Constructing Conviction through Action and Narrative: How Money Managers Manage Uncertainty and the Consequences for Financial Market Functioning

Abstract

By selecting different financial assets to hold in their portfolios, fund managers determine the allocation of capital in global markets. Recent events have revealed profound uncertainty at the heart of such markets, the manifest existence of emotion, and the way confidence is crucial to orderly market functioning. Using findings from interview studies with fund managers, supported by ethnographic observation, we demonstrate the irreducible cognitive and emotional conflicts which face actors and which threaten their daily operations. We introduce the term conviction narrative to analyse how they manage these conflicts on a day to day basis, and with what collective consequences. Our thesis is that expertise and conviction in financial markets have constantly to be created and renewed through a combination of psychological and social action with the implication at the macro level that while financial markets can be orderly they are so in an intrinsically fragile way.

Keywords: Financial markets, Confidence, Trust, Uncertainty, Interdisciplinarity, Evaluation

JEL Classification: D81, D83, Z13, G12, G11