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.

First time for me at the AoM and it was quite an experience. So, a few initial, quick notes from the poolside in Anaheim.

Daniel and I took part in a session titled Market Devices, which was (apart from a blatant promotion of a book with the same title), actually a very good session. More about this session in a separate post. That session, by the way, was not the best session I attended. In my opinion, the best session was “Financial Markets: an economic sociology perspective”: a set of diverse, but very nice papers, followed by a cracking discussion and comments from Ed Zajac. Again, I will post more about this session later on.

What else? Oh, yeah. We had a little poolside SSF get-together where many of the accomplices in this blog had beers with decent civilians. Among which were representatives of our older brother blog – org theoryBrayden King and Teppo Felin.

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

Please welcome a new guest blogger on SocFinance: Zsuzsanna Vargha

Economic sociologist Bruce Carruthers just reviewed Avner Offer’s book The Challenge
of Affluence
for the American Journal of Sociology.

The most interesting concept of the book is the “commitment device”. As Carruthers writes, “’Commitment devices’ make decisions tractable and help to protect individuals from various temptations, including those that produce myopic choices and loss of self-control. To give an example, a hard-drinking partygoer who gives her car keys to an abstemious friend is using a third party to precommit to not driving while drunk. At the macro level, a gold-standard system helps governments resist the temptation to inflate their currency. Sexual behavior and savings offer other indications of the extent of self-control. Commitment devices frequently utilize social structures, conventions, norms, and institutions, and they operate at both micro and macro levels. They are costly and hence not evenly distributed throughout society: evidently one of the privileges of the rich is that they can hire some self-control.

The key problem, according to Offer, is that rapidly increasing affluence can eclipse existing commitment devices and lead to irrational or bad outcomes.” This is interesting because Offer is working from a behavioral economics framework, yet the result sounds much more like Bruno Latour. I am thinking of Latour’s example of the hotel manager in his essay “Technology is Society Made Durable” (In: A sociology of monsters: essays on power, technology and domination, edited by John Law). In very simplistic terms, in Latour’s story the hotel manager is trying to get guests to leave their room keys at the hotel, instead of taking them on their outings (and losing them). The manager tries various methods of combining the key and objects, until he finds one that works: attaching a large weight to the key, which makes it uncomfortable to carry the key. This way the manager succeeded in aligning various actors for his cause: the key, the weight, the guests. The technology of the key-with-weight is thus in fact a network of human and non-human actors. Commitment devices, in this light, are technologies for non-action. Offer calls it selfcontrol.

In any case, the concept points to the other side of technology as enabling action—you also need to work hard and configure technologies to restrict action. This is not new but Offer uses it to argue that prudential action is overridden by growing material well-being. This is because commitment devices cannot make their way to all the places where temptation makes its way. Using Offer’s concept of “commitment device” would be a fruitful approach to work out the overlaps between behavioral economics and actor-network methodologies. This is all the more important since Social Studies of Finance has been inspired by not only science and technology studies but also by behavioral finance. There is a lot to be said about affluence, temptation, and commitment devices, and whether Offer is on the right track by concluding that affluence erodes prudence. I also wonder what the substance of the argument means for finance: commitment devices make prudence possible. At a minimum, the concept could be tried out on topics like risk management, accounting (mal)practice, investing versus gambling, to name a few. 

Nassim Taleb pointed me to a note on his web site. Taleb says there, among other things, that: when writing history, we project our mental biases in a way to produce agency and increase the role of theory. The idea that academics, in general, are more theory-oriented than explanation-oriented is not new. Indeed, there is a wide spectrum of critical approaches towards theory, from, for example, Paul Fayeraband’s epistemological anarchism to evidence-based medicine.

However, Nassim’s approach becomes the most interesting when he refers to the area he knows best: option pricing. In a talk at the LSE earlier this year (at the Accounting department) Nassim claimed not only that the history of the Black-Scholes formula [shows] that mathematics is often there to “lecture birds how to fly”, but, more provocatively, that options’ traders hardly ever use the Black-Scholes-Merton model and that, in fact, the put-call parity is enough to trade options. Nassim’s claim is coming from his extensive experience as an options trader and I am sure that his observations are authentic and valid. The important question about BSM model, however, is no longer whether or not individual traders use it or not, because when entire price quotation systems are based on BSM, individual traders matter very little in this respect. The question then becomes: to what extent is BSM theory entrenched into financial market systems? The answer to this is fairly obvious: it is profoundly embedded into today’s markets.

