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UBC Theses and Dissertations

An analysis of risk in financial investment Quiroga-Antezana, Eduardo Raúl 1970

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AN ANALYSIS OF RISK IN FINANCIAL INVESTMENT by EDUARDO RAUL QUIROGA-ANTEZANA B.A., St. Mary's College, 1967 (Winona, Minn. U.S.A.) A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n the Department of Anthropology and Sociology We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1970 I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r a n a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l m a k e i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d s t u d y . I f u r t h e r a g r e e t h a p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e H e a d o f my D e p a r t m e n t o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t T h e U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8, C a n a d a ABSTRACT This essay attempts a preliminary explanation of the behav-i o r a l content i n f i n a n c i a l investment, and stops short of mea-suring i t . In the past i n s u f f i c i e n t attention has been given to the analysis of risk-taking behavior i n terms of expected u t i l i t y and to the r e l a t i o n s h i p between that behavior i n f i n a n c i a l invest-ment and some of the variables i n s o c i a l structure such as occupation and wealth. These issues are presented i n Chapter 1. Chapter 2 presents and discusses the scope and method of the essay, some contemporary research trends i n economics, sociology, and anthropology, the analytic focus of economic sociology and anthropology relevant to the essay, markets and exchange, and the state of i n t e r d i s c i p l i n a r y research i n t h i s connection. Two chapters are devoted to decision-making theory; i n Chapter 3, the theories of r i s k l e s s and r i s k y choices, the Bernoulli hypothesis, and game theory; i n Chapter 4, unmeasur-able uncertainty, a psychological c r i t i c i s m of the theory of r i s k y choices and a review of r i s k - t a k i n g behavior as a function of the s i t u a t i o n , the i n d i v i d u a l , and the group. Chapter 5 presents a standard economic analysis of the i n -vestment function and the l i q u i d i t y preference theory, and adds a review of two early studies (Marx, Weber) on f i n a n c i a l invest-ment. In Chapter 6 the problem i s restated i n r e l a t i o n to the above considerations. Macrostructures are defined and the sub-structures d i f f e r e n t i a t e d . The unit of analysis i s a micro-structure of f i n a n c i a l investors drawn from one of Vancouver's brokerage firms, and the t o o l of analysis i s a survey. In Chapter 7 the empirical data are presented and discussed i n terms of the t h e o r e t i c a l considerations. Since our data are crude, we have limited ourselves to conjectures which can be given a preliminary test. S p e c i f i c a l l y , we set f o r t h (a) that occupation and wealth greatly a f f e c t r i s k - t a k i n g behavior; (b) that the higher the income and stock of wealth as indicated by p o r t f o l i o composition the greater the r i s k aversion, and that the investment u t i l i t y i s a source of amusement or serves as a hedge against i n f l a t i o n ; (c) that the smaller the income and stock of wealth as indicated by p o r t f o l i o composition the higher the ris k - t a k i n g behavior because of i t s greater u t i l i t y , and that the investment u t i l i t y contributes to make ends meet or provide work s a t i s f a c t i o n . In the remaining section of the essay (Chapter 8) we appraise our research design and suggest future l i n e s of research. TABLE OF CONTENTS PAGE Preface 1. THE PROBLEM 1 2. SCOPE AND METHOD 4 2.1. Economy and Society 4 2.1.1. Trends i n Economic Research 4 2.1.2. Assumptions of Economic Analysis and Its Implications for the Behavioral Sciences 9 2.1.3. Research Trends i n the Behavioral Sciences 14 2.1.4. Research Methods i n Economics, Sociology, and Social Anthropology 21 2.1.5. Analytic Focus of Economic Anthropology and Sociology 23 2.2. Exchange and Markets 28 2.3. A Statement On I n t e r d i s c i p l i n a r y Research 33 2.3.1. Attempts to Integrate the Social Sciences 35 2.4. "Closed Systems and Open Minds" 40 3. THE THEORY OF DECISION MAKING I 45 3.1. D e f i n i t i o n of Decision Making Theory 45 3.2. The Theory of Riskless Choice 47 3.3. The Theory of Risky Choices 51 3.3.1. The Bernoulli Hypothesis 53 3.3.2. The Theory of Games 56 3.4. Possible Applications of Game Theory i n Sociology and Anthropology 60 4. THE DECISION MAKING THEORY II 62 4.1. Psychological Models of Risk-Taking Behavior 62 4.2. "Kinds" of Risk-Taking Behavior 65 4.3. The Kogan and Wallach D i f f e r e n t i a t i o n of Risk-Taking Behavior 66 PAGE 4. 4. A Review of R i s k T a k i n g From the P s y c h o l o g i c a l L i t e r a t u r e 69 5. THE INVESTMENT FUNCTION 81 5. 1. S o c i o l o g i c a l Remarks On t h e Investment F u n c t i o n 81 5. 2. Economic A n a l y s i s o f t h e Investment F u n c t i o n 82 5. 3. F i n a n c i a l Investment 87 5. 3.1. L i q u i d i t y P r e f e r e n c e Theory 87 5. 4. E a r l y S t u d i e s On F i n a n c i a l Investment 91 6. RESTATEMENT OF THE PROBLEM 99 6. 1. M a c r o s t r u c t u r e s and S u b s t r u c t u r e s ( M i c r o s t r u c t u r e s ) 99 6. 2. On t h e A p p l i c a t i o n o f S o c i o l o g i c a l Techniques o f A n a l y s i s 109 6. 3. D e f i n i t i o n ' ; o f S o c i a l Model 111 7. THE EMPIRICAL DATA 112 7. 1. The Schedule 113 7. 2. The M i c r o s t r u c t u r e 115 7. 3. Summary o f Demographic C h a r a c t e r i s t i c s from t h e M i c r o s t r u e t u r e 123 7. 4. P o l i t i c a l I d e o l o g y 125 7. 5. Income and Wealth 127 7. 6. A t t i t u d e s Toward C r e d i t 129 7. 7. Investment Purposes 130 7. 8. Investment P o l i c y 133 7. 9. R i s k - T a k i n g 135 7. 10. Summary o f P r e l i m i n a r y G e n e r a l i z a t i o n s 140 7. 