Representation As Intervention: From Performativity to Looping Effects in a Post-2008 World

From Callon’s (1998) classic analysis of the economy up to the time of the 2007–9 Financial Crisis saw a great flourishing of sociological analyses of finance under the guise of ‘performativity’ by Social Studies of Finance (SSF) scholars. This literature boldly declared that rather than economics seeking to represent economic life, economics was actually making economic life more similar to the world of economic theory. This performativity literature embodies an important insight – which is that economists’ analyses of exchange and production have a significant influence on the institutional development of the economy itself. However, on the other hand, in declaring that theories make the world more like theories’ description of the world these performativity theories risk suffering from the exact same flaw that neoclassical economics suffered from in the lead-up to the crisis: the conflation of economic models with economic reality. The massive gap between economic modelling of risk and reality brought to light by the crisis has disabused both economists and sociologists of finance of this presumption, yet this has resulted in a significant dilemma for sociological approaches to finance. If being critical entails exploring how economics contributes to the making of economic life, but the existing tools for exploring this dynamic undermines the possibility of pointing to the gap between economic models and economic reality, then then the sociology of finance’s performativity methodology has stuck the subdiscipline in a theoretical and empirical cul-de-sac in which then the critical study of finance cannot recognize risk that is not identified by contemporary economic models. This is particularly problematic because a defining feature of financial markets around the globe since the 1980s have been the constant transformation of inadequately identified risks into financial crises. This paper proposes to resolve this dilemma by retaining the critical impulse of exploring how economic models reshape economic life without conflating theories and their objects by developing an account of representation as intervention. This task is pursued by proposing to replace the current performativity programme with an approach based on Ian Hacking’s conception of ‘looping effects’. Rather than a ‘one-way road’ of economic knowledge to economic life, this approach proposes pursuing the sociology of finance through Hacking’s dialectical realism, which analyses the relationship between models and their objects as a ‘two-way road’, in which the development of economics as a science reshapes economic life, while also analysing how changes in economic life shape the scientific study of the economy. In this way, taking seriously the incompleteness of knowledge of risk in contemporary complex finance by allowing the contingency of the relationship economic theory and life, this reorientation can aid in developing a critical approach to finance as both a body of knowledge and as a series of social and political processes that may escape agents’ understandings and intentions.