https://ebookmass.com/product/material-markets-how-economicagents-are-constructed-beunza/
Instant digital products (PDF, ePub, MOBI) ready for you
Download now and discover formats that fit your needs...
The Unconventionals: How Rebel Companies Are Changing Markets, Hearts, and Minds-and How You Can Too Mike Otoole
https://ebookmass.com/product/the-unconventionals-how-rebel-companiesare-changing-markets-hearts-and-minds-and-how-you-can-too-mike-otoole/
ebookmass.com
Competitive Agents in Certain and Uncertain Markets
Robert G. Chambers
https://ebookmass.com/product/competitive-agents-in-certain-anduncertain-markets-robert-g-chambers/
ebookmass.com
How Things Are: An Introduction to Buddhist Metaphysics
Mark Siderits
https://ebookmass.com/product/how-things-are-an-introduction-tobuddhist-metaphysics-mark-siderits/
ebookmass.com
Microeconomics and Behaviour, 3rd European Edition
Robert H. Frank & Edward Cartwright
https://ebookmass.com/product/microeconomics-and-behaviour-3rdeuropean-edition-robert-h-frank-edward-cartwright/
ebookmass.com
Clinical Psychopharmacology: Principles and Practice 1st Edition S. Nassir Ghaemi
https://ebookmass.com/product/clinical-psychopharmacology-principlesand-practice-1st-edition-s-nassir-ghaemi/
ebookmass.com
History - IB Prepared - ANSWERS David Smith
https://ebookmass.com/product/history-ib-prepared-answers-david-smith/
ebookmass.com
Questioning Gender: A Sociological Exploration 3rd Edition, (Ebook PDF)
https://ebookmass.com/product/questioning-gender-a-sociologicalexploration-3rd-edition-ebook-pdf/
ebookmass.com
La Tora: Biblia Mesianica Hebrea De Estudio traducida al espau00f1ol (Spanish Edition)
https://ebookmass.com/product/la-tora-biblia-mesianica-hebrea-deestudio-traducida-al-espanol-spanish-edition/
ebookmass.com
Guardians of the Crown: Guardians of the Fae Realms: Books 9-12 Madore
https://ebookmass.com/product/guardians-of-the-crown-guardians-of-thefae-realms-books-9-12-madore/
ebookmass.com
eTextbook 978-0137062706 Bioprocess Engineering: Basic Concepts (3rd Edition)
https://ebookmass.com/product/etextbook-978-0137062706-bioprocessengineering-basic-concepts-3rd-edition/
ebookmass.com
TheClarendonLecturesinManagementStudiesarejointlyorganizedby OxfordUniversityPressandtheSaïdBusinessSchool.Everyyearaleading internationalacademicisinvitedtogiveaseriesoflecturesonatopicrelatedto managementeducationandresearch,broadlydefined.Thelecturesformthe basisofabooksubsequentlypublishedbyOxfordUniversityPress.
ClarendonLecturesinManagementStudies:
TheModernFirm
OrganizationalDesignforPerformanceandGrowth
JohnRoberts
ManagingIntellectualCapital
Organizational,Strategic,andPolicyDimensions
DavidTeece
ThePoliticalDeterminantsofCorporateGovernance
PoliticalContext,CorporateImpact
MarkRoe
TheInternetGalaxy
ReflectionsontheInternet,Business,andSociety
ManuelCastells
BrokerageandClosure
AnIntroductiontoSocialCapital
RonBurt
ReassemblingtheSocial
AnIntroductiontoActor-Network-Theory
BrunoLatour
Gatekeepers
TheRoleoftheProfessionsinCorporateGovernance
JohnC.Coffee
Science,Innovation,andEconomicGrowth (forthcoming)
WalterW.Powell
TheLogicofPosition,TheMeasureofLeadership
PositionandInformationintheMarket (forthcoming)
JoelPodolny
GlobalCompaniesinthe20thCentury (forthcoming)
LeslieHannah
MaterialMarkets HowEconomicAgentsAreConstructed DonaldMacKenzie
GreatClarendonStreet,Oxford 2 6
OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwidein OxfordNewYork
AucklandCapeTownDaresSalaamHongKongKarachi KualaLumpurMadridMelbourneMexicoCityNairobi NewDelhiShanghaiTaipeiToronto
Withofficesin
ArgentinaAustriaBrazilChileCzechRepublicFranceGreece GuatemalaHungaryItalyJapanPolandPortugalSingapore SouthKoreaSwitzerlandThailandTurkeyUkraineVietnam
OxfordisaregisteredtrademarkofOxfordUniversityPress intheUKandincertainothercountries
PublishedintheUnitedStates byOxfordUniversityPressInc.,NewYork
©OxfordUniversityPress2009
Themoralrightsoftheauthorhavebeenasserted DatabaserightOxfordUniversityPress(maker)
Firstpublished2009
Allrightsreserved.Nopartofthispublicationmaybereproduced, storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans, withoutthepriorpermissioninwritingofOxfordUniversityPress, orasexpresslypermittedbylaw,orundertermsagreedwiththeappropriate reprographicsrightsorganization.Enquiriesconcerningreproduction outsidethescopeoftheaboveshouldbesenttotheRightsDepartment, OxfordUniversityPress,attheaddressabove
Youmustnotcirculatethisbookinanyotherbindingorcover andyoumustimposethesameconditiononanyacquirer
BritishLibraryCataloguinginPublicationData
Dataavailable
LibraryofCongressCataloginginPublicationData
Dataavailable
TypesetbySPIPublisherServices,Pondicherry,India
PrintedinGreatBritain onacid-freepaperby BiddlesLtd.,King’sLynn,Norfolk
ISBN978–0–19–927815–2 10987654321
ToBarbara,Moyra,andRobin This page intentionally left blank
IamextremelygratefultotheSaïdBusinessSchool,UniversityofOxford, andtoOxfordUniversityPressfortheirinvitationtodelivertheClarendon LecturesinManagementStudies,onwhichthisbookisbased.Iwouldalsolike tothanktheUKEconomicandSocialResearchCouncilfortheirawardofa ProfessorialFellowshipon‘SocialStudiesofFinance’(RES-051-27-0062),which madepossibleboththewritingofthisbookandthebulkoftheresearchthat underpinsit.MygratitudetoototheInstituteofAdvancedStudy,Durham University,foraterm’sfellowshipthathelpedmebringthebooktocompletion,andtoInnogen,theESRCCentreforSocialandEconomicResearchon InnovationinGenomics,forsupportingtheunderlyingworkontheconstructionofeconomicagents.
