through government regulation alone. While this is surely correct to a point, the lessons of successful political and social movements is that the people typically lead, and the government follows.

So how would individual professionals’ actions translate into a better market future? Part of the answer is that lawyers and financial experts already have at their disposal the tools and methods they need to create a healthy global market, if only they could recognize them, and more systematically replicate them in public and private regulatory practice.

In my view, the notion of a market movement is intellectually appealing. I think of it as a shorthand for “a social movement within a market.” In recent months, the literature that looks at markets as social movements has grown exponentially, with one of the major contributors being our fellow blogger Brayden King. My point of departure from that literature is that it tends to ignore the way in which market actors calculate — the market devices. But the aim of the “Hope” conference is not to study a movement, but rather to create it. And it is led by an anthropologist — a “tool person”. So it will be interesting to see what theories of markets they draw from, and how they propose going to about that.

Checklists: a market device that guides calculation and affect

Today I read a book excerpt that persuaded me. Atul Gawande, professor at Harvard Medical School and staff writer at The New Yorker, has written a book about the many benefits of checklists. Generalizing from his own experience with surgeons, Gawande argues that checklists are useful in finance or airline cockpits.

That checklists can be critical should be of no surprise to sociologists of finance. It is, after all, another material device that provides what Andy Clark calls “scaffolding” to complement our limited cognitive skills. And indeed, I myself came across checklists in my own research on derivatives traders. In my latest paper with David Stark, we describe how the head of the merger arbitrage desk is very clear about the importance of checklists and rigorous procedure:

Taking a position, then, involves a successive winnowing of the possible contingencies involved in the merger as the arbitrageurs think through the deal. The traders search through a form of mental decision tree in which each specific merger is considered in relation to similar deals that they encountered in the past. Max explains, “it’s almost like you’ve been in this road before and [the past incidences] direct you.” The advantage of this system, which Max describes as a “process-driven arbitrage,” is that numerous issues need not be taken into account.

In other words: process, process, process; our head trader even mentioned the word check-list. At first I was surprised to see that the traders were using such a mundane tool. Now I see that they are not an exception. Gawande explains that many of the best value investors and venture capitalists also rely on lists.

But Gawande goes beyond giving examples. Crucially, he explains why checklists complement judgment. As it turns out, a checklist is very different from a shopping list. While a shopping list is just a form of distributed memory (make sure I don’t forget…), a professional checklist entails a systematic self-examination of one’s own past errors of judgement — blindspots, if you will — and the creation of a tool that avoids them. Here’s how he talks about it:

Looking back, Pabrai noticed that he had repeatedly erred in determining how leveraged companies were. The information was available; he just hadn’t looked for it carefully enough. In large part, he believes, the mistakes happened because he wasn’t able to damp down the cocaine brain.

The anonymous investor I spoke to – I’ll call him Cook – made a checklist. But he was even more methodical. He enumerated the errors known to occur at any point – during the research phase, during decision-making, during execution of the decision and even in the period after making an investment. He then designed detailed checklists to avoid the errors, complete with clearly identified pause points at which he and his team would stop and run through the items together.

What the checklist does, in other words, is help in the calculation process. If calculation, as Callon reminds us, entails judgement and affect, managing these two becomes crucial. The list is a disciplining device that allows the actor to channel the affect.

When in France… Spring seminar schedule in the Social Studies of Finance

As everyone knows, the social studies of finance was born in France. This year, and with the renewed energies of Pierre de Larminat, the association is hosting a conference in Spring, and just came up with a terrific lineup for its seminar series.

– Social Studies of Finance Seminar – -

Schedule update for 2009-2010

The SSFA research seminar is a workshop dedicated to the interdisciplinary discussion of research papers on finance.

This monthly workshop takes place on Wednesday from 6pm. to 8pm. It is hosted by the Maison des Sciences de l’Homme (MSH) of the Ecole des Hautes Etudes en Sciences Sociales (EHESS). It is located on the 54, boulevard Raspail / 75006 Paris (France).

Wednesday, February 10th 2010: (Room 215)
Intervention on rating agencies and on the epistemic authorities of finance
by Grégory Vanel

Wednesday, March 10th 2010 : (ENS – 48, bd. Jourdan – Paris 14° / Room 10)
Intervention on consumer credit and debitor trajectories of lower-class civil servants
by Laure Lacan (Centre Maurice Halbwachs / Ecole Normale Supérieure)

Please note that the seminar exceptionally takes place in the ENS (Campus Jourdan)

Wednesday, March 24th 2010: (Room 215)
Intervention on the agency relation between hedge funds and long-term investors
by Sandra Rigot (EconomiX / Université Paris X – Nanterre )

Wednesday, April 14th 2010: (Room 215)
“The Dark Side of Liquidity : a semiotic analysis of dark pools marketing”
by Marc Lenglet (IREBS)

Wednesday, May 12th 2010: (Room 215)
“Taking a hand on financial objects”
by Fabian Muniesa (Centre de sociologie de l’innovation / Ecole des Mines)

Tuesday 20th and Friday 21st 2010 :
International Workshop « Reembedding Finance »

hosted by the Université Paris Ouest Nanterre La Défense

Wednesday, June 23rd 2010: (Room 215)
“Reporters and social scientists studying financial institutions”
by Nicolas Cori (Libération)

For more information, please visit : http://ssfa.free.fr
or contact : pierre.de.larminat@ens.fr