Lucia Siu, co-editor of Do Economists Make Markets? is now at the Department of Sociology and Social Policy in Lingnan University, Hong Kong, and she is doing very interesting work in Social Studies of Finance (e.g. ethnography of Chinese commodities markets – see more here). Lucia is currently looking for potential collaborators for research work in China or Hong Kong.

People working in the area of Social Studies of Finance have been blamed many times of being ‘too French’, whatever that may mean (…I supposed that it refers to the close intellectual ties between SSF and Actor-Network-Theory and, to a lesser degree, the economics of conventions). So, we are doing what many minority groups do: we take the insults and wear them as a badge of honour. We [heart] French sociology. PS – I did not forget my promise to write a post about the AoM sessions.

3rd Congress of the French Sociological Association
“Violence and Society”
Paris, 14-17 April 2009

“Economic sociology” Working Group
Call for papers

Sociologists have dealt with the relationship between economy and violence in different ways.
On the one hand, market competition can be seen as a form of pacification of conflicts. On the
other hand, some sociologists underline that individuals establish market relations only if they
are forced to do so.

If those two scientific traditions seem contradictory, it may be because they do not share the
same understanding of the words “violence” and “economy”. Violence refers to power relations
among social actors, as well as verbal abuse or physical violence (interaction between
individuals, war, etc.). Likewise, economy can point only to the market itself, or to more global
forms of organization of economic relations.

The topic of the 3rd Congress of the French Sociological Association, “Violence and Society”,
is a good opportunity to study the relations between violence and economy. Furthermore, it
seems necessary to seize the various forms of violence, and to underline the specificity of an
economic sociology approach.

Contributors may study various issues, power relations in market transactions, informal
economy, “illegitimate” markets (drugs, mafia, corruption). Studies on markets where
violence is the object of the transaction itself (private security, video games, combative
sports) are also welcome.

While French economic sociology has focused on concepts or topics such as the social
construction of markets, exchange and gift, social networks, judgment, market devices or
entrepreneurship, one may ask if the question of violence applies to those issues, and if it
does, in which way. Organizers will also accept papers on violence in labor relations (organizations, firms),
and links between economy and politics.

Finally, violence can be a matter of qualification. Contributors may therefore send proposals
about the shifting boundary between “regular” economic exchanges and violence.

Proposals must be sent by e-mail (afs09rt12@gmail.com). Deadline : 30 September 2008.
Maximum 1 000 words. Please include a paper title, author’s name and affiliation, and email
address.The languages of the congress (papers and oral presentations) are French and English.

Session Title: Market Devices: Understanding the Underbelly of Financial Markets
Submission Type: Symposium | Session Sponsor(s): (OMT, MOC, TIM)
Date & Time: Monday, Aug 11 2008 from 10:40AM – 12:00PM
Location: Anaheim Marriott, Grand Ballroom – Salon F

Session Title: How financial issues impact our organizations?
Submission Type: Paper Session | Session Sponsor(s): (PNP)
Date & Time: Monday, Aug 11 2008 from 10:40AM – 12:00PM
Location: Anaheim Marriott, Platinum 1

Session Title: Market Formation and Construction Processes: What we Know and the Questions we Ask
Submission Type: Symposium | Session Sponsor(s): (AAS)
Date & Time: Monday, Aug 11 2008 from 12:20PM – 2:10PM
Location: Anaheim Marriott, Grand Ballroom – Salon E

Session Title: When Financiers become Entrepreneurs: Understanding Institutional Entrepreneurship in Finance
Submission Type: Symposium | Session Sponsor(s): (OMT, ENT, BPS)
Date & Time: Monday, Aug 11 2008 from 2:30PM – 3:50PM
Location: Anaheim Convention Center, 210D

Session Title: Financial Markets: An Economic Sociology Perspective
Submission Type: Symposium | Session Sponsor(s): (BPS, OMT)
Date & Time: Tuesday, Aug 12 2008 from 8:30AM – 10:10AM
Location: Anaheim Convention Center, 202A

Just returned from an inspiring academic event. The First Workshop on Imagining Business just took place last week in Oxford, at the Said School of Business. Visualization, especially as applied to finance, is a true passion of mine: it is a crucial component of contemporary markets (see my work on merger arbitrage), it offers lucrative business opportunities for innovation (see previous blog post), and it has been used to great effect by artists to re-imagine Wall Street (see my article here). Given all this, I attended the Oxford event with at least the same enthusiasm that my fellow Spaniards showed at the European soccer final. What, I asked myself, does existing research say about business visualization?