11. S o c i a l Model On R i s k - T a k i n g B e h a v i o r i n F i n a n c i a l Investment 143 PAGE 8. CONCLUSION 145 8.1. C r i t i c a l Examination of this Research 145 8.2. Future Lines of Research 146 FOOTNOTES 149 BIBLIOGRAPHY 152 APPENDIX 159 LIST OF TABLES PAGE I. SAMPLE'S BREAKDOWN BY OCCUPATION 116 II. EDUCATION BY OCCUPATION 118 III. RELIGIOUS AFFILIATION BY OCCUPATION 119 IV. MARITAL STATUS BY OCCUPATION 121 V. GEOGRAPHICAL MOBILITY BY OCCUPATION 122 VI. AVERAGE AGE BY OCCUPATION 123 VII. ELEMENTS OF INCOME AND WEALTH BY OCCUPATION 127 VIII. MONEY DEMAND BY OCCUPATION 128 IX. CREDIT ATTITUDES BY OCCUPATION 129 X. INVESTMENT PURPOSES BY OCCUPATION AND MONEY DEMAND 133 XI. INVESTMENT POLICY BY OCCUPATION 134 XII. SECURITIES CHOICE BY OCCUPATION AND INVESTMENT RISK CHOICE 136 XIII. PORTFOLIO COMPOSITION BY OCCUPATION 138 ACKNOWLEDGMENTS For the d i r e c t i o n and c r i t i c i s m they have generously supplied in the preparation of this essay, I wish to express my gratitude to Prof. H. B. Hawthorn, Prof. C. S. Belshaw, Prof. M. M. Ames, and Prof. M. Foschi. In addition, I wish to communicate my indebtedness to Mr. H. McDonald of McDonald Investments Ltd. for his very consider-able support, and to Mrs. H. McDonald for her typing of t h i s essay. The University of B r i t i s h Columbia, 1970 E. R. Quiroga i PREFACE The main purpose of t h i s essay i s to show that there i s a behavioral content i n f i n a n c i a l investment, though we have not set out to measure this behavioral content. It has been sub-mitted by Belshaw (1965:138) that from the s o c i o l o g i c a l stand-point the investment function covers an enormous range of creative behavior. Although Belshaw was c l e a r l y r e f e r r i n g , i n his text, to r e a l investment, we f e e l that neither of these two kinds of investment a c t i v i t y have been s u f f i c i e n t l y examined from the behavioral point of view. Our purposes of analysis c l e a r l y demand an i n t e r d i s c i p l i n a r y approach, which we have attempted to give, not without facing formidable problems due to the i n c i p i e n t t h e o r e t i c a l stage of i n t e r d i s c i p l i n a r y research. Data c o l l e c t i o n posed rather d i f f i c u l t problems, since we did not have f u l l access to and support of a brokerage house. As a r e s u l t the meager data we could c o l l e c t are crude. Con-sequently, i n our conclusions, we have limited ourselves to proposing a series of testable conjectures that may be con-sidered for future research. The organization of t h i s essay i s as follows: Chapter 1. The problem: We r a i s e the issues that we propose to analyse. Chapter 2. Scope and Method: We discuss the scope and the methodological problems, such as: contemporary research trends and methods i n sociology and economics; analytic focus of econo-mic sociology and anthropology, markets and exchange, and the state of i n t e r d i s c i p l i n a r y research. Chapter 3. The Decision Making Theory I: The theories of r i s k l e s s and r i s k y choices are explained, the Bernoulli hypothe-s i s i s reproduced, as well as game theory and i t s possible implications for s o c i a l theory. Chapter 4. The Decision Making Theory II: Unmeasurable uncer-tain t y i s d i f f e r e n t i a t e d and discussed. Psychological c r i t i c i s m on the theory of r i s k y choice i s presented, as well as a review of r i s k taking behavior as a function of the s i t u a t i o n , the i n d i v i d u a l , and the group. Chapter 5. Investment Theory: Investment theory and the theory of l i q u i d i t y preference are set f o r t h . A review of two early (Marx, Weber) studies on f i n a n c i a l investment i s presented. Chapter 6. A Restatement of the Problem: We restate our pro-blem i n r e l a t i o n to the considerations set f o r t h i n previous chapters. We define our unit of analysis, and choose the proper tools of analysis. Chapter 7. The Empirical Data: We discuss research procedures and data c o l l e c t i o n . The empirical data are presented and d i s -cussed i n r e l a t i o n to the theories presented. Tentative general zations are offered and from them a s o c i a l model of r i s k taking behavior i n f i n a n c i a l investment i s set f o r t h . Chapter 8. Conclusion: C r i t i c i s m of the research design, and suggestions for further research. Vancouver, March 1970 1 CHAPTER 1 THE PROBLEM In Matthew (Ch. 25, vs. 14-28) we read the following parable: For the Kingdom of heaven i s as a man t r a v e l l i n g into a f a r country, who c a l l e d h is own servants, and delivered unto them his own goods. And unto one he gave f i v e t a l e n t s , to another two, and to another one; to every man according to his several a b i l i t y ; and straightway took his journey. Then he that had received the f i v e talents went and trading with the same, and made them other f i v e talents. And likewise he that had received two, he also gained other two. But he that had received one went and digged i n the earth, and hid his lord's money. After a long time the lord of those servants cometh, and reckoneth with them. And so he that had received f i v e talents come and brought other f i v e talents, saying, l o r d , thou deliveredst unto me f i v e t a l e n t s : behold, I have gained beside them f i v e talents more. His lord said unto him, well done, thou good and f a i t h f u l servant: thou hast been f a i t h f u l over a few things, I w i l l make thee r u l e r over many things: enter thou into the joy of thy lor d . He also that had received two talents come and said, l o r d , thou deliveredst unto me two tale n t s : behold, I have gained two other talents beside them. His lord said unto him, well done, good and f a i t h -f u l servant: thou hast been f a i t h f u l over a few things, I w i l l make thee r u l e r over many things: enter thou into the joy of thy lo r d . Then he which had received the one talent come and said, l o r d , I knew thee that thou art a hard man, reaping where thou hast not sown, and gathering where thou has not strawed. And I was a f r a i d , and went and hid thy talent i n the earth: l o , there thou hast that i s thine. 