Ihavealsoincurredmanymorepersonaldebtsofgratitude:toIainHardie andDanielBeunza(co-authorsofChapters3and5),forallowingmetoreuse ourjointworkhere;toMoyraForrest,whoprovidedmewithcopiesofthe vastmajorityofthepublicationsthatformthisbook’sreferences;toBarbara Silander,whoword-processeditstextandbibliography;andtoRobinWilliams, whohasbeenasteadfastsupporterofmyworkformanyyears.Robinhasalso beenawonderfulfriend,andBarbaraandMoyradeservespecial,long-term thanks:theyhavenowworkedwithmeonfivebooks.
Theinputofthemanyintervieweeswhosetestimonyformsthebook’s mainempiricalunderpinningwasessential.Thenatureofthebook’ssubjectmatter—and,inmanycases,interviewees’preferences—meanthattheir contributionsaregenerallyanonymous.Theywerevitallyimportantnevertheless.IamparticularlygratefultothosewhoallowedmetowatchLIBOR beingcalculatedandtothehedgefundthatpermittedtheobservationsbyIain HardieandmyselfthatformthebasisofChapter3.
Threechaptersbuilddirectlyuponarticlespublishedelsewhere:Chapter3 isarevisedversionofHardieandMacKenzie(2007);Chapter4ofMacKenzie (2007a);andChapter5ofBeunza,Hardie,andMacKenzie(2006).Otherwork IhavedrawnonincludesHatherly,Leung,andMacKenzie(forthcoming)and
Acknowledgements
MacKenzie(2007b;2008).TheGlossarydrawsuponMacKenzie(2006).Iam gratefultothecopyrightholdersforpermissiontomakeuseofthismaterial here.SectionsofChapter5writtenbyBeunzasimilarlydrawonmaterialin BeunzaandStark(2004).
Asalways,though,Isavemymostheartfeltthanksofallformyfamily: Caroline,Alice,andIain.
4.1.Totalamountsofexchange-tradedderivativesoutstandingatendof Juneofeachyearfrom1998to2006
6.1.ExamplesofcodesfromtheUniversityofEdinburgh’schartofaccounts113
6.2.FrequencydistributionofreportsofnetannualincomebyUS corporations,1976–1994
7.1.Thepriceofallowancesforphase1oftheEuropeanUnionEmissions
1 Introduction Justafter11.00a.m.,everyweekdaythatisnotabankholiday,anapparently mundanecalculationisperformedatacoupleofdesksinanunremarkable open-planofficeinLondon’sDocklands.Smallsetsofnumbersarriveelectronicallyorbytelephone.Thetwopeopleorchestratingthecalculationcorrect obvioustypingmistakesandchecklessclear-cutdiscrepanciesbytelephone calls:‘Hello,it’s[X].Justwanttochecktheone-weekontheDanish[Krone]. Youguysarequoting2.51.Youwanttokeepitaroundthat?’or‘Everyoneelse iscominginagoodbitunderthat.’Sometimestheytelephoneandremind thosewhoshouldhaveprovidedfigures.Oncehalfthenecessarynumbers havebeeninputintothecomputersystemthatperformsthecalculation,it beginstoprocessthem.OnthedayIwaswatching,alltheinputshadbeen receivedandchecked,andtheprocessingcompleted,by11.43,andoneof thetwostaff membersinvolvedthensaidtohiscolleague:‘Youcanpublish away.’
Thisundramaticsequenceofeventsproduceswhatis,fromtheviewpointoftheamountofmoneyhingeingdirectlyonitsoutcome,oneof theworld’smostconsequentialsetofnumbers:BritishBankers’Association LIBOR(LondonInterbankOfferedRate),thedominantglobalbenchmarkfor interestrates.OnthedayonwhichIwatchedLIBORbeingset,over$170trillionoftheworld’sfinancial‘derivatives’(theequivalentofaround$26,000for everyhumanbeingonearth)wereindexedtoLIBOR,fluctuatinginvalueasit changedfromdaytoday.1 Theimportanceofthecalculationisreflectedinthe arrangementsifaterroristincidentorothereventdisruptstheofficeinwhich Iwitnessedit.Anearby,similarlyequippedofficebuildingiskeptinconstant
readiness;dedicatedlineshavebeenlaidintothehomesofthoseresponsible forthecalculation;apermanentlystaffedback-upsite,over250kmaway,can alsocalculateLIBOR.Ordinarily,LIBORisofinteresttomarketparticipants alone,butasthe‘creditcrisis’beganin2007itsvaluesstartedtobediscussed inTVnewsbulletins,becausethemarketturmoilsuddenlyhighlightedthe crucialimportanceofwhetherbankswerepreparedtolendtoeachotherand atwhatratesofinterest.