The organizers — Paolo Quattrone, François-Régis Puyou and Chris Mclean – were aware of the importance of the visual in organizations, and offered a perspective based on Science and Technology Studies. According to them:

Organizations are saturated with images, pictures, and signs that impact on many different aspects of everyday organizational life (…) Over the past decades, Science and Technology Studies have largely contributed to clarifying the importance of “representation in scientific practice” (Lynch & Woolgar, 1990). Through their focus on the process of re-presentation they highlighted how specific practices of making things visible … were central to ‘doing’ science. We wish to extend this to a study of business.

In other words, science is first and foremost about visualizations. What about its more practical, mundane and prevalent cousin — business? What to make of, “budgets and accounting tools, advertising literature, design specifications?” What do we think is the visual power of “public relations leaflets, standard operating procedures, schedules, reports, graphs, charts, organizational hierarchies [and] maps?” These were the questions that the presenters set out to answer. As a very refreshing novelty, the conference was accompanied by an art exhibition curated by Nina Wakeford, Lucy Kimbell and Alex Hodby.

The approaches to visualization were numerous and varied. I could not attend to all the presentations. But according to my own taxonomy, the presentations fell into four different groups: one set of papers explored how images (mostly photographs) are used for public relations and communication. A fascinating piece by Sue Hrasky explored the use of visual cues and images in corporate annual reports. Whereas researchers in accounting and management tend to decry the use of smiling people as not constituting “information,” Hrasky shows how images complement, reframe and expand the meaning conveyed by the text. On a similar note, Charles Cho, Jillian Phillips and Amy Hageman explore the significance of images in corporate social responsibility.

Another line of presentations engaged with images from a semiotic perspective. Presenters offered their interpretation of the meaning of the images used by businesses. A interesting example from the finance industry was provided by Frandsen, Bunn and McGoun: the authors explore how the changing architecture of banks through the 20th C. –from the closed imagery of a safe to the alluring aesthetics of retail – has changed to fit evolving social views of money. As money changed from a “stock” that needs to be protected to a virtual flow that needs to be kept active, so has the architecture of banks adapted.

But my favorite piece was by Brigitte Biehl. She analyzed the cultural symbols at the trading floor of the Deustche Borse. The German stock market has recently upgraded its floor from a dark, low-tech space to an expensive and futuristic-looking market. The Borse also engages in publicity stunts a la Dick Grasso at the New York Stock Exchange: celebrating carnival on the floor, or inviting models in bikinis. All this performative drama gives rise to the obvious question: why such expenditure on the floor, just as electronic trading seems to be dominating the rest of world exchanges? Biehl has a cynical but interesting answer: because the investing public is ignorant of finance. Exchanges reduce the cognitive distance that retail investors experience vis-à-vis earnings, indexes, and other complications of the capital markets.

What to make of this argument? The problem with the “circus” approach to finance, of course, is that it sends a misleading signal. Even if they look serious and powerful on TV news, the clerks at the Borse are not actually responsible for the price movements. One of the attendees in the public offered an interesting solution: if the problem is the need to show people in the evening news, why not do it the way it’s done in London? Put a camera inside the trading rooms of the large investment banks, broadcast TV news from there.

Regardless of one’s view, Biehl needs to be congratulated for sparking a much-needed debate on this type of strategic semiotics of financial exchanges.