2 His lord answered and said unto him, thou wicked and s l o t h f u l servant, thou knewest that I reap where I sowed not, and gather where I have not strawed: Thou oughest therefore to have put my money to ithe exchangers, and then at my coming I should have received mine own with usury. Take therefore t h i s talent from him, and give i t to him which hath ten talents. This parable i l l u s t r a t e s the kind of behavior that we w i l l at-tempt to analyse throughout t h i s essay, namely that of r i s k taking i n f i n a n c i a l exchange. The above parable comes from one source that has h i s t o r i c a l l y shaped our c i v i l i z a t i o n and values, that i s , Judeo-Christian r e l i g i o n . 1 In the parable, from the s o c i o l o g i c a l standpoint, we can see that a lack of enterprise (or avoidance of r i s k ) was punished, and the opposite rewarded. We begin by r a i s i n g the following issues: 1.1. We believe that r i s k taking behavior has not been s u f f i -c i e n t l y examined i n the context of f i n a n c i a l investment, and p a r t i c u l a r l y as i t relates to some variables of s o c i a l structure, i . e . occupation, income, and wealth. 1.2. We think of "wealth as being useful and exchangeable (and take) the p o s i t i o n that exchange and the market are central features of the economy". (Belshaw, 1965:2-3) Further, the idea of wealth as being useful and exchangeable leads to the notion of u t i l i t y . But: u t i l i t y r efers not to some objective c r i t e r i o n of technical effectiveness but to the purely subjective notion of the actor that the good or service i s valuable to him, that he wants i t . Why he wants i t (for aesthetic or pleasurable reasons, because of religiouis or secular values) i s quite i r r e l e v a n t to the notion of u t i l i t y . This usage of economists should be carried over into anthropology and sociology. (Belshaw, 1965:3) 3 In t h i s essay, we w i l l analyse r i s k taking behavior as i t relates to the Bernoulli (1783) hypothesis of expected u t i l i t y . It must be pointed out that this analysis of behavior i n terms of expected u t i l i t y i s an exploratory attempt, for to date i t has not been s u f f i c i e n t l y explored by s o c i o l o g i s t s and anthro-pologists. A detailed exposition of expected u t i l i t y w i l l be set f o r t h i n (3.3.1.). 1.3. It has been suggested that the investment function belongs to the area of "admitted indeterminacy" i n economics upon which substantive behavioral theory must be brought to bear (Parsons and Smelser, 1956:185-241). In addition, by the considerations set out i n (1.1. and 1.2.), our analysis w i l l require an i n t e g r a l approach, that i s , i t w i l l operate simultaneously from economic, psychological, and s o c i a l anthropological standpoints. 1.4. Although i n t e r d i s c i p l i n a r y research has been successfully carried out by numerous scholars, i t poses formidable methodo-l o g i c a l problems that we w i l l discuss i n our chapter on methodology. 4 CHAPTER 2 SCOPE AND METHOD There are many conceptual and operational problems under-lying our analysis of f i n a n c i a l investment and r i s k taking. Presumably t h i s i s due to a kind of i n t e r r e l a t i o n s h i p between the economic, psychological, and s o c i o l o g i c a l systems (as de-fined i n 1.1.; 1.2.; 1.3.). This i s well exemplified by Klausner (1967:VIII): A change i n the class structure implies a change i n the flow of investment, which, i n turn implies a change i n the forms of p o l i t i c a l influence, which, i n turn may imply a change i n the r o l e of the m i l i t a r y . Hence, we should l i k e to define each of the concepts, and theo-r i e s that s h a l l be used i n t h i s essay, i . e . economy and society, exchange and market systems, s o c i a l structure; and, i n addition, a statement on i n t e r d i s c i p l i n a r y research. Investment theory and decision theory w i l l be subjects of separate chapters. 2'. 1 .1* Economy and Society 2.1.1. Trends i n economic research Our basic assumption i s that " s o c i a l organization and c u l t u r e . . . a f f e c t economic organization and performance," (Dalton, 1969:65). But i t i s obvious that s o c i a l organization and culture have been studied within the domain of the behavioral 2 sciences; and that economic organization and performance have been studied within the domain of economics. These s c i e n t i f i c d i s c i p l i n e s have been developed h i s t o r i c a l l y , based upon d i f f e r -ent sets of assumptions and problems. Rather than attempting to analyse the h i s t o r i c a l circumstances that may account for t h i s developmental differences, we s h a l l focus on the research trends of these d i s c i p l i n e s . Presumably t h i s approach may y i e l d to us an understanding of how one system a f f e c t s the other and vice versa. Consequently we w i l l attempt to outline the research trends i n economics f i r s t and l a t e r those of the behavioral sciences. Simon (1967:1-2) has stated that economics ( i s ) the science that describes and predicts the behavior of several kinds of economic man - notably the consumer and the entrepreneur.3 While t h i s d e f i n i t i o n may be l i t e r a l l y correct, the l i t e r a t u r e i n economics has p r i n c i p a l l y focused and can be c l a s s i f i e d according to two dimensions: a) whether i t i s concerned with industries and the whole economy (macroeconomics) or with i n d i v i d u a l economic factors (microeconomics); and b) whether i t s t r i v e s to describe and explain econ-omic behavior (descriptive economics), or to guide decisions either at the l e v e l of public p o l i c y (normative macroeconomics) or at the l e v e l of the i n d i v i d u a l consumer or businessman (normative microeconomics). (Simon, 1967:2) The profession and the l i t e r a t u r e i n economics are l a r g e l y preoccupied with normative macroeconomics, and research emphasis have been s i g n i f i c a n t l y determined by relevance to p o l i c y ( i . e . business cycle theory). Normative microeconomics i s carried forward under such labels as "management science", "engineering economics1,'8,' and "operations research"; and i t i s now "a f l o u r -ishing area of work having an uneasy and i l l - d e f i n e d r e l a t i o n with the profession of economics, t r a d i t i o n a l l y defined." (Simon, 1967:2) It follows that economists have had l i t t l e i n t e r e s