IbeginwithLIBORbecauseattentiontoitisaninstanceofwhatisdistinctive abouttheapproachtomarketsexploredinthisbook.Thatapproachiscurrentlybestexemplifiedin‘socialstudiesoffinance’.Thetermcameintouse firstamongstyoungscholarsinParisinthelate1990s.Initsbroadmeaning,it signalstheapplicationtofinancialmarketsofsocialsciencedisciplinesbeyond economics(andalsowiderthanthoseapproachesto‘behaviouralfinance’that arerootedinindividualpsychology),suchasanthropology,genderstudies, humangeography,politicalscience,andsociology.Smallnumbersofscholars inthesefieldshavebeeninterestedinfinancialmarketsformanyyears,2 but recentlysuchinteresthasgrownandcoalescedasthoseinvolvedhavebecome awareofwhattheirpeersinotherdisciplinesaredoing.3
Amorespecificmeaningof‘socialstudiesoffinance’is,however,more pertinenthere.Inthismeaning,thetermreferstoapproachestomarketsthat areinspiredbysocialscienceresearchonscienceandtechnology.4 Perhapsthe mostprominentnameforthelatterresearchis‘socialstudiesofscience’,hence theanalogousexpression‘socialstudiesoffinance’.Thosewhohaveworked inthesocialstudiesofscienceandtechnologytendtoacquiresensitivities, interests,andintellectualresourcesthatdifferatleasttoadegreefromthose ofthewiderdisciplinestowhichwebelong.(Ofcourse,wealsoalwaysborrow fromthesocialsciencesmoregenerally,andIhavedonesohere.Sectarianism isneveravirtue.)
Whatisperhapsmostcharacteristicofaperspectiverootedinthesocial studiesofscienceandtechnologyisitsconcernwiththe materiality ofmarkets: theirphysicality,corporeality,technicality.5 Evenafinancialmarket,trading asitdoestokensofrightsandobligationsratherthangoodsorservicesthat canbeconsumeddirectly,ismadeupofphysicalartefactsandtechnologies. Forexample,asemphasizedinChapter5,apricemusttakephysicalform— spokenorwrittennumbers,electronicsignals,andsoon—ifitistobeconveyedfromonehumanbeingorcomputersystemtoanother,andthephysical formittakesisconsequential.
Anemphasisonmaterialitypoints,however,tomorethantheimportance ofobjectsandtechnologies.Thehumanactorswhomakeupmarketsarenot disembodiedagentsorabstractinformationprocessors,howeverconvenient itmaybeforeconomicstomodelthemassuch.Theyareembodiedhuman beings,andbodiesarematerialentities.Thecapacitiesandlimitationsofthese materialentities(includingthoseofhumanbrains)arehugelyimportantto howmarketsareconstructed.Thefact,forexample,thatabrainisnotan informationprocessorwithinfinitecapacitymeansthatconceptualtoolsthat simplifythecognitivetaskofgraspingwhatisgoingoninamarketcanbe enormouslyimportant.Theinterbankmarket,forexample,isdiverseand hugelycomplicated,asonequicklylearnsbysittingbesidethetradersandbrokerswhospendallday,everyday,seekingtounderstanditandactwithinit.Yet LIBORcondensesallthatcomplicationintoasinglesetofnumbers,makingit possible,forinstance,toindex$170trillionofderivativestoconditionsinthe interbankmarket.Suchatoolismorethanarepresentationofamarket:itisa constitutivepartofeconomicaction,shapingsuchactionanditsconsequences formarketprocesses.
Aboveall,perhaps,whatonemightcallthe‘materialsociology’inspired bythesocialstudiesofscienceandtechnologyemphasizesthetechnicalityofmarkets.Thepropertiesofartefacts,technologicalsystems,conceptualtools,andsoonarenot‘details’thatsociologicalanalysesshouldset aside:fullyroundedanalysesneedtoincorporatethem.Take,forexample, WayneBaker’ssuperbstudyoftheChicagoBoardOptionsExchange(Baker 1981;1984a;1984b),stillexemplarynearlythreedecadesafteritscompletion.6 (An‘option’isasecuritythatgivesitsholderarightbutnotanobligation, forexampletobuyasetnumberofsharesorotherassetsatasetprice.) Bakerdemonstratesbeautifully,usinginterviews,networkanalysis,andprice data,theconsequentialityofsocialrelationsamongstoptiontraders.Yetit isalsoimportantthattradingontheexchangewasinfluencedbyeconomic modelsofoptionpricing,notablytheBlack–Scholesmodeldevelopedby economistsFischerBlack,MyronScholes,andRobertC.Merton.Blackand otherssoldpapersheetsoftheoreticaloptionprices,whichmanytraders usedtoinformtheirtradingdecisions,andIhaveargued(inMacKenzie2006) thatamongsttheeffectswastoshiftpatternsofoptionpricestowardsthe model.
Thecaseofoptionstradingexemplifiesacentralaspectofwhatisdistinctive aboutlookingatmarketsfromtheviewpointofthesocialstudiesofscience
andtechnology.EconomicagentssuchasChicagooptiontradersarenot just‘naked’humanbeings,norsimplyhumanbeingsembeddedinsocial networks.Their‘equipment’matters.AtraderequippedwithBlack’ssheets wasadifferenteconomicagentfromonetradingonthebasisofintuitionand experiencealone.TheBlack–Scholesmodelwasindeedtechnical,butitwas nota‘meretechnicality’:itwasaconsequentialpartofhoweconomicagents wereconstructed.(The‘agent’ofthisbook’stitleisanyeconomicactor,not merelyonewhoactsonbehalfofanother.)