A third line of work engaged the imagining side of images: exploring how images can promote novel thinking on a certain issue. Here, the plenary presentation by Donald MacKenzie was one of the most talked about. MacKenzie asked, what would it take for a market to address current environmental problems? The existing European cap-and-trade system (so-called carbon trading) does not seem to be a success… but why? MacKenzie views cap-and-trade systems as a case of performativity: a practical instantiation of Ronald Coase’s theory of property rights. According to some, this performative move was too complex — an economist’s pet project, turned sour. MacKenzie’s presentation delved into accounting and regulatory details that have prevented vigorous trading in pollution permits, even suggesting some regulatory changes of his own. Fascinating work, and very different from the more distant historical perspective he took on Black-Scholes. As an SSF researcher, I can only salute this initiative and welcome the start of SSF research with real political impact (a topic of recent post by Yuval and Martha).

An enlightening “imagining” presentation was offered by Susan Scott and Wanda Orlikowski. Following a very broad review of the management literature on social media, the authors found that the choice of methodological tradition is very related to the way social media is imagined. Research that follows the strategy/ economics- inspired paradigm tends to view technology as a distinct entity, cut off from its users; whereas research in the ethnographic/ sociological tradition views technology in terms of community, with little focus on the unity of the phenomenon. I found this divide intriguing. The authors emphasized the need to overcome a dualistic image of social media, suggesting Pickering’s expression, “the mangle of practice.”

My own presentation engaged with images in a different manner – what I would call “calculative visualization.” In a nutshell, I talked about the spread plot (080623-distributed-calculation-at-imagining-business1). The spread plot allows merger arbitrageurs to calculate the “implicit probability” of merger completion: the probability that “the market” assigns to a successful completion of mergers that have been announced but remain to be solidified. It is special in that if you know how to use it (as professional hedge fund traders do) you can “see” the probabilities of merger between two companies. If you don’t – as is the case with retail investors – you are left guessing. Images like the spread plot, I argue, are responsible for part of the billions of profit made in these past decade by the hedge fund industry. And the more recent diffusion of these tools may well account for the limited returns experienced by these funds nowadays. (Two other examples of this were provided by presentations on SAP and the imaging system used by oil companies.)

To conclude — what did I learn about business visualization? That research in them falls on four very different types: corporate communications, semiotic analyses, re-imaginary approaches and calculative images. Perhaps predictably, I find this fourth type most persuasive. Beyond the natural allure of photographs, brochures or interfaces, I am particularly interested in visualizations that have color but also data, that let people imagine but also count, that inspire but are also practical. The capital markets are a terrific environment to explore these.

In any case… whether one subscribes or not to my view, the overall message from the conference is clear: visualizations are key to contemporary business. Researchers need to engage with them. The organizers of this workshop need to be congratulated for putting together a novel, daring and successful event.

On Friday, crude oil prices jumped in a new all-time high: the benchmark futures contract of light sweet crude was traded at US$139.54 in New York.

This new record was attributed to a comment by Iranian-born Israeli deputy prime minister, Shaul Mofaz, who said that: “If Iran continues its nuclear weapons program, we will attack it. Other options are disappearing. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear program.”

The news stories did mention that the context for this comments is the primaries in Kadima, PM Olmert’s party, where Mofaz is a contender and that it is likely that the comments were made for ‘domestic consumption’. The reaction to the statement shows that in today’s highly connected markets distinction between the local and the global cannot be made easily. Mofaz’s Israeli political bravado injected volatility to global oil markets. Such effect, in itself is dangerous enough, of course, but the other ‘leg’ of the reflexivity circle is potentially even riskier. In fact, this side of the phenomenon may feed a social loop that can place Iran and Israel on a sure collision course.

How so? Mofaz is now aware of the impact that his words have on markets. However, if anyone may think that this would serve as a lesson and that future comments would be less vehement, then they do not know the Israeli political discourse. Mofaz will now celebrate his influence on global oil markets and will use last week’s price rise as leverage for creating more political capital. Moreover, the reaction to this comment will motivate Mofaz and other Israeli politicians to outdo it and to have even more impact. So, as long as the scandal-ridden Olmert government is haemorrhaging support we should expect increasingly more flamboyant statements from Israeli politicians about Iran, more volatile markets and a steady progress to the brink of a (possibly, nuclear) war in the middle east.

