Summary

To study risk in the financial industry, rather than using the concept as an analytic category, anthropological research should instead examine the multiple technical and political meanings it has in the highly standardized procedures used by financial professionals worldwide. One important definition of risk concerns the concept of risk-free, used to qualify the bonds of the most powerful states worldwide, which are expected not to default because of their capacity to find money to pay creditors and their willingness to prioritize them against the rest of the polity. Financial professionals use risk-free bonds as a standard to assess any other activity vying for the funds of the financial industry. If professionals consider the activities riskier according to the risk-free criteria, they will demand these activities pay higher returns, a differential designated as a risk premium. The notion of risk-free thus tends to reproduce a geopolitical order where the most powerful states set the standard of financial value for other financial assets. Another definition of risk includes the mathematical concept of standard deviation, often called volatility, established by considering that prices, returns, or other such financial information have a mathematically “normal” distribution, and hence it makes sense to use probabilistic thinking and tools, such as the calculation of averages and correlations. These methods are combined with a political imaginary of market efficiency established in neoclassical economics, according to which, in efficient markets, maximizing investors seek all available information about assets, so that prices reflect this information and thus function as signals for a socially optimal allocation of resources. In this case, investors should not try to “beat” the market, but accept its prices as signals, and the investment strategy should only seek to minimize volatility. By mathematical construction, the standard deviation of a bundle of series that is not completely correlated is lower than that of one series. According to this view, investment should diversify into as many assets as possible, buying the “whole market.” This is the conceptual foundation of indexed investment, which tends to produce investment portfolios that replicate the market, so that the proportion of each asset in the portfolio supposedly matches its proportion in the “investment universe” of all available assets that pay the risk-free rate of return or a risk premium. This leads to a reproduction of the distribution of money among existing assets and thereby to the reproduction of the social hierarchies that include and exclude social activities from financial industry funding, instituting a small group of powerful states as the global foundation of financial value. In everyday practice, financial professionals thus mobilize standardized definitions of risk, with various ontologies and political meanings, in a way that tends to reproduce current monetary distribution and the global hierarchies that result from it.