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Durham University

Institute of Advanced Study

Devices for Doubt: Models and Reflexivity in Merger Arbitrage


Financial models pose a cognitive paradox. As a powerful form of codified knowledge, models allow their users to interpret complex information in an uncertain world. But models can also blindside their users by locking them in the cognitive schema encoded in the models. Professional arbitrageurs, our ethnographic study reveals, overcome this paradox by introducing dissonance in their daily calculations. They compare the outputs of their models with the estimates made by their rivals, themselves obtained by using models in reverse. This form of reflexive modeling distributes calculation across rival arbitrage funds. Reflexive modeling differs from Granovetter's embedded action in that it entails a calculative activity centered on formulae and numbers. It differs as well from Callon's disentanglement in that it emphasizes how social relations make calculation possible.

Insights Paper