The moods of markets


The famous metaphor of ‚bulls‘ and ‚bears’ reflects the idea that many people have, namely that markets have ‘moods’. That means, there are collectively shared emotional states of market actors. This raises the question how these states relate with individual emotions. That could be very important for understanding the mechanisms underlying phenomena such as herding.

I just completed reading a fascinating book by the sociologist Randall Collins with the title ‘Interaction Ritual Chains’ which could provide the theoretical foundation for this. He builds on Durkheim and his theory of rituals, as iutlined, for example, in Durkheims approach to religion. In a nutshell, Collins argues that to understand the reationship between micro-and macrophenomena, the notion of ‘ritual’ is crucial. Ritual enables the coordination of bodily and emotional states among individuals and governs the accumulation and dispense of what he calls ‘emotional energy’. This notion of ‘ritual’ is much broader than mere ceremonies and refers to any kind of regularized behavioural patterns that relate with external symbols that are transacted and communicated among humans.

Interestingly, Collins also gives the examples of financial professionals. This directs the attention to all kinds of behaviours in which their supposedly ‘rational’ decision making is embedded, and which has been scrutinized in much detail by financial sociologists, such as the role of sexualized language in describing actions in markets. According to Collins, money may obtain the role of a Durkheimian ‘sacred object’ in the sense that there are many rituals in the financial industry that centre on money, and which go beyond the narrow confines of the financial decision as such. In that perspective, it is a crucial question what the real function of money is. For example, local communities of financial actors at a particular place, such as Frankfurt, have their own status orders in which the reputation of actors is embodied and expressed. This may be mainly referred to success in the money business. Then, money is not just the object that is traded on the financial market, but is a measure of status. That would result in a shift of meanings of money even in the daily routines. In other words, the emotional states of actors may not be related to money in the sense of the theory of finance, but to money as a symbol in the financial community.

Collins argues that therefore money is necessarily related to strong emotional states. As I have argued in several papers, this is clearly supported by psychological research. Collins also discusses the difficulties that therefore arise in testing certain assumptions about rationality in economic experiments. Experiments are rituals of their own and create cognitive frames with very different emotional effects as compared to the real world setting in which the financial community acts. Therefore, we are not justified to extrapolate lab results to the field. Paradoxically, this is especially true for the financial industry, because of the very special status of money in their rituals.

Unfortunately, we do not know much about these rituals. I mostly refer to the classical work by Zaloom on traders in the pit, when it still was the dominant form of embodied financial market. In Germany, Knorr-Cetina also did research on the communicative practices, hence ‘rituals’ in Collins’ sense, in digital interactions between traders. Research like this would allow for reconstructing rituals as mediators between individual psychology and market moods. As Collins explains, what is of central interest are the symbols and objects that are handled within a community, and which establish their feeling of identity. For example, charts may be such objects, which are still widely used in the financial community, and which seem to be of dubious quality from the viewpoint of finance theory. Yet, they are produced by individuals who have a certain reputation in forecasting, and they are the topic of conversations which are governed by other rituals of daily talks about the ‘mood of the market’.

Collins, Randall. Interaction Ritual Chains. 2. print., And 1. paperback print. Princeton Studies in Cultural Sociology. Princeton, NJ: Princeton Univ. Press, 2005.

Zaloom, C. (2004), ‘The Productive Life of Risk’, Current Anthropology, 19(3), 365–391.

Knorr Cetina, K. and U. Bruegger (2002), ‘Global Microstructures: The Virtual Societies of Financial Markets’, American Journal of Sociology, 107(4), 905–950.


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