Now, let us go back to Nassim’s claim that science in general, and economics in particular, are too theory-oriented. I agree with this claim whole-heartedly, and I think the BSM model case is a very good example for this tendency. However, the arenas where such theory-biases unfold and become effective are not the pages of economics journals (let alone those of philosophy of science), but trading floors, trading rooms and increasingly, trading and risk management algorithms. That is, economic theory is frequently inaccurate (BSM, for example), but is very affective. In other words, in markets, birds (and more so, bird growers) do read flying manuals.

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.

Got this from Princeton this morning: the much-talked-about edited volume about performativity of economics: Do Economists Make Markets? On the Performativity of Economicsis is now out on paperback (and it is about half the price of the hardback version)

Quick links

June 30, 2008

A new blog about the connection between STS and ontology, focusing on the workshop Daniel described.

http://stsontology.wordpress.com/

Tom Wolfe is thinking that it’s the ‘end of capitalism as we know it’. The story is a bit confused, but so are financial markets these days.

http://www.nytimes.com/2008/06/24/business/24sorkin.html?_r=1&adxnnl=1&oref=slogin&ref=business&adxnnlx=1214821262-Ht2eAktdvL0YMp2w1eB/KQ

I was looking through the programme of the next 4S conference (Society for the Social Studies of Science) and there were a lot of financial market-related papers. Many of them, as expected, will be given by people who are close to, or part of, SSF, but not exclusively:

  • Assembling the hybrid client: making banking markets by matching profile with person (Zsuzsanna Vargha, Columbia University)
  • Marketization of climate change: contesting the performativity of Economics (Anders Blok, Copenhagen University)

[at the same session Rita Samiolo will also be presenting. I know the paper and I think that it’s a very good ANT story – although Rita may not agree with this definition – so, it’s highly recommended]

  • Markets as Simulations: Economic Theory and Market Design in the Restructured Electricity Industry (Daniel Breslau, Virginia Tech)
  • Towards a Material Sociology of Markets (Organized by Juan Pablo Pardo-Guerra, Donald Mackenzie and Anita Engles)
  • Dealing with emission allowances: How companies learn the fundamentals of the EU Emissions Trading Scheme (Anita Engels, University of Hamburg)
  • Making Things the Same: Gases, Emission Rights and the Politics of Carbon Markets (Donald MacKenzie, University of Edinburgh)
  • A market of EPIC proportions: finance (re)configured in the London Stock Exchange (Juan Pablo Pardo-Guerra, University of Edinburgh)
  • Weather matters: thermometers, equations and models in weather derivatives trading (Samuel Randalls, University College London)
  • The awkward materiality of housing markets (Susan J Smith, University of Durham)
  • From New Deal Institutions to Capital Markets: Commercial consumer risk scores and the making of the U.S. subprime mortgage market (Martha Poon, University of California San Diego – yes, the very same one!)

Heroes

June 17, 2008

I am referring now to a discussion in OrgTheory , about, among other things, whether it is better to study extreme (or rare) cases, or to study the more frequent ‘middle ground’. The discussion there is interesting and there are some nice insights, but the fundamental premise underlying it is somewhat misguided.

The discussion about extremes vs. ‘average’ assumes that social phenomena follow some sort of normal distribution. In contrast, many of the organisational phenomena in presence, as they include an element of path dependency, tend to form power law distributions (e.g. few large corporations and a ‘long tail’ of small companies, size of cities). When dealing with such distributions, the notions of averages, medians and therefore also extremes vs. ‘frequently occurring’ do not tell us very much; in fact, they would be misleading.

That is not to say, of course, that nothing follows normal distributions. Many things do, but typically, when we witness normal distributions they typically occur within some kind of sub-strategic space. For example, the answers to the question ‘how many times a week/month/year/ do you go to the cinema?’ will tend to distribute normally. However, the option space implied in this question is limited and is contained within a single strategy: one can either go to the cinema or not. In contrast, a question that would refer to, say, the pros and cons of installing home cinema systems vs. going out to the cinema – a questions that opens an inter-strategy space – is likely to yield a non-normal, power law-like distribution.

So, what type of analyses can we produce about organisational phenomena? Should we focus on the rare or the common? Well, if the phenomena are ‘historical enough’ – they embed path dependency – then, at a very basic epistemological level, all the research stories we tell about such phenomena are ‘mechanism stories’. We tell the stories of the exceptional, the uncommon and we analyse the ways (how and why) in which the, for example, the successful few became, and remain, successful. That is, we tell the stories of heroes.