t i n des-c r i p t i v e economics (or understanding the behavior of human 6 economic agents), except i n as much as i t provides a foundation for macroeconomics. The normative microeconomist does not care about a theory of human behavior, since he wants to know how people ought to behave, rather than how people a c t u a l l y behave. On the other hand, the macroeconomist 1s lack of concern about empirical human behavior stems from the following considerations: F i r s t , he assumes that the economic actor i s r a t i o n a l , and hence he makes strong predictions about human behavior without performing the hard work of observing people. Second, he often assumes competition, which c a r r i e s with i t the implication that only the r a t i o n a l survive. (Simon, 1967:2). For an example can be c i t e d Friedman's Essays i n Po s i t i v e Economics (pp. 22-23) which w i l l amaze anyone brought up i n the empirical t r a d i t i o n of the behavioral sciences, though i t e l i c i t e d l i t t l e c r i t i c i s m among economists. To be sure there i s an area of human behavior that f i t s the assumptions of economists reasonably well; an area where econo-mic theory with i t s assumptions of r a t i o n a l i t y i s a powerful t o o l , i . e . r e a l investment theory. Parsons and Smelser (1956:XVII-XIX) i n t h e i r timely attempt to integrate economy and society, have argued i n the following manner on the past rel a t i o n s h i p between economics and the behavioral sciences: On the side of economics, we might suggest three b a r r i e r s . F i r s t , economists have become increasingly preoccupied with the great p o t e n t i a l i t i e s of the technical apparatus of economic theory (to which Marshall himself made such a major contribution). Second, the pressing problems of public p o l i c y have required immediate contributions from economists; under such a pressure, exploration of t h e o r e t i c a l side-roads to neighboring d i s c i p l i n e s seemed i n -appropriate. F i n a l l y , the elementary l e v e l of s o c i o l o g i c a l theory i t s e l f - including the fact that most of the best s o c i o l o g i c a l theory has remained 7 u n t i l recently i n languages other than English -for a long time provided l i t t l e to which economists could turn. For the s o c i o l o g i c a l t r a d i t i o n , a major i s o l a t i n g factor has been a r e v o l t , perhaps, against the subtle ways i n which the "ideology" of economic thinking has permeated the wider i n t e l l e c t u a l atmosphere. We could go on c i t i n g reasons f o r the separation between econo-mics and the behavioral sciences that are caused not only by the methodology of the d i s c i p l i n e or i t s p a r t i c u l a r emphasis or developmental stage, but also due to the "professionalism", of both d i s c i p l i n e s . Tucker (1964:2-3) writes: No r e a l rapprochement between economic theory and s o c i a l theory ( e x i s t s ) . . . since t h e i r fundamental c h a r a c t e r i s t i c s are, at t h i s point i n time, incom-p a t i b l e . That i s , to accept either i s to deny the ultimate v a l i d i t y of the other. The s i t u a t i o n a l analysis of sociology i s not only d i f f e r e n t from price theory, i t i s an i m p l i c i t denial of the assumption upon which price theory i s based. This does not mean that one body of theory i s r i g h t and the other i s wrong, of course. What i t suggests i s that both are incomplete, p a r t i a l , suspect. It seems to me that i n this set of circumstances the student should be encouraged to consider both points of view. But the approach i n college and u n i v e r s i t i e s i s normally such that the young scholar i s forced to choose and to cleave unwaveringly to the d i s c i p l i n e of his choice. Often the f a c u l t y sets the example of parochialism, arguing vehemently about which set of h a l f t r u t h s i s correct - or worse, refusing to consider that such argument i s even worth entering into. In any case, what i s important for our purposes i s the fact that there have appeared promising e f f o r t s towards a rapprochement between economics and the behavioral sciences. (We must not forget that, h i s t o r i c a l l y , the works of Marx, Weber, Marshall, and Pareto l a r g e l y dealt with t h i s issue.) For example, Katona (1963) has submitted the hypothesis that economic processes stem d i r e c t l y from human behavior and that this simple but important fact has not received i t s due i n modern economic analysis. 8 Katona (1963:3) writes: Although economic analysis i n the main continues to disregard empirical psychological studies, i t is not devoid of psychological assumptions. Most commonly i t proceeds on the premise that human beings behave mechanically. If i t were true that human beings could be counted on to show i n v a r i -ably the same reactions to the same developments in the economic environment, the human factor could r i g h t f u l l y be excluded from economic studies It i s this "mechanistic psychology" -the assumption that under given external conditions, human reactions are e n t i r e l y determined by those conditions - which has led economic analysis to what may be ca l l e d the r e i f i c a t i o n of economic data. Further, we should l i k e to point out that Katona"s "rediscovery" - that economic processes stem from human behavior - has been the main research emphasis of Marxian economics as expounded p a r t i c u l a r l y by Mandel (1968), Sweezy (1968), Baran (1968), and Sweezy and Baran (1966). These aforementioned scholars argue that i t has been the influence of the Cold War that has sustained among "bourgeois scholars" a systematic h o s t i l e indifference towards the research trend of Marxian economics. We fi n d today a growing inter e s t i n the rapprochement of economics and the behavioral.sciences borne out of the r e a l i z a -t i o n that these d i s c i p l i n e s as they stand today cannot s a t i s -f a c t o r i l y solve by themselves some problems that s o c i a l s c i e n t i s t s have become increasingly interested i n , e.g. socio-economic development. Thus, the appearance of this trend i s problem oriented and i s shared by d i f f e r e n