1. Controversies Over Value An STS approach to the capital markets Daniel Beunza “Does STS Mean Business?” Workshop August 2007

2. STS finance? “Trust us” Exposed! Finance as Science?

3. the cumulative view: facts rule Information 3Information 4Information 1Information 2 Price 1Price 2Price 3Price 4 Finance Data 3Data 4Data 1Data 2 Theory 1Theory 2Theory 3Theory 4 Science Source: Galison (1997)

4. the cumulative view Theories based on data Falsification Theories as cumulative knowledge Scientific “truths” Trust the experts POSITIVIST SCIENCEORTHODOX FINANCE Valuation based on information Bayesian Convergence Prices as aggregate information Prices equal value Passive investment

5. problems? POSITIVIST SCIENCE Sharp divide between experts and laypeople Cannot explain replacement of theories Cannot explain scientist’s behavior, e.g., resistance ORTHODOX FINANCE Between retail and professional investors Cannot explain bubbles nor extraordinary profits Cannot explain financial intermediaries

6. the critical view: society exposed Information 3Information 4Information 1Information 2 Price 1Price 2Price 3Price 4 Finance Data 3Data 4Data 1Data 2 Theory 1Theory 2Theory 3Theory 4 Science Source: Galison (1997)

7. society exposed… PRE-STS SOCIOLOGY Scientists are social: they conform, career concerns, etc. The “social” as dysfunctional Ignores content of scientific theories BEHAV. FINANCE Traders and analysts are social: herding, over- optimism. Ignores where valuation comes from Investor biases and heuristics

8. Scopes EnginesFrames Platforms Value: an STS perspective

9. eg. an epistemology of controversy 1.Locate the controversy 2.Look at the sides to the debate 3.Examine how the controversy was closed (Beunza and Garud 2007)

10. towards a theory of $T$ STS Examines how scientific claims become truths Distinguishes between ready-made science and science in the making Centers on scientific controversies STS FINANCE Examines how value claims become prices Distinguishes between valuation under certainty and uncertainty Centers on framing controversies

11. SCIENCE How are laboratories organized for innovation? How do scientific instruments mediate theories? Relationship between academic science and for-profit science? FINANCE How do trading rooms identify profit opportunities? How do financial tools/ models perform prices? Relationship between finance departments and hedge funds? more…

12. Information 3Information 4Information 1Information 2 Price 1Price 2Price 3Price 4 Engine 1Engine 2Engine 3 Value: an STS perspective

13. for a social studies of finance Reframes market actors as active participants (not uninformed victims) Rethinks capital markets as debate societies (not information processing machines) Re-conceptualizes financial practice as dealing with knowledge (not information)

14. making value public… 1.MBA teaching of social studies of finance? 2.Rescue of intermediaries? 3.Rebirth of retail investment? 4.Change in financial media 5.Artifacts to navigate controversies?

16. Thanks