Life and Debt (2001, Stephanie Black) is a documentary film that discusses the machinations of international finance in the country of Jamaica. Although it is not riveting in its execution, it does beautifully combine narrative and documentary to effectively communicate some things about how global finance has functioned in so-called third world countries. Through a short first person text by Jamaica Kincade entitled ‘A Small Place’ in which a Jamaican narrator addresses words to a tourist visiting her island, the director speaks to the audience, situating the viewer in the story, in their potential role as ‘tourist’. On the one hand, there are the glistening azure beaches; on the other, hidden in the foliage, there is massive poverty, currency devaluation, and deep social unrest.

Although the film comes from a ‘globalization’ perspective – which often, in this kind of media, tends to be an ideological critique and a diatribe against obvious injustices – this film is somewhat more subtle. It does an excellent job of capturing how trade policies create situations on the ground that affect agricultural practices, employment conditions and state finance. Rather than simply inflaming the viewer at how many panties a Hanes Jamaica pieceworker in the ‘free zone’ is expected sew per shift, the director is also careful to point to bigger issues, to the deep ironies of a tax free manufacturing area whose infrastructure is paid for by the Jamaican government indebtedness, for the benefit of American industry.

Nevertheless as the film progressed I was left with many pressing questions that nobody who studies globalization seems to be able to answer. The heart of the film was to document the slow erosion of Jamaican agriculture by the importation of cheaper food products from the U.S. An influx of powdered milk drowns out fresh dairy; frozen brown chicken meat (what’s left after the white has been taken to make chicken nuggets) floods the market at 20 cents a pound; imported carrots replace locally grown carrots. Ok, so this is happening, I see it on the screen… But my question is how?

It seems to me that trade policy alone is not a sufficient answer to the pricing puzzle. Beyond policies that lift trade barriers and do away with preferential tariffs there is still the burning question of price calculation: How is it possible for the price of an imported carrot, coming on a refrigerated, oil powered containership, to cost less for a Jamaican citizen on the marketplace than a carrot pulled out of local soil and transported by truck? (It takes only 12 hours to drive around the entire island.)

Most stories about prices in the globalization studies will show how so called free market prices are either not free because of hidden subsidies, or will defer to the ‘fact’ that superior farming practices create supply that drives prices down. But what nobody seems to show is the actual valuation process, the (calculatively legitimate) cost accounting mechanisms that constituts one carrot as being less expensive than another carrot. Is it sufficient to say that political interests fix prices so that they benefit some parties over others, or is there something to be said about how the technical processes of pricing confer differential value on goods?

My question is: Is there a problem here for the social studies of finance?

‘Life and Debt’ is available on streaming video from Netflix.

A project has been launched between the government of Guyana and a London-based firm called Canopy Capital to turn intact rainforest into economically viable, tradable commodities.   

How can it be that Google’s services are worth billions, but those from all the world’s rainforests amount to nothing?” asked Hylton Murray-Philipson, director of Canopy Capital.

[From an article on Mongabay.com]

 

The idea (which piggybacks off of carbon emissions markets) is to create a flow of money for conservation by garnering recognition of the variety of ‘environmental services’ that are generated by rainforest and attributing these with a market value that venture capitalist can invest in.  This sure is a long way from Rainforest Crunch!

The BBC World Service has broadcast a report on the topic (fast forward to 19:45-23:20) and there is a more detailed article on the topic on the environmental website, Mongabay.com.

