Market Governance Is About People (And How They Think)

Before I get started though, the wider theme this week is going to be how vitally important it is to get out in the market and among regulators and talk to people rather than to just assume we know what a rational person in this or that role might think or do. I am continually amazed at how little we know about what regulators think and do; how little they know about what market participants think and do; how little market participants know about each other; how little the journalists know about any of this. And yet there is a growing body of very serious and solid empirical qualitative research out there based on long term observation and deep knowledge of particular markets that we could be relying on to answer these questions. Some examples: Doug Holmes on central bankers, Vincent Lepinay and Hiro Miyazaki on derivatives traders, and my work, and the work of Credit Slips’ own Anna Gelpern on lawyers. We need to start basing out regulatory policies on the empirical facts–on what we know about how real people in the markets think and act–not on what we imagine they might do.The keywords here are “people” and “thinking”.  Somehow we seem to have forgotten that markets and their regulation are all about real people, in real relationships that carry certain expectations about what doing the right thing might be–with regulators, with their competitors in the industry and their former classmates, with their customers, with their spouses and children, with their bosses and secretaries, and on and on–and certain sets of intellectual and mechanical tools for making sense of the realities they confront and making choices about what to do about them.

The disciplines of sociology and anthropology have a whole bunch of sophisticated tools for studying these things, and there is now a growing field out there called the anthropology of finance.  What anthropologists and sociologists know about market activity dovetails with behavioral economists’ insight that market behavior is not inherently rational or self-interested.  The next question is, what does shape market behavior? Anthropologists and sociologists study market culture, market institutions, and market thinking–everything from the kinds of technologies traders use to interpret the market to the relationships between regulators and market participants–to answer those questions. I discuss the insights of my own research and what anthropological approaches more generally have to offer in my book, Collateral Knowledge: Legal Reasoning in the Global Financial Markets, which will be out from the University of Chicago Press in March 2011.

If we really take in this simple fact about markets, all kinds of new opportunities to shape market activity come into view. So in the next few days I will throw out a few examples of how this perspective might contribute to current policy debates in the headlines. I look forward to your ideas and criticisms, and if any of you are attending the AALS meetings in San Francisco this week it would be great to talk in person too.