Definition of sociology of finance
A trader cannot trade without a counterparty, therefore interaction between two individuals is essential for any financial transaction, and very often such trading interactions are reliant upon and mediated through various ICT systems and financial models. These human and technology interactions force us to think about the sociology of finance.
Financial markets, which are social phenomena, are influenced, shaped, and affected by a variety of factors including the economic, historical, cultural, technical, legal, political, organisational, religious, geographical, environmental, emotional and/or natural events. This means, studying and understanding financial markets and transactions from financial or economic perspectives cannot convey the whole picture. As financial transactions and markets are fundamentally social phenomena we need to understand their existence and operation from a sociological point of view as well. The sociology of finance is the systematic study of financial markets and transactions from a sociological perspective. The goal is to develop a rich and in-depth understanding of the financial markets from an interdisciplinary perspective.
sociology of finance in use
If a private equity firm visits your office soliciting money for its forthcoming fund, what aspects would you as a limited partner take into consideration in evaluating the investment opportunity on your table?
Experience, expertise, and cohesiveness of the management team, strategy, relationships maintained, reputation held, investment evaluation and decision making practices and procedures, focus of the fund (sectors, geographies, market segments), prior track record of the managers, contractual terms and conditions, fees, age of the investment professionals, etc are generally taken into consideration in evaluating private equity firms and their fund offerings. Most of these are ‘social’ aspects and qualitative in nature and their assessment involves high judgment. Other examples would be the traders relying very heavily on computer modeling and ICT. Sociological investigation is extremely helpful in understanding these and other financial market settings.