Thechaptersthatfollowaimtoelaborateandillustratethe‘socialstudies offinance’,inthissenseofperspectivesinspiredbysocialscienceresearchon scienceandtechnology.Chapter2doesthisbyformulatingasetofpreceptsof workofthiskind.Itis asetofprecepts.7 Manyofthemare,Ithink,widely sharedbythosewhocometothestudyofmarketsfromabackgroundin thesocialstudiesofscienceandtechnology,butanysuchsetisboundtobe idiosyncratic,andIhavenowishtofoistthesepreceptsonmycolleagues(or evenontheco-authorsofChapters3and5).Furthermore,mychosensetof preceptsisclearlyincomplete(especiallywhenoneshiftsfocustomarketsin spheresotherthanfinance),noraretheyallillustratedequallyinthechapters thatfollow.Nonetheless,Ihopethepreceptshelptofleshouttheapproachto theunderstandingofmarketsIamadvocating.
Chapters3to7areprimarilycasestudies,eachbroadlywithintheframeworkoutlinedinChapter2.Chapter3,writtenjointlywithIainHardie,isorganizedaroundoneofthecentralideasdiscussedinChapter2:MichelCallon’s ideaoftreatingeconomicactorsasmadeupof agencements,ofcombinationsof humanbeings,materialobjects,technicalsystems,texts,algorithms,andso on.HardieandIapplythenotionof agencement toacategoryofagentthatisof growingimportanceinfinancialmarkets:ahedgefund.(TheGlossaryexplains financialmarkettermssuchas‘hedgefund’,andthemoreimportantsuch termsarealsodiscussedinthechapters.)Ouraccountisbaseduponabrief periodofobservationofoneparticularfund’strading,oninterviewsconducted withthepartnersinthefund,andonawidersetofinterviewswithtradersin otherhedgefundsandininvestmentbanks,andalsowiththosewhosupply vitalservicestohedgefunds,suchasthe‘fundsoffunds’thatchannelcapital tothem.
Likealmostallsophisticatedtraders,thefundHardieandIstudiedtraded notjustbasicassetssuchasbondsbutalso‘derivatives’ofthoseassets:contracts
orsecuritiesthevalueofwhichdependsonthepriceoftheunderlyingasset, oronotherparameterssuchastheprobabilityofanissuerofbondsdefaulting. Chapter4examinesthedevelopmentofexchangesdevotedtothetrading offinancialderivatives.Asrecentlyas1970,therewasnofinancial-derivatives exchangeanywhereintheworld.BytheendofJune2006,contractsoutstandingonsuchexchangestotalled$84.4trillion,around$13,000forevery personontheplanet.Thelimitedliteraturebeyondeconomicsonderivatives oftenemphasizestheir‘virtual’natureas‘money’s“newimaginary”’(Pryke andAllen2000).Drawinguponoralhistoryinterviewswithkeyfiguresinthe developmentoforganizedderivativestradingintheUSAandUK,Chapter4 examineshowthose‘virtual’productshavebeenbroughtintomaterialexistence.Itexploresthesimilaritiesanddifferencesbetweentechnologicalinnovationandinnovationinderivatives,anddiscussestheroleofthe‘internal’ culturesoffinancialmarketsandofthewiderculture(inparticular,the legaltracesofhostilitytogambling).Thechapteralsoexamineshowthe fact-generationmechanismsoffinancialmarketsarecrucialtoderivatives trading.
Chapter5,co-authoredwithDanielBeunzaandIainHardie,examinesa specificformoftradingthatiscentraltohowderivativesexchangesproduce facts,aswellashavingmanyotherrolesinfinancialmarkets:arbitrage,in otherwordstradingthatexploitsdiscrepanciesinrelativeprices,forexample betweenanassetandaderivativeofthatasset.Drawingonworkconductedby Hardieandmyself,andonanethnographyofaWallStreetarbitragetrading roombyBeunzaandDavidStark(2003;2004;2005),thechapteremphasizes boththematerialityofprices(asnotedabove,pricesarephysicalentities, andtheextentandspeedoftheirmobilityarecrucialtoarbitrage)andthe delicatesocialrelationsthatexistamongstarbitrageursandbetweenthemand others.
Chapter6shiftsfocusfromfinancialmarketsthemselvestotheprocesses thatprovidecrucialdataforthosemarkets:thebook-keepingandaccountingthatproducecorporatefinancialstatements,especiallycorporateearnings (‘profits’).Thechapterdrawsuponabodyofliteratureinaccounting,little knownoutsidethefield,on‘earningsmanagement’,andonabriefcasestudy ofaparticularaccountingclassificationbyafirmheavilyinvolvedinearnings managementtoemphasizetheapplicabilitytoaccountingofanotherofthe ideasdiscussedinChapter2:finitism.Inthefinitistperspectiveexploredin
thatchapter,‘[w]e could takeourconceptsorrulesanywhere’(Bloor1997: 19)whenweperformclassifications,measureitems,andfollowrules,allof whichareactivitiescentraltoaccounting.Giventhat,whatkeepsaccounting (relatively)orderly?Chapter6suggeststhattheanswertothisquestionis intrinsicallysociotechnical:itinvolvesbothpeople—notjustasindividuals, butasmembersoftheculturesofbook-keepingandofaccounting—and technicalsystems.
