On Invoking "Culture" in the Analysis of Behavior in Financial Markets

DONALD MACKENZIE

How does one represent other cultures? What is another culture? Is the notion of a distinct culture ... a useful one, or does it always get involved either in self-congratulation (when one discusses one's own) or hostility and aggression (when one discusses the "other")? — EDWARD W. SAID, Orientalism

In recent decades, the concept of "culture" has had a strangely bifurcated history. The critique implicit in Edward Said's questions has been deeply influential, especially in social anthropology, for which culture was the single most central concept. By 1996, an encyclopedia of the discipline suggested the possibility of "abandon[ing] talk of different 'cultures' altogether, because of its taint of essentialism" (Barnard and Spencer 1996, 142), in other words, because of its connection to the simplistic idea that a culture was a kind of "package" that was "coherent inside and different from what is elsewhere" (Mol 2002, 80). Simultaneously, however, invocation of culture has increased sharply in areas in which it had not been hugely salient previously, such as in the social studies of science in the form of, for instance, the "local scientific cultures" of Barry Barnes, David Bloor, and John Henry (1996), the "epistemic cultures" of Karin Knorr Cetina (1999), and the "epistemological cultures" of Evelyn Fox Keller (2002). Indeed, "culture" has escaped the boundaries of academia: it has become common to find the term used in everyday language in a sense roughly similar to its social science usages. When teaching students thirty or so years ago, it was necessary to explain that the term did not refer simply to high culture such as opera; now such a warning is hardly necessary.

Of course, suspicion of the concept of culture arises above all in relation to Euro-American representations of non-Euro-American peoples (the ellipsis in the quotation from Said conceals a reference to race, religion, and civilization), and the cultures invoked in the social studies of science are not, for example, national cultures but far more local. Nevertheless, Said's questions are worth asking: is the notion of culture a useful one in other contexts? With the partial exception of Knorr Cetina (1999), invocations of "culture" in the social studies of science have not tended to devote much discussion to the polysemic, politically treacherous aspects of the term. In this chapter, I ask whether a notion of culture broadly inspired by these usages in the social studies of science can productively be applied to a specific aspect of behavior in financial markets: evaluation, that is, efforts to determine the economic worth of financial instruments. (I include efforts to estimate the intrinsic value of financial instruments, either in absolute terms or relative to that of other instruments, as well as efforts simply to judge whether the price of an instrument is likely to rise or to fall.)

There are two reasons for shifting the focus from science to the financial markets. First, evaluation in financial markets is of enormous importance yet very poorly understood. For example, a crucial role of financial markets is to channel investment capital to some activities and not to others, and the amounts of capital involved are huge. The evaluation of financial instruments — of shares, government or corporate bonds, and so forth — is a crucial aspect of this channeling role. Second, shifting attention to the financial markets highlights an issue that tends not to be prominent when "culture" is applied to science: the theory of action associated with the concept. In their ordinary social-science usage, invocations of culture are often associated informally with an implicit theory of action as based on habit, belief, and routine rather than on rational choice. There is nothing inherently necessary in this association, however: culture is still relevant even when one views actors as reflexive and rational. Since rational, reflexive action is to be found in the financial markets if it is to be found anywhere, those markets provide a useful arena in which to explore the usefulness of the concept of culture in contexts in which such action is prevalent. This chapter proceeds as follows. First, I explain my empirical focus: two similarly structured types of financial instrument important to the 2007–2008 global financial crisis, asset-backed securities (ABSs) and collateralized debt obligations (CDOs). The next two sections then describe how ABSs and CDOs were evaluated. The contrast between how this was done in the two cases shows how clusters of practices can differ consequentially even when similarly structured instruments are being evaluated. I then turn to the question of what would be needed to justify moving beyond the notion of clusters of practices to a stronger notion of evaluation cultures, suggesting four criteria that would need to be met. The conclusion then returns to Said's question of the usefulness of the notion of culture, and I express what are inevitably rather personal views on that.

The empirical research on which this chapter is based is a detailed study of the evaluation and governance of complex financial instruments such as ABSs and CDOs. This research draws upon two main sources. First is a set of 101 interviews conducted with analysts, managers, traders, and such who worked with these instruments. These interviews took a broadly oral-history form, with interviewees being led through their careers in respect to the instruments in question, with a view to examining the main...