As situation diffuses everywhere and asunder, I though it might be interesting to collate a few notes, gathered from mainstream press reports, on the stages of the current global credit crisis and the impending recession…   

1. Dot.com crash (2001): The popular story – after the terrorist attacks and the fall out of the dot.com bubble, risk wary investors redirect their capital into something secure and substantial – housing: ‘There’s no investment as quite as safe as houses’!  The shift is assisted by an historic FRB interest rate cuts. Based on a classic model of how monetary policy can be worked to produce macroeconomic stability, Alan Greenspan sustains liquidity in the money supply by aggressively lowering the cost of borrowing.

2. Housing bubble (2001-2005):  U.S. real estate undergoes an extraordinary acceleration leading to a ‘speculative housing frenzy’, part of a worldwide rise in real estate prices that The Economist has famously called “the biggest bubble in history”[i].  Defying sound economic expectations, the price of real estate rises “more in real terms [between 1997 and 2002] than in any previous five-year period since 1945”[ii].  The median home price surges from $177,000 in Feb 2001, to $276,000 in June 2006.[iii]  A steep increase in home equity creates more than $5 trillion in wealth a five year period, the equivalent of $70,000 per average family of four. [iv]  Through various ‘cash out’ refinancing programs and other novel home financing products, U.S. homeowners treat their houses like ATMs.  They converted inflating home equity into immediate spending money, pulling over 700 billion dollars (roughly 5% of the GDP in 2004 alone[v]) out of their homes.  Real estate’s biggest bull, David Lereah, chief economist at the National Association of Realtors NAR, boldly claims that real estate is “the only sector propping up the economy and keeping it from a full-blown free fall” [vi].

3. Housing correction (mid 2005 –ongoing): The peak of the boom is the middle of 2005.  Through the end of the year public commentary remains reassuringly optimistic but within a matter of months trading volumes in real estate have begun to slow, stagnate and then to decline.  Word of a bubble, which had previously remained within the parley of professional economists and elite commentators, spills into the public at large.  A Wikipedia entry titled ‘United States housing bubble’ appears in May.  In July, only 23% of Americans polled by Gallup are familiar with the term ‘housing bubble’, but a year later the figure has jumped to 40%.[vii]  By August, Robert Toll of Toll Brothers  – “the nation’s premier builder of McMansions”[viii] – is publicly stating that the downturn was unlike anything he’s every seen.  In Jan 2006 the buzzword is ‘soft landing’[ix] indicating a general acceptance that the market is indeed cooling, but betraying a widespread hope that things will slow without prices collapsing.  It’s the beginning of a ‘market correction’ for those, like Ben Bernanke, who prefer not to use the word ‘pop’.[x] 

4. Subprime mortgage crisis (end 2006-ongoing): At the tail end of 2006, default rates shoot up in segment of the mortgage market called the ‘subprime’ that has received little attention in main stream reporting.  The subprime is a class of borrowers with ‘blemished credit records’.  These homeowners have been “exposed to the multi-featured, exotic, exploding, non-traditional – whatever the name you have for them”[xi] mortgage products.  Alternative credit products typified by the ‘option adjustable rate mortgages’ (ARMs), are hit with bad press.  (A 2/28 ARM signifies that the payment schedule is set for two years at a low interest rate, after which payments and interest will fluctuate for the remaining twenty eight years of the loan.)  ARMs are openly condemned as “the riskiest and most complicated home loan product ever created”[xii].  During the boom however, ARMs have flourished, accounting for as much as 20% of the sizable loans volumes being underwritten in 2005 and 2006.[xiii]  The unconventional structures of ARMs prove vastly more sensitive to a slowing market and the interest rate hikes that are gradually imposed by the FRB.

5. Subprime securities crisis (2007-ongoing):  By the end of the first quarter, twenty five specialized ‘subprime mortgage lenders’ have gone into bankruptcy, announced losses, or are putting themselves up for sale because they are unable to raise sufficient cash flow from rapidly defaulting borrowers to pay their securities holders.  Regulators and the public discover that the high-risk loans issued during the buying frenzy had been packaged into bonds in the form of residential mortgage backed securities (RMBS) and pushed through to the secondary markets.  During the boom, money poured into RMBS doubling their amount to a record $476 billion.  As “a segment of the market that was once Wall Street’s darling”[xiv] falls into the proverbial doghouse, Standard & Poor’s begins massively downgrading the credit ratings on mortgage backed debt securities, an official red flag of their deteriorating quality.[xv]  Wall Street and the lending industry tightened their belts and clamped down on the underwriting of all loans classes that have fallen out of favour with investors. 

