Innogen

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The Construction of Economic Agents

Donald MacKenzie

Funding: ESRC Innogen Centre

Started: January 1 2002

Background

In recent years, there has been increasing interest in applying not just economics but the wider social sciences (for example, anthropology, human geography, politics and sociology) to economic activity.  The most recent focus of attention in this work has often been financial markets, but the approach is also applicable to markets of other kinds, for example in pharmaceuticals. 

The approach taken in the research summarised here is located within that broad endeavour, but in particular it seeks to apply perspectives drawn from science and technology studies to markets. 

The basic underlying intuition (drawn for example from actor-network theory) is that there is a considerable difference between a “naked” human being, and a human being equipped with systematic ways of thinking about markets, with technical devices, etc.  Focusing on this equipment suggests a view of the economic agent (which includes economic actors of all kinds, not just those who act on behalf of another) that is subtly different both from the view of the agent as a rational maximiser and from the different view put forward by behavioural economics (or in the sphere of financial markets, by behavioural finance). 

While sharing the emphasis in the latter on the limitations of “naked” humans, the view of the economic agent that is being developed in this project also emphasises the way in which the behaviour of the agent can be influenced strongly by his/her “equipment”; it can, for example, be made more “rational” by this equipment.

Aims and objectives

  • To develop a view of the economic agent that draws upon the insights of science and technology studies into the embedding of human beings in cognitive cultures and technological systems. 
  • To exemplify this view with empirical studies of a variety of markets. 
  • To disseminate the results of this work to relevant academic audiences and (where appropriate) policy-makers and practitioner groups.

Research methods

The primary methods being applied are qualitative: the combination of semi-structured interviewing and analysis of documents.  Much of the work takes the form of “historical sociology” of markets, seeking to identify and explain significant changes through time.

Key findings

The main finding to date (based primarily on work done in financial markets) is that agents’ behaviour is indeed influenced by their technological and cognitive equipment.  For example, behaviour in options markets was profoundly influenced by the availability of the Black-Scholes option-pricing model.  (That model and the underlying analysis of options is now also being applied in a wider set of contexts, for example to inform investment decisions in pharmaceuticals and biotechnology, so one possible development of the work summarised here might be to examine what effect this use of option theory is having on decision-making).

Wider implications for policy

The main policy implication is that it is important to understand the cognitive frames within which economic agents are embedded and the models and other cognitive tools they bring to bear.  The most dramatic evidence for this comes not from the sphere of the life sciences but from the financial markets, where it is clear, for example, that mathematical models played a significant role in the genesis of the current financial crisis.