t types of s o c i a l s c i e n t i s t s . The economist Simon has pointed out the s p e c i f i c areas wherein the t r a d i t i o n a l t h e o r e t i c a l analysis of economics and/or behav-i o r a l sciences alone leaves something to be desired. Simon (1967:3) remarks: 9 Economics has been moving s t e a d i l y into new areas where the power of the c l a s s i c a l equilibrium model has never been demonstrated, and where i t s adequacy must be considered anew. Labour economics i s such an area, oligopoly or imperfect competition theory another, decision-making under uncertainty a t h i r d and the theory of economic development the fourth. To summarize: we have mentioned several s p e c i f i c causes by which economics and the behavioral sciences have grown i n i s o l a t i o n from each other, i . e . d i f f e r e n t research emphases, profes-sional a t t i t u d e s , p o l i t i c a l considerations; and we have also c i t e d the growing need for the description of human behavior i n terms of something more than a featureless adaptive organism, p a r t i c u l a r l y i n areas where c l a s s i c a l economic theory may not be operational. 2.1.2. Assumptions of Economic Analysis and Its Implications for the Behavioral Sciences. Before we proceed further, we would l i k e to stop and look at the importance of the "givens" i n economic analysis. In economic models ( i . e . microeconomics) the behavior of various dependent variables - pr i c e s , l e v e l of production, etc. - rests on the operation of economic forces of supply and demand. But out i n the r e a l world, dozens of variables a f f e c t prices and production; and i f an economist would want to give a f a i r l y complete picture, he would have to include these v a r i -ables i n his models. But commonly the economist handles this empirical complex-i t y by the following method. He r e a l i z e s that non-economic variables a f f e c t supply and demand conditions; however, for the "purposes of analysis" he assumes that these variables do not change. For example, Samuelson (1961:15) points out that 10 economic analysis takes i n s t i t u t i o n s and tastes as given; by "given" i t i s meant that p o t e n t i a l variations do not occur. An important "given" i n economic analysis i s that of econo-mic r a t i o n a l i t y as manifested by (homo oeconomicus). An i n d i v i d u a l i n an economic setting presented with a s i t u a t i o n of choice w i l l behave so as to maximize his position. It i s obvious that t h i s postulate has l i t t l e or no empirical relevance i n everyday l i f e , though t h i s s i m p l i f i c a t i o n has proved to be a powerful a n a l y t i c a l tool i n some areas of human economic a c t i v i t y (see 2.1.1.). In addition, this s i m p l i f i c a t i o n has allowed the economist to proceed as i f the only independent variables were measurable changes i n income and pri c e . Natu-r a l l y , t h i s s i m p l i f i e d world has allowed the economist to produce elegant and highly a n a l y t i c a l models as t h e o r e t i c a l solutions of economic problems. However this method has proved to be inoperational i f we want to take into account the complexity of the non-economic world, p a r t i c u l a r l y in c r o s s - c u l t u r a l studies. Most of the c r i t i c i s m of the l i m i t a t i o n s of the "givens" i n economic analy-s i s has come from the behavioral sciences, i n p a r t i c u l a r from sociology and anthropology. Even as f a r back as the 19th century, i n the s o c i o l o g i c a l analysis of economic l i f e , the theme was integration, p a r t i c u l a r l y as found i n the thought of Spencer, Durkheim, and Weber. Sometimes the performance of the integrative functions resides with the p o l i t i c a l a u t h o r i t i e s ; at other times integration may be effected primarily by customs or codes that do not issue d i r e c t l y and immediately from the p o l i t i c a l a u t h o r i t i e s . (Smelser, 1965:12). 11 The above scholars attempted to explain economic a c t i v i t y i n complex s o c i e t i e s , though Spencer and Durkheim with t h e i r evolutionary approach made reference to homogeneous s o c i e t i e s . In complex s o c i e t i e s one can note s t r u c t u r a l l y defined and d i s -t i n c t economic organizations, i . e . banks, firms; records of d i s t i n c t transactions (price changes, book accounts). The study of economic a c t i v i t y i n complex so c i e t i e s i s f a c i l i t a t e d by the highly v i s i b l e i n s t i t u t i o n s of exchange. The anthropologist studying a simple society does not have the above advantage, for economic a c t i v i t y i n simple s o c i e t i e s may be embedded i n th e i r kinship structure, magic, p o l i t i c s , or r e l i g i o n . Raymond F i r t h (1951:122) has well conceptualized the problem: The p r i n c i p l e s of economics which are t r u l y general or universal i n the i r a p p l i c a t i o n are few. Most of those which purport to be general have been con-structed primarily within the framework of ideas of an i n d u s t r i a l , c a p i t a l i s t system. This means a machine technology, a monetary medium of exchange, an elaborate c r e d i t system using stocks and shares and banking i n s t i t u t i o n s , developed private enter-p r i s e , and s o c i a l structure of an i n d i v i d u a l i s t i c , Western kind. The anthropologist struggles with a d i v e r s i t y of types. Many are peasant systerns.... Some are t r u l y primi-t i v e The anthropologist 1^ problem, then, i s one of applying or tra n s l a t i n g economic p r i n c i p l e s i n novel contexts. Anthropological research has continually shown that economic a c t i v i t i e s i n simple s o c i e t i e s are "embedded i n and guided by pr i n c i p l e s of c h i e f t a i n s h i p , clanship, and kinship". (Smelser 1965:18). Malinowski (1922) put f o r t h a pathbreaking study of econo-mic a c t i v i t y among the tr i b e s of Melanesian New Guinen arch-ipelagoes. He observed that i n production and exchange the systems of kinship and chie f t a i n s h i p are c r i t i c a l i n inducing 12 individuals to undertake s p e c i f i c types of economic a c t i