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Peripheral Vision in Financial Markets
David Stark
Columbia University
Moscow
28 October 2012
My research collaborators:
Daniel Beunza
London School of Economics
Matteo Prato
University of Lugano
Supported by the National Science Foundation
and a fellowship from
The Netherlands Institute for Advanced Study.
The origins of the new economic sociology
Parsons’ Pact
The origins of the new economic sociology
Parsons’ Pact
You, the economists, get value;
we, the sociologists, get values.
You study the economy;
we will study the social relations
in which economies are embedded.
Two dominant schools in economic sociology:
Economies are embedded
in cultural values (and cognitive frames).
Economies are embedded
in social relations.
In both approaches, calculative practices are
left unexamined.
STS enters Economic Sociology
Michel Callon (France)
Donald MacKenzie (Great Britain)
Karin Knorr-Cetina (Germany)
And their students
Fabian Muniesa
Vincent Lepinay
Yuval Milo
Alex Preda
Network analysis in economic sociology views
economies as embedded in social relations.
In our view:
Calculation is not embedded in social
relations. Calculation is itself social.
Calculation is socio-technically distributed.
What counts?
Bring tools into accounts about what counts.
A declarative
This is a pipe organ in largest hall of Moscow House of Music.
Posted by Irina at 20:55
Labels: instuments, theatre
“I apologize.”
A performative
Performativity (following MacKenzie):
Financial models are not representations.
They are interventions that format, shape,
perform markets. Their use brings new
economic objects (markets) into being.
“This is the way that people
get from point A to point B.”
Performativity (in my defintion):
A model is performative
when its use increases its
predictive capabilities.
From Perfomativity to Reflexivity
Institutionalism in economic sociology
focuses on routines, scripts, taken-forgranteds, and “unreflective action.”
In my view: the performativity view
ignores skilled performance.
Why should we deny to actors the
reflexivity that we prize and praise in our
own profession?
Key, in thinking about distributed cognition
and distributed reflexivity:
A new form of sociality
disembedded yet entangled;
anonymous yet collective;
screen-mediated yet differentiated;
impersonal yet emphatically social.
Research with Daniel Beunza
How do traders deal with the
fallibility of their models?
This is a pipe organ.
The arbitrage traders we studied
do the same.
The trading room is populated with
devices for doubt.
Traders do not simply use models and
devices that perform the market. They
also create and use devices for reflexivity.
This reflexivity is not exterior to (or above)
the structures of socially distributed
calculation but is an integral part of it.
Arbitrage is a (reflexively) skilled performance.
And this reflexivity is not of the individual
but is social and material.
Cognitive challenges of
using models in arbitrage
Calculation in merger arbitrage involves
the dissonance between two sets of probability
estimates:
1) probability estimates derived at the desk
using proprietary models, databases, and
instrumentation.
2) “implied probablity” – the aggregate
probability estimates of the trader’s rivals
a given trading desk
makes probability
estimates based on
models, proprietary
databases, and
instrumentation
V= (1-)PNS +PS
The trader’s models and
instrumentation are
powerful scopes for viewing
the markets.
But scopes that reveal
can also conceal.
If you take your model for granted,
you can lose your shirt.
To avoid cognitive lock-in,
the traders turn to sociotechnical networks outside
the trading room.
relation between the
trader and his rivals
Seeing the screens of one’s
rivals is not possible.
The spread plot
The spread plot is a representation
of an economic object that does
not have a price and is otherwise
not observable, co-produced by
the positioning of actors who use it
to confront their interpretations and
re-evaluate their positions.
Decoding the spread plot
$
Acquirer
Target
time
“Backing out” implied probability
The spread plot instantiates the
diversity of dispersed anonymous actors.
dissonance
Reflexive modeling
Dissonance disrupts.
It prompts reflexivity.
?
re-search
Reflexive modeling
Differs from ‘herding’
Here, dissonance prompts re-search
Reflexivity is not self-awareness or
conceptual transcendence.
So as not to be captive of an epistemic trap,
traders use devices for dissonance.
Models have given rise to a new mode of
sociability:
disembedded yet entangled,
anonymous yet collective,
impersonal yet nevertheless social.
WARNING
In cases lacking diversity,
devices for dissonance become
devices for overconfidence.
WARNING
Resonance blocks reflexivity
and can lead to collective calamity.
The strength of reflexive modeling is
based on the fact that it leverages the
cognitive independence among dispersed
and anonymous actors.
The strength of reflexive modeling is
based on the fact that it leverages the
cognitive independence among dispersed
and anonymous actors.
But this same process suggests the
possibilities of cognitive interdependence
among the rival traders in the professional
arbitrage community.
Reflexive modeling is born of the effort to
avoid cognitive lock-in.
But absent dissonance, through this
cognitive interdependence, it leads to a
collective cognitive lock-in that can yield
disaster.
Just as reflexive modeling can typically be a
source of correction, so this same cognitive
interdependence among traders can, in rare
but dramatic instances, lead to the
amplification of error.
Research with Matteo Prato
From cognition as categorical
to cognition as perspectival
Dominant view
reduces cognition to categories
Compare the object to the categorical ideal;
penalize if a categorical ‘mismatch’
(Zuckerman 1999, 2004).
Distributed cognition in two-mode
networks
Valuation always takes place in a
calculative space.
The most primitive aspect of a calculative
space is the other objects in the field of
attention.
Location and allocation
Focus – locate an object by allocating
attention.
Make associations across these objects and
situations and not simply comparisions to
the categorical ideal.
Interobjectivity
Exploit the network ties that are created
when multiple agents allocate their attention
across multiple objects.
Study socially peripheral vision.
Valuation is perspectival
With apologies to Pierro della Francesca
Valuation is perspectival
Valuation is perspectival
Valuation is perspectival
How we assess an object or interpret a situation
is shaped against the background of the other
objects or situations across which we allocate
our attention.
Viewpoints, views, peripheral visions
The two-mode (agents-objects) structure of
an attention network is a calculative space.
My views about a given focal asset are
shaped by your views and viewpoints about
other assets. In fact, what is in your
peripheral vision can effect my focus.
Data
Securities analysts
-Stock coverage of US publicly listed firms
-Earnings per share estimates
I/B/E/S for 1994-2006
Approx. 8,000 analysts, 15,000 firms, and
several million analyst-firm observations.
Viewpoints matter.
If how an actor interprets a given situation
depends on the portfolio of situations that are in
her field of view, then we expect that:
Hypothesis 1: Greater change in the portfolio of
background situations will result in greater
change in assesment of the focal issue.
Viewpoints matter.
If how an actor interprets a given situation
depends on the portfolio of situations that are in
her field of view, then we further expect that:
Hypothesis 2: The more similar their portfolios
of background situations the more similar will be
two actors’ assessments of the focal issue even
when they have not seen each others’ estimates.
Peripheral Vision.
Because actors are influenced by views in their
peripheral vision, we expect that
Hypothesis 3 The more (less) two actors have
encountered each other’s views on other
situations, the more their interpretations of a
given situation will converge (diverge).
Peripheral Vision.
Because actors are influenced by views in their
peripheral vision, we further expect that
Hypothesis 4 This convergence (divergence)
will be greater the more they have been
exposed to interpretations of same (different,
i.e., non-shared) third actors.
Hypothesis 1 individual, 2 moments in time
Hypothesis 2 dyad, same moment in time
Hypothesis 3 dyad, over time
Hypothesis 4 open or closed triad, over time