The press announces that the flight to quality “will be most severely felt by minority and poor home buyers and owners, who will face trouble refinancing adjustable rate loans that they can no longer afford”[xvi].  The U.S. Senate Committee on Banking, Housing and Urban Affairs begins hearings titled ‘Mortgage Market Turmoil: Causes and Consequences’ (March 22, 07), and consumer advocacy groups call for a moratorium on foreclosure as well as for an infusion of federal bail out funds to support payment-stressed families.  In total “[n]early 2 million ARMs are resetting to higher rates this year and next”[xvii] throwing as many households into what has elegantly been termed ‘payment shock’.  The NAR forecasts that in 2007, the U.S. will see its first drop in the median sale price since the Great Depression (April 12th, 07).[xviii]  In an attempt to stem the threat of foreclosures, treasury Secretary Henry Paulson unveils a plan that involves no federal monies, but would freeze rates for five years on some categories of exotic mortgages originated between Jan. 1, 2005, and July 31, 2007.

5. Global credit crunch (mid 2007-ongoing):  Bear Stearns discloses that the two subprime hedge funds have imploded amid the rapid decline in the market for subprime mortgages (July 16, 07).  BNP Paribas freezes three funds (Aug 9, 07).  WJS reports that the slowdown in mortgages lending had extended to other forms of U.S. consumer credit.[xix]  A general drought in the credit markets brings an end to 46 leveraged financed buyouts.[xx]  And as the Dow tumbles 387 points, the European Central Bank pumps $130 billion into the financial system, the U.S. Federal Reserve $24 billion[xxi].  In the midst of this, CDOs – structured packages of securities backed by bonds, mortgages and other loans more complex that RMBS, which have reached $503 billion, a fivefold increase in three years – hit the mainstream press.  In general, it’s not clear just where the bottom tranches, th ‘toxic waste’ of these investments are, but at least some are have worked their way into retirement and pension funds.[xxii]  The corporate ‘victims’ of the crisis start piling up:  Stan O’Neal CEO of Merrill Lynch retires (Oct 28, 07); Prince steps down as head of Citigroup (Nov. 5, 07); James Cayne of Bear Stearns resigns (Jan 7, 08).  Then come the write downs: Wachovia, $ 1.7 billion (Nov, 10, 07); BofA $3 billion, (Nov 14, 07); Morgan Stanley, $9.4 billion (Dec 20, 07); Bear Sterns, 1.9 billion (Dec 20, 07); Citigroup, $18 billion (Jan 15, 08); JP Morgan Chase 1.3 billion (Jan 16, 08).   It is estimated that Wall Street’s largest banks and brokers will be forced to write down as much as $130 billion and losses may reach $400 billion.[xxiii]    

6. Recession (Jan 2008):  Talks start to help bailout bond insurers such as Ambac Financial. The markets continue to experience high volatility and the Feds cut the federal funds rate twice, back to 3-1/4%, in a bid to stop the onset of a recession.  After a weak holiday season, U.S. consumer spending slows…[xxiv]  [To be continued.]


[ii]The Economist. ‘As safe as what?’. Aug 31, 2002 

[iii] Bob Ivry. Foreclosures May Hit 1.5 Million in U.S. Housing Bust (Update 3). Bloomberg March 12, 2007

[iv] Dean Baker. ‘The Housing Bubble Fact Sheet Issue Brief’ Center for Economic and Policy Research. July 2005 

[v] Edmund Andrews.  ‘Most Homeowners Not Overly in Debt, Fed Chief Says’ NYTimes. Sep 27 2005   

[vi] David Lereah. Why the Real Estate Boom Will Not Bust – And How You Can Profit from It, Currency Publishers. 2006