v i t y . For example, Malinowski (1922:158) points out that individuals do not exchange labor f o r a s p e c i f i c wage payment ( i . e . i n the construction of canoe); rather the goal of economic a c t i v i t y i s one of "providing the chief or head man with the t i t l e of ownership of a canoe, and the whole community with i t s use". As far as labor i s concerned, Malinowski (1922:160) reports that communal labor i s based upon the duties of relatives-in-law. That i s , whenever a man needs cooperation, his in-laws w i l l a s s i s t him. For a chief whole v i l l a g e s w i l l turn out, and for a. commoner only a few people w i l l turn out. After work has been done, there i s always a d i s t r i b u t i o n of food, hardly i n propor-ti o n to the amount of labor done. On the basis of these observations, Malinowski launched an attack on the postulates ("givens", i . e . economic r a t i o n a l i t y ) of the supply and demand theory. Malinowski, further, stressed the integrative significance of magic for economic a c t i v i t y . For example, the construction of a canoe i s accompanied by a set of magical r i t u a l s . He interpreted this magic as a supplementary craftsmanship, supplying "the psychological influence which keep people confident about the success of th e i r labour, and providing them with a sort of natural leader". (Malinowski, 1922:116). In the f i e l d of exchange, Malinowski i d e n t i f i e d forms such as the pure g i f t , without expectations of return ( i . e . between husband and wife). Forms of exchange that involve payment for services are s t r i c t l y regulated by custom. In other s i t u a t i o n s , material goods are exchanged for non-economic items, i . e . t i t l e s . 13 In 1925, Marcel Mauss produced The G i f t , which was a survey of the anthropological l i t e r a t u r e on ceremonial exchange patterns. Mauss observed that exchange I implied binding obliga-tions, i . e . the giver to give, the receiver to receive, and the receiver to reciprocate; however, the timing and proportion of the return g i f t varied greatly. Mauss also found t r a d i t i o n a l u t i l i t a r i a n economic theory inoperati'onal i n the analysis of t r a d i t i o n a l exchange. Instead, Mauss (1925:70-71) emphasized the g i f t as a symbolic binding together of a kinship unit or t r i b e , and he further emphasized the " t o t a l " character of these primitive phenomena: These phenomena are.at once l e g a l , economic, r e l i g i o u s , aesthetic...and so on. They are l e g a l i n that they concern i n d i v i d u a l and c o l l e c t i v e r i g h t s , organized and d i f f u s e morality...They are at once p o l i t i c a l and domestic, being of interest both to classes and to clans and f a m i l i e s . They are r e l i g i o u s ; they concern true r e l i g i o n , animism, magic, and d i f f u s e r e l i g i o u s mentality. They are economic, for the notions of value, u t i l i t y , i n t e r e s t , luxury, wealth, a c q u i s i t i o n , accumula-t i o n , consumption, and l i b e r a l and sumptuous expenditure are a l l present...Nothing i n our opinion i s more urgent or promising than research into " t o t a l " s o c i a l phenomena. (Mauss, 1925:76-78). It i s c l e a r that the work of Malinowski and Mauss represent a rather negative c r i t i c i s m of t r a d i t i o n a l economic theory. It i s the work of Raymond F i r t h that i s s i g n i f i c a n t for us. For his approach constitutes a serious and profound e f f o r t to synthesize anthropological research and economic theory. F i r t h i n his monographs on the Maori of New Zealand (1929) and the Tikopia (1939) organizes his analysis around t r a d i t i o n a l econo-mic categories of d i v i s i o n of labor, income, c a p i t a l , d i s t r i b u -t i o n and r a t i o n a l c a l c u l a t i o n . Moreover, he also shows how these 14 t r a d i t i o n a l categories are conditioned by the s o c i a l dynamics of kinship, magic, c h i e f t a i n s h i p , and prestige systems. F i r t h (1946) i n a more recent work on the economic strucr ture of the Malay fishermen, demonstrates how c e r t a i n spheres of economic a c t i v i t y , p a r t i c u l a r l y marketing and c r e d i t , lend themselves to technical economic analysis; whereas other spheres, such as production and labor supply, are determined by s o c i o l o g i -c a l categories, i . e . family, r e l i g i o n , magic, etc. Such e f f o r t s as F i r t h ' s have s i g n i f i c a n t implications for the analysis of s o c i a l phenomena where the methods and theories of economics, and the behavioral sciences alone - that i s without a simultane-ous approach - have been shown to be f r u i t l e s s . Such s o c i a l phenomena are, for example, decisions-making under uncertainty, socio-economic development, labor economics, etc. In addition, the l i m i t a t i o n s of t r a d i t i o n a l economic analysis, i . e . i t s assumptions or "givens", may be amended through empirical s o c i a l analysis. In other words, e f f o r t s l i k e F i f t h ' s and others ( i . e . Belshaw, Boulding, Smelser, etc.) may lead to the development of a theory of economic a c t i v i t y rooted i n s o c i o l o g i c a l categories. 2.1.3. Research trends i n the Behavioral Sciences. It has been postulated that "economic, anthropological, and s o c i o l o g i c a l ideas (are) d i s c i p l i n e s (that) should constitute one system". (Belshaw, 1965:V). This postulate i s i n accordance with our analysis set out i n (2.1.2.), i n which we have shown that the assumptions of economic analysis while powerful tools i n some areas, i n other areas may need to be amended to be inte-grated into a system. A case i n point i s our t o p i c a l considera-t i o n : f i n a n c i a l investment and s o c i a l structure. As a matter of 15 f a c t , we have already seen ( i . e . F i r t h , 1946) that c e r t a i n orthodox economic concepts have been successfully used i n the analysis of s o c i a l data. It has also been suggested that while economic anthropology "studies the r e l a t i o n s between variables such as market conditions and purchases, strains and the forma-ti o n of new s o c i a l g r o u p s t h e s