Enacting a rational actor: roboadvisors and the algorithmic performance of ideal types

Economy and Society, (forthcoming)

Weber famously invoked “ideal types” as an analytic device with which to measure empirical reality against some hyper-rational fabrication. Case in point: non-professional (lay) investors appear to be the antithesis of rational economic man. They have been cast as less-informed, less-skilled, and less-knowledgeable than professional market practitioners, and with ample evidence that they tend to lose money in the market as a result. This study builds the case that a new class of algorithmic financial advisor, commonly known as “roboadvisors”, enacts lay investors as rational market actors. This is achieved through algorithmic devotion to modern portfolio theory (MPT), …

Earmarking Risk: Relational Investing and Portfolio Choice

Social Forces, soaa025, (w/Rourke O’Brien). https://doi.org/10.1093/sf/soaa025

Ordinary individuals are increasingly charged with making investment decisions not only for themselves but also for close others. A child’s college savings account and a spouse’s retirement savings are instances where investing has become unmistakably relational. In this paper, we posit a theory of relational investing that extends Zelizer’s relational perspective from the domain of transactions to that of financial risk-taking. Through two original survey experiments, we demonstrate that (1) individuals are less risky with dollars earmarked for others, (2) risk tolerance varies as a function of for whom the dollars are earmarked, and and (3) labeling accounts for culturally significant life-stage events …

The Behavioral Economics of Pierre Bourdieu

Sociological Theory, (38) 1: 16-35. https://doi.org/10.1177/0735275120902170

This article builds the argument that Bourdieu’s dispositional theory of practice can help integrate the sociological tradition with three prominent strands of behavioral economics: bounded rationality, prospect theory, and time inconsistency. I make the case that the habitus provides an alternative framework to show how social and mental structure constitute one another, where cognitive tendencies toward irrationality can be either curtailed or amplified based on one’s position in the economic field and a person’s corresponding set of dispositions, ranging from more rational doxic dispositions to irrational allodoxic tendencies. Bridging economic sociology and behavioral economics, this work also bears on issues of persistent financial inequality …