Emotions, calculations and social relations in investment banking

Financial markets are marked by a radical uncertainty. What are the influences of emotions, calculative practices and social embeddedness while investment bankers encounter this uncertainty?

Project No. G 405

Markus Lange

Investment banking is a paradox: Decisions about the future are fundamental – but the future is uncertain and a reliable prognosis impossible. Investment bankers are trading with payment promises (e. g. forward contracts) – while at the same time physical goods, consumers as well as their needs are missing.

The project wants to explore how emotions, calculations and the social embeddedness of the actors influence trading with financial products. It seems that emotions (e. g. fear, panic, euphoria, trust) affect investment decisions, for example through time pressure and market fluctuations in the sector. In contrast, complex mathematical models are supposed to pave a way through the uncertainty and legitimate a rational trade. Last but not least, bankers are embedded in social contexts, networks or hierarchies with specific formal as well as informal norms and values of action (e. g. trading floors).

How do these three dimensions interact with each other, while investment bankers encounter this apparent radical uncertainty?

In the first instance analyzing qualitative interviews with traders and fund managers should provide answers to this question. Based on these findings it is planned to set up a quantitative survey by the end of the project.

The aim is to contribute to a better understanding of financial markets. The project puts particular emphasis on how the analysis of economic action can benefit from an explicit integration of emotions.

Discipline

Sociology

Supervisor

Prof. Dr. Christian von Scheve

Prof. Dr. Jürgen Beyer