Bond Traders: Hyper-Rationality & Entrepreneurial Behavior - Essay Sample

Introduction

Abolafia explains that bond traders establish their version of entrepreneurial behavior. One phenomenon in Abolafia narratives is the hyper-rationality as a practice among bond traders. In the same way that self-centeredness is established as opportunism on the trading floor, rationality seems like hyper-rationality. In the last few years, economists have illustrated an increasing identification that rationality is not an easy fact of nature. In the most common type of economic man, the actor has configured preferences, skilled computing power, and perfect information (Abolafia 3). Economists view economic behavior as influenced by society. However, sociologists observe family relations, political institutions, and religious frameworks as influenced by economics. Sociologists started to explain economic behavior in terms of four mechanisms namely; institution, power, network, and cognition. The paper will use the concepts of the sociological mechanism by Frank Dobbin to evaluate Abolafia's narrative of hyper-rationality in bond traders.

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Bond traders display a form of bounded rationality that may be referred to as hyper-rationality. Hyper-rational decision-makers are those people that make the greatest use of analytic methods but still incorporate factors of instinctive judgment in the decision process. Within the bond traders, hyper-rationality is exhibited in behaviors or ritualized customers that are implicitly but incessantly invoked throughout the trading period. The most crucial factors in hyper-rationality entail context-reliant versions of vigilance and instinctive judgment (Abolafia 6). Sociology's key knowledge is that people behave according to the scripts that are linked to social roles. Those scripts are referred to as conventions at the common level and cognitive schemas at the personal level (Dobbin 4).

Institution

Economic institutions provide a wide range of guidelines for behavior. Institutions are preserved by occupational, community, and industrial networks that influence social roles. Institutions are used by sociologists when explaining about certain conventions, either in law or by tradition. Institutions range from simple customs of exchange to complex contemporary states. Hyper-rationality practice is a form of institution. Trading is unpredictable and can change at any interval. Trading is connected, in practice and the minds of bond traders. Based on the concept of institution, they persist because they create structural inertia and come to make sense to individuals. Bond traders understand that economic institutions change due to politics, law, and religious ideals. The model of change is established on the perspective of peppered equilibrium. Trading bonds entails financial institutions and governments across the world.

Society influences the behavior of a person and in this case, bond traders fall in this category. Trader's comprehensions of trading customs are influenced by how the institutions around them illustrate economic order generally. Institutions such as in bond trading survive until someone directly challenges them.

Network

Network theory is established on early French sociologist Emile Durkheim's opinion that social location influences personality and behavior. A person's network shapes how they conduct themselves and their understanding of how individuals in other roles ought to behave. Social networks are the haulers of new economic practices and opinions of what it means to be rational and effective (Dobbin 5). Hyper-rationality as a practice for bond traders is an example of a network. In the course of their internships, novice traders learn which indicators and modes of assessment are most conventionally valued on the Street and in the corporation. Hyper-rationality entails dealing with consistent information overload utilizing prescribed modes of vigilance, Therefore they have to be agile and much focused. Hyper-rationality in bond traders helps them to make role-appropriate behavior like making good on a pledge to sell bonds at a particular price and approach conduct that disrupts norms like larceny.

Most information about bond traders is learned through social networks. Through networks, bond traders can search and assimilate a wide range of information that one believes may be useful in decision making. Trading flows are consistently overwhelmed by economic indicators and translations of those indicators. Bond traders learn their daily routine of the job from the occupational network and are then associated with a network and its routines (Abolafia 6). Bond traders exhibit interpersonal networks which offer behavioral scripts, or conventions. Networks also recommend that bond traders should seek autonomy. In trading floors, networks convey cultural systems so that the new conventions of empowerment are delivered with a new model for human inspiration.

Power

Power influences the evolution of new traditions, when the influential approve the behavior of others and when they influence legal institutions. Power is viewed as the capability to influence how others observe the world and their welfares (Dobbin 5). Hyper-rationality as a practice is an example of power. Bond traders participate in a consistent and antagonistic search utilizing various print, electronic, and interpersonal information sources. There is logic that indicators must be evaluated because they are accessible. Every indicator signifies a possible resource for decreasing the uncertainty of greatly consequential buy and sell resolutions. Hyper-rationality in bond traders is sometimes attributed to checking, sorting, and a rush to establish value.

From the start of capitalism, prosperous entrepreneurs and managers have delineated economic conventions by persuading, and informing the world that the appropriate way to operate an enterprise is their approach. Success in bond trading gives traders the power to define the aspects of rational behavior. Economic authority goes hand in hand with political influence and how they can conduct themselves. Bond trading is a highly competitive business and involves intense price lobbying. Power shapes the public policies that administer competition between companies and the pricing customers of companies. This kind of authority over economic customs functions through industry networks, professional networks, and political networks that works as the frameworks for new policy perspectives and business approaches. Bond traders can follow consistent behaviors that make successful in trading floors.

Cognition

At the personal level, cognition is the carrier of traditions-it offers the schemas through which people make continuous sense of conventions and through which they challenge them. Cognition is used to define the psychological process of establishing a sense of the world and its social conventions. Cognition perspective holds that the human mind is encoded to establish classes, causal systems, and charts of the world (Dobbin 6).

Hyper-rationality as a practice is a case of cognition in a sociological mechanism. Bond traders share a culture that influences personal cognitive designs. In cognition, behavior can be directly traced to human nature and instinct. Bond traders are naturally calculating, convincing, and even systematic. Bond trading is explained using mathematical formulas that eventually illustrate how self-interests are formed. It is an enterprise that has illustrated how social structures develop to permit people to seek their self-interest. However, they do not change human characters; they trigger them. In bond traders' perspective, survival in the trading floor may be innate (Abolafia 7). This shows that economic behavior is scripted by tradition instead of biology. Much of the techniques in trading are learned instead of wiring in the trader's genes.

Cognition helps in explaining hyper-rationality in bond traders. The degree which behavior as instructed, instead of being generic, differs in different people. Therefore, bond traders are no exception. The settings of people are socialized to enabled them to seek the objective of their choice. Cognition enables bond traders to use techniques like artificial intelligence to determine the prices to quote when a customer wants to buy or sell a bond (Abolafia 8). The cognitive theory also provides knowledge of the history of hundreds of thousands of trades and then enables this interpretation into a prediction. Therefore, when people learn, they create categories or schemata in their minds to coordinate their decisions. This is what happens to the bond traders and their behavior on the trading floors.

Conclusion

Conclusively, Abolafia discussed the social constructionist view that proposes that markets are not spontaneously created by the exchange activity of buyers and sellers. Instead, competent actors generate institutional arrangements; guidelines, responsibilities, and associations to make the market exchange viable. He also explained the phenomenon that hyper-rationality is a practice among bond traders. Bond traders illustrate a form of restricted rationality that is mostly referred to as hyper-rationality. Frank Dobbin has successfully explained that economic behavior is shaped exogenously, by a force outside of society, instead of endogenously, by forces within. Dobbin presents four sociological mechanisms namely; institution, power, network, and cognition. Self-interest is exhibited in bond trading and economic behavior is seen as an exogenous part of society.

Works Cited

Abolafia, Mitchel Y. Making Markets: Opportunism and Restraint on Wall Street. Cambridge, Mass: Harvard Univ. Press, 1996. Print.

Dobbin, Frank. The New Economic Sociology: A Reader. Princeton, N.J: Princeton University Press, 2004. Print.