Chapter7movesoutsidethesphereoffinanceinanarrowsensetoexamine marketsinpollutionpermits,particularlygreenhouse-gasmarkets.ItemphasizesseveraloftheissuesdiscussedinChapter2,suchastheactiveroleof economicsandofeconomistsinbringingmarketsintobeing(ratherthan studyingthemasalready-existing,external‘things’)andespeciallythepoliticalnatureofthedetaileddesignofmarkets.Indeed,thechaptersuggeststhat emissionsmarkets are politics.Inparticular,theyarewaysofundermining inertiaandachievingapparentconsensus;buttheyalsoseemtodisplaceconflict,whichshiftsfocustotherulesgoverningtrading(especiallygoverning thecrucialmatteroftheallocationofpermits).The‘economicexperiment’ (MuniesaandCallon2007)ofEuropeancarbontradinghassofarhadamixed outcome:forexample,limitedenvironmentalimpact,butasurprisingdegree ofsuccessin‘technicizing’thepoliticsofallocation.
Chapter8isthebook’sconclusion.Itemphasizesthemodest,exploratory natureofthepreviouschapters,andreturnstotheoverallquestioninforming thebook:whatcananapproachrootedinthesocialstudiesofscienceand technologycontributetoanunderstandingofmarkets?Thechapterexamines therelationsofsocialstudiesoffinancetoeconomicsociologymoregenerally, andmakesexplicitthepossibilityhintedatinChapter7:thatanapproach tomarketsthatdrawsuponthesocialstudiesofscienceandtechnologycan become‘publicsocialscience’,analogoustowhatBurawoy(2005)calls‘public sociology’.
ANotere.InterviewSources
Themaindatasourcedrawnoninthechaptersthatfollowisasetof189 interviewswithpeopleinvolvedinfinancialandemissionsmarketsastraders,
managers,brokers,marketdesigners,providersofadministrativeandother services,accountants,andauditors.(Twenty-threeoftheseinterviewswere conductedbymycolleagueIainHardie,andsixty-sixhavealreadybeendrawn uponinMacKenzie2006.)Apartfromincasesinwhichtheidentityofthe intervieweeisimportanttoanhistoricalepisodebeingdiscussed,Ihavefollowedthepreferenceofmostofmyintervieweesandcitedinterviewdata anonymously.
TenPreceptsfortheSocial StudiesofFinance Whatmightbeinvolvedinanapproachtothestudyofmarkets,especially offinancialmarkets,thatisinspiredbythesocialstudiesofscienceandtechnology?ThischapterbuildsonChapter1’sbriefdiscussionofthatquestion bysketchingtenpreceptsthatmightunderpinresearchofthiskind,research thatfocusesonthephysicality,thecorporeality,andthetechnicalityof markets.
Precept1:FactsMatter Letmebeginwithacrucialfacetofthetechnicalityofmarkets:therolein themoftheproductionandcirculationoffacts.A‘fact’is‘Athingknown ...to haveoccurredortobetrue’,1 andfactsareobviouslyacrucialtopicofthe socialstudiesofscience.Thatfielddoesnotaskwhetherclaimedscientificfacts are‘reallytrue’,whichisaquestiononlyscience,notsociology,cananswer. Instead,thesociologyofscientificknowledgeisinterestedinquestionssuch ashowfactsareproducedandwhatsecurestheirfacticity,inotherwords theirstatusasfacts.‘Produced’istherightword:scientificfactsarenotin generalsimply‘outthere’,awaitingthefortunatediscovererwhostumbles overthem.AstheLatinrootof‘fact’—facere,tomake,todo—remindsus,scientificfactsaremade:byexperiment,byintellectualwork,andbyobservation
thatisnormallytechnologicallymediatedandtypicallyisdisciplinedandgoalorientedratherthanhaphazard.
The‘career’ofafacttendstomakethehistoryofitsproductionvanish.Fullfledgedscientificfactsarepublic,collective,‘social’facts,notsimplyprivate facts:theirstatusasfactsisassessedbyscientificcommunities,notjustby individuals.2 Asoneoftheclassicethnographiesoftheproductionofscientificfactsemphasizes,tobecomeafactastatementmustlosethe‘traceof authorship’inthesenseofbeing‘freedfromthecircumstancesofitsproduction’(LatourandWoolgar1986:82and105).Ifitcannotbefreedfromthose circumstances—if,forexample,aphenomenoncanbeexhibitedonlybya specificpersonoraparticularlaboratory,andnotbyothers—itisnormally fatedtobeclassedinsteadasan‘artefact’:notatruthabouttheworld,butthe spuriousresultoftheparticularproceduresusedinitsproduction.
Thefactsthatcirculateinfinancialmarketsmightseemweakandvulnerablecomparedtothoseproducedbyamaturescience.ButconsiderBritish Bankers’AssociationLIBOR,LondonInterbankOfferedRate.Thelow-key declaration,‘Youcanpublishaway’,whichIheardwhenstandingintheLondonofficeinwhichLIBORiscalculated,initiateditselectronicdissemination viamultipledataproviders.Almostinstantaneously,itwaspossibleatmore thanhalfamillionterminalsacrosstheglobetoclickamouseafewtimes and/orstrikeahandfulofcomputerkeys,andpromptaflowofelectrical signalsthatwouldcausethenumberscalculatedintheLondonofficetoappear onscreen.
3
AsfarasIcantell,thosewhodothishaveuntilveryrecentlytreatedthe numbersthatappearasunproblematic.Theyhavebeen,forexample,content tohavehugesumsofmoneychangehandsonthebasisofwhatappearson screen.Likescientificfacts,LIBORisproducedratherthanstumbledupon— itsproductionisdescribedinChapter4—butlikethemithadbeenfreed almostentirelyfromtheparticularcircumstancesofitsproduction.(ControversyoverLIBORdid,however,eruptin2007–8asaresultofthecreditcrisis, asdescribedinChapter4.)Surprisingly—giventheamountofmoneythat dependsonthem—norealcontroversynormallysurroundedthenumbers thatflowoutofthatLondonoffice.
