Risk As Practice: The Calculative Practices of Credit Rating Agencies and Their Underlying Conceptions of Risk

While much discussed in other subfields of sociology, the concept of risk has gotten surprisingly little attention in economic sociology. Risk is often regarded and dismissed as pure fiction of (neo-classical) economics that overestimates the calculative abilities of market actors. This perspective has shifted the focus of most economic sociology from risk to studying uncertainty and the institutions, networks, and cultural artifacts that supposedly help individuals or societies dealing with it. But declaring risk a fiction neglects its central role as an organizing category of knowledge in the economy and especially in financial markets.

This paper takes a practice perspective and studies calculative practices of risk assessment as social phenomena that shape the current conceptions of risk of financial market actors. By studying the calculative practices of credit rating analysts, I identify two fundamentally different methodological approaches for producing ratings, which in turn shape the respective conceptions of credit risk that co-exist and compete within rating agencies. While the first sees risk as only partially calculable and predictable hazard that should be avoided or minimized, developments in rating practices since the 1980s conceive risk as calculable and controllable, implying that risk should not be avoided but managed and exploited for increasing profits.

My theoretical argument is that calculative practices are inherently intertwined with the knowledge they produce. Through the decisions of which aspects of a phenomenon are measured or left out, what is compared, and through the specific calculative manipulations, the object that is calculated is created in practice. In order to understand the de facto meaning of risk concepts, it is therefore necessary to look at the calculative practices that construct them, because they represent the concrete manifestations of ideas of risk in financial markets, which fundamentally shape financial (and more generally: social) action.