[vii] Hubert B. Herring. ‘If No One Whispered ‘Housing Bubble’, There’d Be No Worry’ NYTimes April 30, 2006

[viii] Paul Krugman. Op-Ed. NYTimes August 25, 2006

[ix] Stephanie Rosenbloom. ‘The Power of Words’ NYTimes Jan 29, 2006  
[xi] Daniel Mudd. Fannie Mae President and CEO Remarks, Delivered January 31, 2007 to Citygroup, 2007 Financial Services Conference  
[xii] Mara Der Hovanesian. ‘Cover Story: Nightmare Mortgages’ Business Week Sept 11, 2006

[xiii] Victoria Wagner. ‘A Primer for the Subprime Problem’ Business Week March 13, 2007    

[xiv] Vikas Bajaj. ‘Freddie Mac Tightens Standards’ NYTimes Feb 28, 2007  

[xv] Vikas Bajaj. ‘Rate Agencies Move Towards Downgrading Some Mortgage Bonds’ NYTimes July 11, 2007;  Bloomberg News, July 13, 2007

[xvi]  Ibid.

[xviii] James R. Hagerty. ‘Realtors Predict Price Drop, Lower Forecasts for Sales’ WJS.com April 12, 2007  
[xx] Victorial Howley et al. ‘Credit Chill Freezes Leveraged  Deal’ WJS Aug 3, 2007  

[xxi]  Tomoeh Murakami Tse an David Cho. ‘Credit Crunch In U.S. Upends Global Markets’ Washington Post Aug 9, 2007  

[xxiv] Michael Barbaro and Louis Uchitelle. ‘Americans Cut Back Sharply on Spending’ NYTimes Jan 14, 2008;  Shobhana Chandra and Andy Burt ‘U.S. Recession is Now and Even Bet as Spending Slows’ Bloomberg Feb 8, 2008

From Bodies to Black-Scholes

A Two-day Workshop on Performativity and the Social Studies of Finance

Organized by Daniel Beunza (Columbia U.) and Yuval Millo (LSE)

Columbia Business School, New York, 28-29 April 2008

The Social Studies of Finance (SSF) is one of the fastest-growing and most intriguing new fields in the social sciences today. Born from the intersection of sociology of science, economic sociology, management and critical accounting, SSF offers a new vantage point for the analysis of financial markets and their dynamics.

This intensive two-day workshop is convened by Daniel Beunza from Columbia Business School and Yuval Millo from the London School of Economics. It is aimed at presenting the field to newcomers, and is directed at research students and early-career researchers in accounting, finance, management, political science and sociology.

To allow effective discussion, the group size is limited to 12 participants. The workshop’s fee is US$ 200. To apply for the workshop, please send by February 29th a CV and a one-page description of your research and how it relates to SSF to y.millo@lse.ac.uk

For more details see: http://personal.lse.ac.uk/millo/SSFworkshop.htm

This is a text that I prepared originally for an exhibition catalog, but I thought that it can also fit nicely with the eclectic spirit of the blog. So, I include it here.

 

We hear many different stories about where the market is to be found and, consequently, what the market should be. Many of these stories, though not all of them, are exclusionary. That is, they tell us: ‘my market is the real market’. When asked where the market is, the trader on the busy New York, Frankfurt or Hong Kong trading will spread his arms and say ‘here’. The day trader, in the basement of her suburban house will point to the computer screen and say ‘right here. This is the market’. The economics professor, surrounded by books and papers in his university office will point to a formula on a white board and explain why this is the market. ‘Well’, the sophisticated art aficionado is now saying, ‘this is not so problematic. The market simply has many representations’. Yes, quite right, but a representation of what, exactly? Where is ‘the market’?

The sophisticated art lover may revolt now: ‘why do we need a ‘real market’ that would be represented? Why couldn’t we have plurality without an obligatory original? Isn’t the artists’ re-creation of the market just as valid as that of the traders’ or as that of the securities analysts? Haven’t you heard of Walter Benjamin or Baudrillard?’ Yes. There is a faint smell of postmodernism in the air, but I think that this time the sophisticated art-lover may actually do a little better then state that ‘anything goes’.