Ofcourse,notalleffortstogive‘marketnumbers’factualstatusaresuccessful.Consider,forexample,anotherdaily‘pricefixing’:the10.00a.m.Cheddar cheeseauctionconductedontheflooroftheChicagoMercantileExchange. Acheeseauctionmayseemanesotericmatterofnowiderinterest,butthe
resultsoftheauctionareinputsintotheformulathathasbeenusedsincethe 1930stosetthegovernment-mandatedminimummilkpricereceivedbyfarmersintheUnitedStates,andtheythushelpdeterminetheconsumerpricesof dairyproductsintheUSA.Inthesummerof2006,fiercecontroversyerupted intheUSAovertheauction.Onefarmers’spokespersonclaimed:‘Thereare veryfewbuyerswhoaresettingthepriceinaverythinmarket.’Another saidtherewas‘deepscepticism’aboutthemechanism’s‘legitimacy ...asa truereflectorofsupplyanddemand’,andinJuly2006sixsenators,including HillaryRodhamClinton,demandedagovernmentinvestigation(Grant2006). Theaccusation,contestedvigorouslybytradersontheChicagoMercantile Exchangeandbyothers,wasineffectthattheresultsoftheauctionwere artefacts,notfacts.4
Whethermarketnumbersachievethestatusoffactsisconsequential.As discussedinChapter4,itis,forexample,amajorinfluenceonwhetherderivativesmarketscansuccessfullybeconstructed.Moregenerally,facticityis oftenapreconditionforliquidmarkets.AsCarruthersandStinchcombeput it,‘liquidityis ...an issueinthesociologyofknowledge’(1999:393).Amarket is‘liquid’iftheitemstradedinitcanreadilybeboughtandsoldinsubstantial quantityatorclosetoprevailingmarketprices,withoutunduedelayorheavy transactioncosts,andachievingliquiditytypicallyrequiresstandardizationof theitemstradedand,crucially,adegreeofconsensusontheircharacteristics. Themarketforinterest-ratederivatives,forexample,wouldnotbeliquidif eachcontractrequiredtheresolutionofadisagreementoverhowinterestrates aretobemeasured,ifeachsubsequentpaymentwasvulnerabletolitigation overtheadequacyofthemeasurementthatdetermineditssize,orifonefeared thatone’scounterpartiesmightbeabletomanipulatethemeasurementin theirfavour.ThecontributionofthefacticityofBritishBankers’Association LIBORtotheliquidityoftheinterest-ratederivativesmarketshasbeenthatall thesemessyobstaclesareavoided.
Precept2:ActorsAreEmbodied Allmarkets,whetherliquidornot,arecombinationsofhumanbeingsand physicalobjects.Itmayseemtooobvioustoneedsaying(untilonerealizesthat fewanalysesofmarketsdevelopthepoint),buthumanbeingshavebodies, are
bodies.Corporeality—inthesenseofthematerialcapacitiesandlimitationsof thosebodiesandbrains—iscriticaltohowmarketsfunction.
Insomemarkets,embodimentcanhardlypassunnoticed.Takean‘openoutcry’tradingpit,asteppedamphitheatreinwhichdealsaredonebyvoice orbyeyecontactandhandsignals(see,e.g.,Zaloom2006).Crucialskillsfor pittradersaretobeabletodetectthebodilysignsoffear,whichoftenindicate atraderwhoisdesperatetoexitaposition,andtosuppressthesignsofone’s ownfear.Whereonestandsinsuchapitmatterseconomically:thetoprung isbest,becauselinesofsightarebetterthere,andbecauseitisadvantageousto beclosetothebigbrokers,withtheirlargevolumesofcustomerorders,who standthere.Forthatveryreason,bodilypositioniscontested.Onefrequently getsjostled,orhastojostle,andfistfightsaren’tuncommon.Physicalheight matters,bothtoseeingandespeciallytobeingseen.Thepitisaplaceof male bodies,withwomenformingnomorethanasmallminority.
Itisofcoursetheexoticnatureofpittradingthatmakesitsembodiment standout.Aspitshavedeclined,theyhavebeenreplacedbyscreen-basedtrading,andtradingbytelephonealreadyhasalonghistory.It’sparticularlyeasy implicitlytopositadisembodiedactorwhenstudyingsuchtrading,because thebodilyactionsinvolvedaremostlyfamiliartoanyofficeworker.Muchof thetime,forinstance,onewouldbehardpushedtodistinguishthephysical actionsofatraderinabank’sdealingroomfromthoseofanacademicathisor herdesk.There’salotofsittingandstaringatascreen,typingandmoving acomputermouseabout,talkingonthetelephone,reading,chatting,and drinkingcoffee.Disappointinglyfromtheviewpointofexoticism,shouting, swearing,andraucousbehaviourindealingroomsarenowfarrarerinactualitythaninfilmportrayals.
Bodilycapacitiesstillmatter,however.Letmeagainusetheexampleof LIBOR,whichispertinentherebecauseitisanapparentlydisembodiedset ofnumbers.AsdescribedinChapter4,theinputstotheLIBORcalculation comefrombankdealingrooms,buttheyareheavilyinfluencedbyinterdealer brokers.Althoughbrokersincreasinglygivetheirclientsthecapacitytotrade electronically,thecoreoftheirbusinesswas(andtoasignificantextentstillis) ‘voicebroking’.Afirm’sbrokersinagivenmarket(forexample,thesterling interbankmarket)sitclosetogetherataclusterofdesks,withnearbyclusters handlingrelatedmarketssuchasininterest-rateswaps.Eachbrokerhasonhis desk(itisanotherpredominantlymaleniche)a‘voicebox’—acombinationof
microphone,speaker,andswitches—connectedbydedicatedtelephonelines toeachofhisclients.