e v a r i a b l e s - l i e at the s o c i a l and behavioral l e v e l s . To connect these variables, c e r t a i n intervening psychological states must be postulated". (Smelser, 1965-34). This postulate can be v e r i f i e d i n the following examples, as c i t e d by Smelser (1965:34-35): a) "Morale" and " S a t i s f a c t i o n " of workers are psychologi-c a l states that are l a r g e l y determined by s o c i a l conditions of the work place, supervision, p a r t i c i p a t i o n i n decision-making, e t c . j (see, f o r example, Katz's research i n Dennis e t . a l . , 1949). From our standpoint, these are intervening variables between economic a c t i v i t y and s o c i a l v a r i a b l e s . b) "Attitudes" are psychological states that intervene i n the same manner. For example data c o l l e c t e d by Katona and K l e i n (1951-1953) have shown that attitudes assume s i g n i f i c a n c e as determinants at d i f f e r e n t phases of business cycles. c) F i n a l l y , motivational patterns of persons who enter a p a r t i c u l a r occupational r o l e are also intervening variables i n economic a c t i v i t y i n a behavioral context (see Henry:1948-1949). Since psychological variables may constitute intervening v a r i -ables, we w i l l mainly focus on s o c i o l o g i c a l and anthropological research trends. However, "the s i m i l a r i t i e s between s o c i a l and c u l t u r a l anthropology on the one hand and sociology on the other v a s t l y outweigh the differences; and the differences are 16 frequently matters of shading". (Smelser, 1968:31). Moreover: Anthropologists and so c i o l o g i s t s t r a d i t i o n a l l y have studied s o c i a l l i f e i n d i f f e r e n t settings. Anthro-pologists have concentrated on small, simple, often n o n l i t e r a t e s o c i e t i e s , whereas s o c i o l o g i s t s have chosen to study large, complex, l i t e r a t e c i v i l i z a -tions. P a r t i c u l a r l y i n the l a s t two decades t h i s d i s t i n c t i o n has been breaking down, as so c i o l o g i s t s and anthropologists a l i k e study caste i n Indian v i l l a g e s , and anthropologists take up investigations of places l i k e East London, and as soc i o l o g i s t s broaden t h e i r comparative scope. (Smelser, 1968:32). With these ideas i n mind, we can speak of "sociology" and " s o c i a l anthropology" as having the same focus of analysis. ~* Now we can proceed to review the research trends i n sociology and s o c i a l anthropology. The task of specifying variables and rel a t i o n s i s much more d i f f i c u l t i n sociology than i n economics. Widespread disagreement exists among so c i o l o g i s t s and anthro-pologists about the fundamental concepts and problems of t h e i r d i s c i p l i n e . This "has led to a mushrooming of variab l e s . Because of t h i s superabundance, s o c i o l o g i c a l analysts are unable to present simple and coherent models;" instead, analysis often focuses on categorizing s o c i a l f a c t s " . (Smelser, 1965:27). Thus, our an a l y t i c characterization of sociology and s o c i a l anthropology w i l l have to be approximate. The s o c i o l o g i c a l analysis of a problem begins by i d e n t i f y i n g some v a r i a t i o n i n human behavior and framing explanatory questions about t h i s v a r i a t i o n . Such v a r i a t i o n becomes the dependent variable - that which i s to be explained. After i s o l a t i n g a ce r t a i n problem, the investigator must specify concrete units that i d e n t i f y the de-pendent vari a b l e . The concrete units are found i n the units of s o c i a l structure and i n variations of human behavior oriented to s o c i a l structure... 17 " S o c i a l Structure" i s a concept used to characterize recurrent and regularized i n t e r a c t i o n among two or more persons. The basic units of s o c i a l structure are not persons as such, but selected aspects of in t e r a c t i o n among persons, such as values (e.g. businessman, husband...) and s o c i a l organization, which refers to structured c l u s t e r s of values (e.g. a bureaucracy, a clique...) s o c i a l organiza-t i o n refers to more than goal-oriented c o l l e c t i v i t i e s (e.g. business firms, h o s p i t a l s . . . ) ; i t may r e f e r to informal organizations (such as gangs...) and d i f f u s e c o l l e c t i v i t i e s (such as ethnic groupings). The important defining features of s o c i a l structure are that i n t e r a c t i o n i s s e l e c t i v e , regularized, and regulated by various s o c i a l controls. (Smelser, 1965:27). In addition, i n the analysis of s o c i a l structures, three basic concepts are p a r t i c u l a r l y important: (1) Values r e f e r to b e l i e f s that l e g i t i m i z e the existence and importance of s p e c i f i c s o c i a l structures and the kinds of behavior that transpire i n s o c i a l structure ( i . e . the value of "free enterprise"). (2) Norms r e f e r to standards of conduct that regulate the in t e r a c t i o n among individuals i n s o c i a l structures ( i . e . property law, normssof contract). " (3) Sanctions - including both rewards and depri-vations - r e f e r to the use of various s o c i a l resources to control the behavior of personnel i n s o c i a l structures ( i . e . control of deviance from expected r o l e performance, coercian, r i d i c u l e , e t c . ) . (Smelser, 1965:27-28). I n s t i t u t i o n a l i z a t i o n i s the concept that u n i f i e s the elements of s o c i a l structure ( i . e . r o l e s , values, norms, e t c . ) ; and this refers to d i s t i n c t i v e enduring expectations whereby these elements are combined into a single complex ( i . e . we speak of the i n s t i t u t i o n a l i z a t i o n of American business). The question arises as to what are the major types of s o c i a l structure. This question has been usually answered by turning to some notions of d i r e c t i o n a l tendencies of s o c i a l systems, or 18 what some analysts have c a l l e d the "functional exigencies" of society. As t y p i c a l exigencies, we can include: (1) Modes of creating and maintaining the c u l t u r a l values of a system ( i . e . s o c i a l i z a -t i o n