When we state that any representation of the market is valid because there is now fundamental original that can be represented we implicitly focus on the outputs of markets. For example, the artist may take the voices of traders, graphs representing price movements or an aural translation of prices and embed these into a work of art. This brings us back, sneakily, to the apologetic position where we have to defend our ‘soft’ representations of the market against the ‘hard’ representations that analysts, accountants of finance professor produce. Isn’t there a way out?

Maybe we could shift our focus from the representation itself to the one using it and to the experience of its use. That is, what do people experience when they interact with representations of the market? An initial answer may be that these representations can help people understand where they are vis-à-vis the market and then, they can use this understanding to develop an idea of where to go next. The immediate example is of a map. You are not sure exactly where you are, but a short look at the map and a comparison with the terrain around you, may help you to estimate your location.

But, the alarm bell on our art-lover’s desk is ringing. ‘How can you look at the terrain if there is nothing ‘original’ outside? Didn’t we just say that there are only competing representations of the market?’ Well, let’s be more subtle about our examples, and maybe we will get closer to what market participants experience. You have a map, but you cannot see the terrain right now, as it’s night and it’s raining heavily. You have to rely on the map. But, the art-lover is asking, ‘is there a terrain (market) out there or isn’t there?’ Let us wait a little bit with this question. Remember, we are focusing on the experience, not the market. Let us find out what participants do with the representations.

The geographical map, like a risk map, a graphical representation of past price changes or a printout of mathematical prediction model, to name but a few, is what cultural anthropologists frequently call a ‘summarizing symbol’. Such symbols capture, in a compact informational package, numerous references to related entities. For example, the French flag may represent to a French person the sound of the French language, the beauty of a Parisian boulevard, the taste of regional food and patriotic pride. All these things, and countless others, are ‘compressed’ into a three-coloured rectangular. ‘Yes’, says our art-lover, ‘but these reminiscences are not in the flag; they are simply evoked by the flag, while the map actually includes new information. The French person is ‘smarter’ than the flag, while the market participant is not smarter than the representation of the market’.

This is true. But, the representation of the market, as smart as it may be, does not know what would be the next step that the market participant may take. Granted, the representation and the trader or analyst work together with their representations of the market, but none of them is a-priori superior cognitively to the other. Representations of the market, in their role as summarizing symbols, operate with us (and sometimes, unfortunately, against us), market participants, in our joint person-machine endeavor to make sense of where we are vis-à-vis the market and help us devise our next step.

‘Hold on’, cries the art-lover, almost dropping his espresso, ‘I am returning to the question you didn’t answer before: is there or isn’t there a market that we represent? Now you really contradict yourself. How can a representation of the market, be it a graph, an annual report or a work of art help us to find the market if there is no original market to be found? How can we position ourselves in relation to something if that something does not really exist?’

‘There is no contradiction there’ we should answer. We do not know if there is or there is not a ‘real’ market out there and neither should we care. The floor trader, the on-screen trader and the economics professor we met earlier may or may not care about the authenticity of the market whose representations they interact with. What they do care about is that the representation works. It provides them concise, compact, summarising information that allows them to make sense and make decisions.

The art-lover is now grinning cynically: ‘I like this agnosticism. It’s all very clever, but what has that got to do with aesthetic representation of the market?’ It is related to aesthetic appreciation just as much as it is related to economic, political or social evaluation and decision-making. In fact, when examined carefully, one can find elements of different realms in each market decision. It is not a coincidence that the brain sites that process emotions and logical decision-making are coupled, as recent research indicates. We think and feel at the same time. The different representations of the elusive market are all valid as long as they provide us with a valid experience. Is it interesting, moving, pleasing and insightful? Does it reverberate with your feelings and your intellect? Does it help you to understand or sense things better? If so, this is it. You found the real market.