Interdealerbrokersdonotthemselvestrade:ifaclientbankwantstoborrow money,thebroker’sjobistofindabankthatwilllend(orviceversa).Sothe keyskillisknowingwhowantstodowhatandwhoispreparedtodowhat.It ispartlyamatteroffosteringrelationshipswithclients.Iwasrepeatedlytold byinterdealerbrokersthattheirsis‘arelationshipbusiness’.Asoneofthem saidtome,abrokerinthe‘moneymarket’(themarketaboutwhichLIBORis a‘fact’)might‘speaktohisbigclients ...haveconversationswiththemmaybe twenty-fivetimesaday,whichistwenty-fivetimesasoftenastheyspeakto theirwives’.
There’salso,however,acrucialbodilyskillininterdealerbroking,askill thoseinvolvedcall‘broker’sear’:thecapacityaurallytomonitorwhatisbeing saidbyalltheotherbrokersataclusterofdesks,whileoneselfholdinga voiceboxconversationwithaclient.Asanintervieweeputit:
Whenyou’reonthedeskyou’reexpectedtoheareveryoneelse’sconversationsaswell, becausethey’reallrelevanttoyou,andifyou’reonthephonespeakingtosomeone aboutwhat’sgoingoninthemarkettherecouldbeahotpieceofinformationcoming inwithoneofyourcolleaguesthatyouwouldwanttotellyourclients,soyou’vegot tobeabletohearitcominginasyou’respeakingtotheperson.
Wheninterviewingbrokersattheirdesks,Isometimesfound‘broker’sear’ disconcerting.Someonecouldapparentlybepayingfullattentiontohisconversationwithme,whenhewouldsuddenlyrespondtoacommentorquestionfromfiveorsixdesksawaythatIsimplyhadn’theard.(Themultiple conversationsmakebrokers’officesnoisy,andthey’remorecloselypackedand moreraucousplacesthanbanks’dealingrooms.)Broker’searisanacquired skill:asonetoldme,‘youdon’tjustdoitfromdayone....Somepeoplenever makeit.’
Broker’searhelpsbrokersquicklytomatchborrowersandlenders(orin othermarkets,buyersandsellers),thuscontributingtotheliquidityofthe interbankmarket,andtheinformationthatbroker’searaggregatesalsohelps brokers’clients—manyofwhommaketheinputstoLIBOR—tounderstand whataresometimesrapidlychangingconditionsintheinterbankmarket.As notedinChapter4,there’snofullyalgorithmicwayofgeneratinganappropriateLIBORinput.Judgement,basedonanunderstandingofmarketconditions, isinvolved,andbroker’searisonebodilyfoundationofthatjudgement.
Precept3:EquipmentMatters AsemphasizedinChapter1,humanbodiesandbrainshavetheirlimitations aswellastheirremarkablecapacitiessuchasbroker’sear,andthismakestheir supplementationby‘equipment’(physicaland‘cognitive’)crucial.Acentral conjectureofthesocialstudiesoffinanceisthatequipmentmatters:itchanges thenatureoftheeconomicagent,ofeconomicaction,andofmarkets.
Consider,forexample,physicalequipmentsuchasthestockticker(Preda 2006)ortradingscreensconnectedinelectronicnetworks(seeKnorrCetina andBruegger2000;2002a;2002b;KnorrCetina2005).Tickersandtrading screenspartiallycircumventthemostbasicofallbodilylimitations—the inabilitytobeintwoplacesatonce—andtheirintroductiondidnotsimply makeexistingformsofbehaviourinmarketsmoreefficient:itreshapedmarkets.
Tickersweretelegraphicprice-disseminationsystems,atthereceivingend ofwhichtheabbreviatednamesofsecurities,theirprices,andthevolumesof tradeswereprintedoutontopapertape.Theymadefine-grainedknowledge ofpricemovementsavailableinclosetorealtimetogeographicallydispersed marketparticipants(atleastifthoseparticipantswereabletocongregatein theofficesofbrokerswithtickers),whenpreviouslysuchknowledgerequired onetobepresentphysicallyintheexchangeswheresecuritiesweretraded. Preda(2004b;2006)conjectures,forinstance,thatthetickerhelpedprompt theriseof‘chartism’or‘technicalanalysis’:thebelief—stillwidespread—that patternscanbefoundinpricegraphsthathavepredictivevalue.Theintroductionoftradingscreenswasatleastequallyconsequential:‘“themarket” nolongerresidedinanetworkofmanyplaces,butonlyinone,thescreen, whichcouldberepresentedidenticallyinallplaces’(KnorrCetina2005:51). Forexample,asbrieflydiscussedinChapter5,thisalteredhowthepervasive marketactivityof‘arbitrage’(theexploitationofpricediscrepancies)hadtobe conducted.
