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Conclusions and discussion

Villains or Scapegoats?

Ekaterina Svetlova

The concluding Chapter 6 considers implications of the book’s findings for further research in decision-making theory, economics, valuation studies, ignorance studies and ethics of financial markets.

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Financial models in decision-making

Villains or Scapegoats?

Ekaterina Svetlova

Following the theoretical discussions in Chapters 2 and 3, here I present numerous empirical accounts of financial model use in decision-making. I particularly focus on several styles of model use, that is, on how models are applied to overcome uncertainty and make investment decisions possible for model users. I classify and compare various patterns of model use in financial markets (“qualitative overlay”, “backing out” and models as “opinion proclaimers”) and discuss in detail the different latent functions of models. I show that, as models are combined with, “overlaid” and influenced by judgment, stories, emotions and the institutional environment in which they are applied, they are far less omnipotent than one might expect. The related model risks are also discussed in detail.

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Ekaterina Svetlova

In Chapter 3, an overview of the existing accounts of model use in the philosophy of science (with a particular focus on economic modelling) and social studies of science and technology (STS) is provided. Particularly, the pragmatic turn in modelling research that has taken place in these disciplines since the mid-1990s is highlighted. The pragmatic accounts argue that the gap between models and reality can be closed in the process of model construction and model use by means of pre-formulating the anticipated results, narratives, interpretations, power relations and the audience. The chapter shows how the social studies of finance have pursued research in this field, focusing on the pragmatic practices of modelling and model use in financial markets. The performativity account is discussed here and, at the same time, I plead for the “emancipation” of social studies of finance from its heritage – that is, from science studies and, particularly, from understanding models as purely “epistemic tools”.

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Models in “decision-selling”

Villains or Scapegoats?

Ekaterina Svetlova

In Chapter 5, I analyse model use for decision-selling, exploring how models are utilized to justify decisions and convince others to invest. Here, I demonstrate that financial models are applied not only to make decisions but also to communicate, provide legitimacy for decisions, perform impression management, reach a consensus and so on. These secondary functions can overlay the primary goals of model use (that is, calculation) and render models less important for immediate decision-making.

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Ekaterina Svetlova

In Chapter 2, financial decision-making is conceptualized as action-like decision-making and the idea of symmetrical ignorance is introduced. Both concepts provide the theoretical basis for the later empirical discussion. Also, both concepts point to the specific, not solely epistemic, nature of financial markets and suggest that the existing accounts of models and their use are insufficient as they particularly focus on scientific practices. In the chapter, financial models are discussed as instruments to guarantee investability and to create faith in markets. They help bridge symmetrical ignorance by participating in the diverse practices of decision-making and decision-selling. Financial models are considered the tools of formal calculation, story-telling, communication and theatrical performance.

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Edited by Mohamed Ariff, Munawar Iqbal and Shamsher Mohamad

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Edited by Mohamed Ariff and Munawar Iqbal

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Ray Forrest