Risk and uncertainty in financial markets: a symposium

J. Beckert, H. Berghoff
2013 Socio-Economic Review  
Economic action takes place in risky and uncertain environments. Whether for medieval traders whose merchandise needs to be secured against theft during transport or financial traders on Wall Street who need to close deals in highly volatile financial markets-risk and uncertainty are universal features of economic activity. The question of how societies and economic actors deal with risk and uncertainty provides a crucial entry point for investigating the economy. In capitalist economies,
more » ... st economies, uncertainty is paramount. In parts it arises from competition because the profitability of investments depends on the unknown activities of other market actors. One way in which companies and states react to these risks is by attempting to limit or regulate competition. These efforts range from the strictly enforced rules of closed shops such as guilds through to import restrictions, the exclusion of specific social groups from market access and forms of monopolistic competition through product differentiation. Uncertainty arises also from asymmetrically distributed information or unknown qualities of commodities. Uncertainty has a further source in the freedom of cooperation partners in exchange relations. Due to information asymmetries, all joint economic activity for both production and exchange involves trust, a trust that can be broken. Actors must succeed in integrating their plans despite often diverse interests and decisions that involve incalculable future developments. Economic organization must provide safeguards for contract partners in order to instill in them a willingness to engage in economic exchange. Such safeguards can be social norms, institutions for the enforcement of property rights and families or closed ethnic networks with high sanctioning powers. The sources of uncertainties economic actors confront can be classified in three categories: (i) strategic uncertainty that refers to the dependence of
doi:10.1093/ser/mwt008 fatcat:czoxgsrcirbltbdoa5f2amy42m