Comments on Market Devices – round two

September 4, 2008

The discussion following the Market Devices session in AoM in August continues. Again, I got more sharp and thought-provoking comments from Bruce Kogut, as well as from Daniel and Martha, here on the blog. Below, I am trying to answer these queries/challenges

Organisational and scientific accuracies do not represent two distinct types of knowledge, but instead the latter is sometimes an overlrapping sub-set of the former. That is, if actors and actants connect in a manner and shape that bring about consensus with regard to the model’s usefulness (in the sense of problem-solving capabilities) then it can be said that the model is ‘organisationally accurate’. That structural coalition of actors/actants can take place within and around the academic community and then we would say that ‘the model has been proved to be scientifically valid’. Similarly, such nexus of connections may evolve in a different setting, such as in financial markets. In that case, we would say that ‘the model has proved to be operationally efficient’.

Now, this conclusion leads me to the ‘essentialist’ question, as I think we can call it. That is, the notion that Daniel refers to when he says that maybe ‘there is something’ in the model that triggers or aids the cascade of events that leads to performativity. Bruce Kogut, in fact, put it very nicely by saying to me, and I paraphrase, that no matter how many connections one would have with regard to the cold fusion theory, it will not ‘become accurate’. This brings us to the question that Martha posed about tests of validity (“according to what test is Black-Scholes-Merton model considered accurate?”). The answer here is that a model that will become performative is the model around which an effective and robust coalition of actors would emerge. Would the model or theory have to be scientifically accurate for such a coalition to crystallize? Not necessarily. In fact, it is possible to image a scenario according to which cold fusion theory becomes commonly accepted. It may happen, for example, if the applications of that theory would help to solve some problems (just as we saw in the Black-Scholes-Merton case).

Still, one may ask what could be the conditions necessary for a theory to be performative. I provide a rudimentary answer here, but I increasingly believe that that performativity, at least in its present form, is mainly a retrospective analytical tool. It helps us to explain and interpret historical events. It is, however, not very good at predicting the unfolding of such events.

10 Responses to “Comments on Market Devices – round two”

  1. marthapoon Says:

    This is a great reply Yuval and I think your final point that performativity is not predictive is essential. It seems to me that performativity does not mean that the driver of action lies in any natural qualities of the economic statement in and of itself, but rather comes from and is constituted by the innovative activities that surround and follow up from the statement. Thus to be performed is to be achieved through the emergence of novelty in time. Sometimes, the ability to be performed will rest on tests of scientific accuracy that pass through the academic community or other scientific bodies who pose the question of ‘accuracy’; other times the performativity will rest on tests that do not involve scientific experties such as tests of usability, availability, cost and standardization. The analytic question is how is the appropriate test constitutedin specific cases? When does scientific accuracy become the major issue, and when is it not? It seem that the case of BSM is interesting because despite being uttered by Nobel prize winning academic economists, the primary or relevant test that through which the model was admitted into practice was NOT an academic test of ‘accuracy’… even though the model can certainly be put to this test retrospectively by outside observers…

  2. typewritten Says:

    Very much to the point.

    One thought about “to become accurate” in science. It’s true that there is a widespread drive to tackle this problem in terms such as “but in order to spread as valid, scientific knowledge needs to be true in the first time”. But this sorts of remarks often come from (an otherwise completely fair and reasonable) lack of awareness about the point that the science studies tradition has been struggling to make for decades: it’s not about “scientific veracity comes out of thin air (social thin air or otherwise)”, but precisely about the opposite, that is, about “look at how costly truth really is (instead of relying on ex-post, non-empirical accounts of science)”. Among the classics that clarify this point, perhaps Garfinkel’s re-enactment of Galileo’s demonstration (published as a chapter in _Ethnomethodology’s Program_) is particularly useful (someone should try the same with Black & Scholes).

    Another thought on “conditions necessary for a theory to be performative”. Maybe too much emphasis on the “hows”, the “how comes” and the “whys” is detrimental to attentions to the “whats”. How does a theory become performative? Ok, that is of epistemic interest. But it is strange that the interest on what kind of world are we inheriting out of these sorts of financial performative tinkering (which could be considered as a fair, straightforward sociological concern) often fades out in favor of questions about the fate of wisdom.

    (Gosh, what a long and boring comment).

  3. typewritten Says:

    The point about “kinds of tests”: very good too. Could we perhaps talk too about “trials of strength” (French accent)?

    (Sorry, private joke).

  4. yuvalmillo Says:

    Very nice comments! Many thanks. The last point by typewritten is very important and worth repeating: many times the debates around performativity neglect the important sociological (and political) point of what type of financial markets and, indeed, world does performativity of economics create for us? Well, for one, it is a world where risks are occasionally intensified and multiplied (because of risk model concentration). Another outcome of the same phenomenon is where risk methodologies themselves are compromised because their performative impact is not taken into account.

  5. typewritten Says:

    This last point (how financial markets turn into a sort of a risk-inducing reflexivity contest) is perhaps key to understand the political impacts of financial models (this reminds me of a paper in which Javier Izquierdo examines “how the naughty phantom of social reflexivity terrifies contemporary financial competition and regulation”, available here).

  6. Peter Says:

    I wonder, if performativity didn’t have its roots in the sociology of science, would the scientific validity question continue to loom so large? That is, if we were using the concept de novo to understand how markets work instead of how science creates knowledge, would you be quite as concerned about its relationship to, say, cold fusion theory?

  7. marthapoon Says:

    I would tend to go the opposite way here Peter – The old fashioned epistemology of knowledge/science is such an entrenched paradigm that the question of accuracy and models is always at the forefront of NON-science studies analyses of science and technology.

    Science studies provides tools to break the question down and make it irrelevant; dut due to persistent problems of ‘translation’ faced by SSF, met by, precisely, the entrenchment of the validity question with its interlocuters, the question has lingered.

    It’s the interlocutors who keep raising the validity question. Not the performativity people. They’re just trapped responding to it.

  8. typewritten Says:

    Yes, Martha, very interesting. The more infiltrated you are within science studies, the less you care about the epistemology of validity, and vice versa. Probably a reason why, to some, “science studies” is not a specialized sociological branch but an all-encompassing reformed general sociology (one that would rid the discipline from the obscure vices of modern philosophy of science).

  9. […] on the previous Market Devices post, Peter made a crucial point; one that, actually, I got quite a few times in different shapes. The […]

  10. […] Teppo’s posting on performativity, and similar debates on orgtheory (here, here, and here), socializing finance, organizations and markets, and old- fashioned journal articles (AJS, AMR, OrgScience), I was […]

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