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Financial Models and Society

Villains or Scapegoats?

Ekaterina Svetlova

This innovative book employs the social studies of finance approach which aims to enhance the dialogue between finance and sociology by addressing the blind spots of economic and financial theories. In so doing, it challenges the accusations made towards financial models in the aftermath of the last economic crisis and argues that they cannot be condemned indiscriminately. Their influence on markets and society is not straightforward, but determined by the many ways in which models are created and then used. Ekaterina Svetlova analyses the various patterns of the application of models in asset management, risk management and financial engineering to demonstrate that their power is far more fragile than widespread criticism would indicate.
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Chapter 2: Models in finance: general considerations

Villains or Scapegoats?

Ekaterina Svetlova

Extract

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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