Actors’equipmentgoesbeyondphysicaltechnologies:their‘conceptual equipment’alsomatters,orsothesocialstudiesoffinanceposits.Financial marketsare,asnotedinChapter1,complicatedplaces,especiallyinthecontemporaryworldofbewilderingarraysofproductsandofpricedatathat changesecondbysecond.Giventhelimitedmemoryandcomputational capacityofthehumanbrain,economicagentsmustdevelopandacquire systematicwaysofmakingsenseofmarketsthatreducethiscomplication
toalevelthatismentallytractable.Organizationsmustdevelopproceduresforinteractingwithmarkets,andtoanincreasingextentthoseproceduresareimplementedinalgorithmsinautomatedpricing,trading,and risk-managementsystems.Sometimes,thewaysofthinking,procedures,and algorithmsthatareemployedderivefromfinancialeconomics,suchasthe theoryofoptionstouchedoninChapter1.Probablymoreoften,however, practitioners’waysofthinkingandassociatedwaysofactinghavenodirect connectiontoacademiceconomicsorindeedareregardedbyeconomistsas mistaken.Chartism—usinggraphsofpricemovementstoattempttopredict futuremovements—isanexampleofthelatter:financialeconomistsregardit asonaparwithastrology,butmanytraderstakeitseriously,andactonthe basisofit.
Thatconceptualequipmentmattersisaconjecture,notapresumption. Althoughindividualeconomists(forexample,MertonandBodie2005)have noteditspotentialimportance,financialeconomicsdoesnottreatthisequipmentinanysystematicway.Itmodelsaworldinwhich,forexample,market processesforceoptionpricestotheir‘correct’values,withoutexplicitconsiderationoftheeffectsonthoseprocessesofwhetheractorshaveoptiontheory availabletothem.Theevidenceconcerningtheeffectsofitsavailabilityisnot unequivocal,butinmyviewsupportstheconclusionthatactors’deployment ofoptiontheorydidaffectprices.5 Italsoseemslikelythatchartistbeliefsand procedures,iffollowedsufficientlywidely,willaffectpricemovements(thisis onereasonthateventradersscepticalofchartismcitefortakingitseriously), thoughthereisagainlimiteddirectevidenceonthepoint.6
Actors’conceptualequipmentcanalsohaveeffectsthataresubtlerthan influencingpricesdirectly.Oneofthewaysinwhichfinancialmarketsare complicatedisthatthemembersofaclassofproductsoftenvaryinconsequentialwaysintheirdetailedcharacteristics.Thusoptionsevenonthesame underlyingassetwilldiffer:somewillbe‘calls’(optionstobuytheasset),and some‘puts’(optionstosellit),andtheirexpirationdateswillvary,aswill theirexerciseprice(thepriceatwhichtheygivetherighttobuyortosell theassetinquestion).Animportantroleofoptiontheoryisinpermitting thereductionofthatcomplicationtoacommonunderlyingmetric:‘implied volatility’,thevolatility(extentoffluctuations)ofthepriceoftheunderlying assetconsistentwiththepricesoftheoption,accordingtoanoption-pricing model.Translatingoptionpricesintolevelsofimpliedvolatilityallowsthe easycomparisonofoptionswithdifferentcharacteristics(theimpliedvolatility
ofthisoptionis17percent,ofthatoption19percent...),andindeedprice quotationsforoptionsaresometimesexpressedasimpliedvolatilitylevels ratherthanamountsindollarsorothercurrencies.Althoughitwouldbehard todemonstrateitquantitatively,itseemsplausiblethattheavailabilityofthis metriccontributestotheliquidityoftheoptionsmarket.
‘Impliedvolatility’isnotuniqueinitsroleasasimplifyingmetricandfacilitatorofcommunicationaboutthepropertiesoffinancialproducts.Chapter3, forexample,conjecturesthatthe‘yield’ofabondplaysthesamerole, althoughthenotionof‘yield’andtheoriginaltechniquesforcalculatingit areoldandcomefrom‘mixed’(applied)mathematicsratherthaneconomics (HawawiniandVora2007).Anotherexamplecomesfromthemarketfor ‘creditderivatives’suchascollateralizeddebtobligations(CDOs),contracts thevalueofwhichdependsontheriskofdefaultbyeachofalargesetof corporationsorotherissuersofdebt(perhapsahundredormoreissuers);on thelikelyextentofthepay-out,ifany,todebtholdersafterdefault;andon theextenttowhichtheriskofdefaultbyoneissueriscorrelatedwiththerisk ofdefaultbytheothers.Inthecredit-derivativesmarket—whichintheyears preceding2007’screditcrisiswasthe‘hot’areaofderivatives—themetricof ‘basecorrelation’7 seemstohaveafunctionsimilartothatof‘impliedvolatility’asacommunicativetool.Forexample,itfacilitatesnegotiationamongst sophisticatedparticipants.ThebasecorrelationimpliedbyaCDOquotation canbeusedasthebasisforareasonedargumentwhythequotationneedsto bealtered.
Theavailabilityofconceptualequipmentcanmatterevenifthetheory underpinningtheequipmentisnotunderstood—softwaresystemsallow traderswithonlyaroughgraspofthetheoryofoptionsorofCDOstocalculateimpliedvolatilitiesorbasecorrelations—ornotbelieved.Thosewho dounderstandthemodelsthatareusedinsuchcalculationsfrequentlyview themasoversimplifications.Ihave,forexample,yettointerviewacreditderivativestraderwhoregardsasadequatethe‘single-factorGaussiancopula’modelnormallyusedincreditcorrelationcalculations.Nevertheless,the simplemodelsremaininwideuse.Morecomplexmodelsfaceformidable barriersascommunicativetools,becauseforfullcommunicationbothparties mustbeusingthesamemodel,andthatisseldomthecaseonceonemoves beyondsimplemodels.Furthermore,thesimplemodelstypicallyhavejust onefreeparameter—‘impliedvolatility’,forexample—withtheotherparametersbeingeitherfixedbymarketconvention(CDOpricing,forexample,
