On Invoking “Culture” in the Analysis of Behavior in Financial Markets

Culture is a powerful concept but also a polysemic, politically treacherous term. This chapter explores whether a notion of culture broadly inspired by the term’s usages in the social studies of science can productively be applied to a specific aspect of behavior in financial markets: evaluation, that is, efforts to determine the economic worth of financial instruments such as shares, bonds, and (in the particular case examined in the chapter) more complex instruments like collateralized debt obligations (CDOs) and asset-backed securities (ABSs). Although CDOs and ABSs have similar structures, the chapter identifies differences in how market participants evaluated them. It briefly sketches both how the different evaluation practices evolved historically and the contribution of those differences to the 2007–2008 financial crisis. The chapter proposes four criteria that need to be met before it is appropriate to conceptualize such differences as different evaluation cultures.