When is a silo mentality a problem in financial markets?

Yesterday at the American Anthropological Association’s annual meeting I went to hear Gillian Tett, a journalist for the Financial Times, talk about how her own training in anthropology (like me, she holds a doctorate from Cambridge) had shaped her reporting on the derivatives markets and the financial crisis.  Tett eloquently explained how anthropologists’ attention to the difference between what people say and what they do, and how the ethnographic method–of observing people intensively over the long run rather than simply relying on public statements or even one to one interviews–had helped her to see the importance of credit derivatives before other newspapers began reporting on them and to sniff out problems in the credit derivatives markets ahead of the crash.  Tett argued that anthropologists’ holistic perspective, and their interest in rituals, in social and institutional practices, in latent hierarchies and in all that gets glossed as “irrational” in economics had an invaluable contribution to make to our understanding of modern finance and to policy debates.

Tett’s own diagnosis of the financial crisis focuses on what she calls “silos”–the way different financial institutions, and different teams within each financial institution, prevented anyone from seeing the big picture.  Stuck in their own little tribe’s group thinking, each team could not see the wider effects of their activities, or the way their perspective was only one among many.  Tett says she sees herself engaged in “silo-busting”–breaking down those barrios with a more holistic approach.

Tett is surely right that a silo mentality pervades certain aspects of the financial markets.  This is one of the ways finance is really like the rest of the world–all of us fail to see the limits of our own ways of thinking.  This is certainly true in the social sciences.  Anthropologists for example are for the most part utterly convinced that their own world view is better than others, and that they are misunderstood and under-appreciated by everyone else.  Economists’ self-confidence about their own discipline’s assumptions is legendary.  Paul Krugman has created a stir by asking whether economists’ over-confidence in their models might not have caused them to miss the financial crisis.  Like Krugman, I think Tett’s diagnosis should cause academics too to ask some hard questions about why we did not do more to highlight and critique the problems in the financial markets prior to the crash.  For myself, for example, fieldwork in the derivatives markets had convinced me long before the crash that all was not well in these markets. My husband (also an ethnographer of finance) and I often joked way back around 2002 that our research had convinced us not to put a penny of our own money in these markets.  But our own disciplinary silo made us feel that it was impossible to counter the enthusiasm for financial models out there in the economics departments, the business schools, the law schools, the corridors of regulatory institutions.  There surely was some truth to our sense that no one wanted to hear that markets were not rational in the sense assumed by the firms’ and regulators’ models.  But maybe we should have tried a bit harder; it turns out many other people also had doubts and thought they too were alone. What might have happened if we had all found a way to link our skepticisms?  The silo mentality is not just about a lack of knowledge.  It is also about a lack of confidence in one’s ability to communicate with people outside the silo.  I don’t think this is anthropologists’ problem alone.  When I ask many of my research subjects why they don’t tell regulators the full story, have just shrugged, “they wouldn’t understand.”
With funding from the Tobin Project and the Clarke Program in East Asian Law and Culture, Tom Baker at Penn Law School and I have sponsored a string of workshops aimed at breaking down disciplinary barriers and getting the conversation about markets going between economists, sociologists and anthropologists.^[1] It has been exciting to see how much interest there is on all sides. One of the positive outcomes of the crisis is a greater sense of curiosity about perspectives outside our own silos and a greater commitment to building new conversations.
Still, I wonder if it is always and everywhere a good idea to break down specialized ways of thinking and replace them with a holistic approach.  Take lawyers and back office staff inside the big banks.  As I have written about elsewhere, they lack the big picture: there are lots of things about finance they don’t understand and this sets them apart from traders.  But precisely because they don’t think like traders, they can also evaluate the activities of a trading room with some critical distance.  After all, if they were indoctrinated into the same assumptions as traders they probably would not catch the limitations in traders’ logic that can have disastrous risk management consequences.  So having lots of different groups that think differently from one another with a stake and a role in making decisions is also an important component of financial stability.  In practice, dealing with people who think differently can be a huge pain in the neck–traders don’t much like back office staff meddling in their affairs and vice versa.  Collaborating across differences in expertise is laborious, time consuming, and even wasteful of time and resources, and everyone complains about the other guys constantly.  Yet the requirement that different groups with different forms of expertise collaborate in making financial decisions is a kind of sociological fuse box, a way of slowing things down when they start to snowball out of control.  Sometimes waste and redundancy is a good thing.  The benefits of this fuse box would be lost if everyone had the full picture: traders with back office expertise can more easily circumvent regulatory checks; back office staff with too much training in finance begin to buy into the trader’s world view.
So maybe instead of silo busting, what we really need is more mandates that we collaborate, across our differences. This is true in the academy as much as in finance.