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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 3: From representation to performativity and beyond

Villains or Scapegoats?

Ekaterina Svetlova

Extract

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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