ASA Globalog

Dr Gillian Tett, Anthropologist and Assistant Editor, Financial Times

Back in the days when I first became a financial journalist – some 15 years ago – I would sometimes feel a touch embarrassed when I confessed to bankers or anyone else in the business world that I had a PhD in Social Anthropology. For back then, there was a widespread assumption that the only degrees which ‘really’ counted were those in economics, or the hard sciences – or, at a pinch, a Masters of Business Administration, preferably from a macho university such as Harvard.

And that, in turn, reflected a cultural pattern, or mindset, that bankers sometimes jokingly call ‘physics envy’ – namely a sense of inferiority relative to the so-called hard sciences. For during the last three decades, financiers have longed to convince themselves, and others, that they could use the laws of hard sciences to explain how money is likely to move around the financial system, with deceptively neat precision. After the beauty of physics, say, is that it offers a sense of certainty – and predictive powers – in an ot otherwise uncertain, unstable world. Thus, financiers have scrambled to find ways to copy that sense of certainty, not least because prediction has the potential to unlock fat profits – if, of course, the predictions turn out to be correct.

And within the world of finance, the type of training that commanded most respect was one that appeared to enable the recipient to transpose scientific concepts onto the financial world. Nobody in banking, in other words, ever commanded much respect by pointing out that financial markets were complex, unknowable – and unprediictable. Instead, the glory went to those who claimed to be able to analyze and predict those markets using complex, abstract, mathematical tools – and the fact that few people understood how those tools worked, simply conferred more, not less, respect on the new breed of banking ‘priests’. A training in complex finance-cum-science – or financial engineering, as it was often called – was thus widely admitted; anthropology, by contrast, just seemed rather ‘hippy’, as one banker observed – a polite phrase for saying ‘useless’.

No longer. As the financial crisis has exploded in the last couple of years, the bankers who once proudly touted the predictive power of financial models, have been losing faith in those quasi oracles to a starting degree. Oddly enough, it is not often the people who first dreamed up these models who are suffering the greatest intellectual shock as result; on the contrary, the true scientists-turned-financiers – or the ‘quants’, or ‘geeks’ – who invented these mathematical techniques were often well aware of the shortcomings of trying to apply laws of Newtonian physics to financial markets.

Instead, the people who have been most stunned by the failure of models, are those whose business was linked to these models, but which never really created them themselves – the salesmen who floogged the products, the traders who bet on price movements, or the senior executives of the banks. For them, the revelation that finance is more of an art, than science, has been a brutal shock. And as that sinks in, there is a renewed interest among some senior executives in trying to the social dynamics of finance – both in terms of trying to understand how their own banks have operated in the past (or, most accurately, failed to do so), but also in terms of broader market psychology. Courses on behavioural finance are becoming more fashionable. There is a new emphasis among regulators and risk managers on trying to understand the interconnectivity of markets. A group of powerful insurance companies in London have even hired an anthropologist to study their business. And when I travel around investment banking conferences and reveal my background in social anthropology, I am apt to get asked a plethora of questions – instead of a blank sttare.

Of course, this new trend may well prove temporary; if the markets continue to rally, and the banks start to make money again, there will be a big temptation for bankers to simply revert to their tunnel vision again. But the moment, at least, this financial crisis has served to remind financiers that ‘credit’ is not just about computer models, greek letters or complex maths; the roots of the word credit come from the latin credere, meaning ‘to believe’ – which is fundamentally a human construct. Or to put it another way, finance with faith is worth absolutely nought, no matter what a mathematical model might say. I just hope that this brief moment of shock helps to promote more reflection inside the banking world; and perhaps, more opportunity for social scientists to offer their skills and insights in modern finance.