processes). (2) Modes of producing, a l l o c a t i n g , and consum-ing scarce goods and services (sometimes c a l l e d the economic functions). (3) Modes of creating, maintaining, and imple-menting norms governing i n t e r a c t i o n among units i n the system (sometimes c a l l e d the integrative functions). (4) Coordinating and c o n t r o l l i n g t h e . c o l l e c t i v e actions of the system or a c o l l e c t i v i t y within i t , u sually by the sate ( p o l i t i c a l function)... The notion of structure, then, i s used to i d e n t i f y t h e o r e t i c a l l y s i g n i f i c a n t properties of concrete,clusters of a c t i v i t i e s devoted pri m a r i l y but not exclus i v e l y to meeting some s o c i a l exigency. (Smelser, 1965:28). In point 2 above, we notice that an e s s e n t i a l function i n socio-l o g i c a l analysis concerns economic l i f e , or the focus of economic analysis i t s e l f . At t h i s point, economics and sociology overlap; neverthe-l e s s , economics i s mainly concerned with variations i n the l e v e l of production, d i s t r i b u t i o n of goods and services, etc.; while sociology i s mainly concerned with variat i o n s i n s o c i a l structure and v a r i a t i o n s i n behavior oriented to this structure. We would also l i k e to introduce at th i s point Blau's dynamic conceptualization of s o c i a l structure. Blau (1967:283-311) writes: A s o c i a l structure i s composed of patterned s o c i a l r e l a t i o n s among individuals and groups, including the recurrent conduct i n which these r e l a t i o n s f i n d expression. The term "microstructure" i s used to re f e r to the i n t e r r e l a t i o n s between individuals i n a group, and the term "macrostructure" to the i n t e r -r e l a t i o n s of these groups i n a larger c o l l e c t i v i t y or of these larger c o l l e c t i v i t i e s i n a s t i l l lagger 19 one. The elements of macrostructures, therefore may be eith e r microstructures or themselves macrostructures. Thus f a r , the s o c i o l o g i c a l concepts l i s t e d revolve around the notion of s o c i a l structure. These concept's do not c o n s t i -tute explanations. It i s necessary to take into account independent variables. The most important of these are the following concepts: 1. S t r a i n . Social systems are never p e r f e c t l y integrated. The sources of malintegration... may a r i s e from outside or inside the system. The general presumption underlying (this) con-cept i s that i t imposes integrative problems on the system and subsequently causes adjustment... or a breakdown. (Among the types of s t r a i n the following are common in s o c i a l systems:) (a) Ambiguity i n r o l e expectations, i n which information regarding expectations i s un-clea r or lacking... (b) C o n f l i c t among r o l e s , i n which r o l e ex-pectations c a l l f o r incompatible types of behavior... (c) Discrepancies between expectations and actual s o c i a l s i t u a t i o n s . . . (d) C o n f l i c t s of values i n a system... 2. Reactions to s t r a i n . The i n i t i a l reactions... tend to be disturbed reactions which are frequently...deviant and malintegrative from the standpoint of the s o c i a l system... 3. Attempts to control reactions to s t r a i n . Two l i n e s of attack are available.at the s o c i a l l e v e l to reduce the possibly disruptive conse-quences . (a) Structuring the s o c i a l s i t u a t i o n so as to minimize s t r a i n . (b) Attempting to control reactions to s t r a i n once they have arisen. (Smelser, 1965:29-30). Our d i v i s i o n and s i m p l i f i c a t i o n of sociology into dependent and independent variables i s the r e s u l t of taking the elements of s o c i a l structure as a s t a r t i n g point for exposition. But, one may ask how are the above variables related? Although much of the s o c i o l o g i c a l analysis s t i l l involves c l a s s i f i c a t i o n s that organize f a c t s , we can i s o l a t e two types of explanatory models i n sociology: 1. Process models. These r e f e r to changes of variables within a given s o c i a l structure. 2. Change models. Attempts to control s t r a i n and restore the s o c i a l system to equilibrium sometimes f a i l , giving r i s e to a new type of equilibrium. (Smelser, 1965:30). F i n a l l y , are there any "givens" i n s o c i o l o g i c a l analysis? Every s o c i o l o g i c a l statement implies a ce r t a i n underlying as-sumption about human nature, i . e . to assert that r o l e ambiguity i s a source of s t r a i n i s to assume that ambiguity i s a source of anxiety that ddrives men to react against s t r a i n . Such psycho-l o g i c a l postulates are open to empirical doubt. Sociology does not display the conspicuous,continuity that economics does with some of i t s assumptions, i . e . economic r a t i o n a l i t y . To summarize, the above a n a l y t i c a l characterization has been presented i n order to define the methodology of the dis-?. c i p l i n e i n which most of the s o c i o l o g i c a l research i s carried out. Likewise, i n section (2.1.1.) we attempted to show the str u c t u r a l c h a r a c t e r i s t i c s of economics and i t s research trends. In the next -section we w i l l expound the research methods that may be av a i l a b l e i n both economics and sociology, to l a t e r s h i f t our attention to the a n a l y t i c a l focus of economic^anthropology and s o c i a l economics.^-21 2.1.4. Research Methods in Economics, Sociology, and S o c i a l Anthropology. It i s the work of Smelser (1965) that i s of major inter e s t for us i n t h i s p a r t i c u l a r topic. Smelser (1965:31-32) has sug-gested the following methodology for a simultaneous approach of economics and sociology/anthropology i n any p a r t i c u l a r problem. 2.1.4.1. Experimental method. This i s the most rigorous form of inve s t i g a t i o n i n s o c i a l s c i e n t i f i c analysis. It consists of creating s i m i l a r experimental and control s i t u a t i o n s . Both must be a l i k e i n a l l respects except for one presumed causal factor. When thi s factor varies i n the experimental s i t u a t i o n , we can compare the outcome with the control s i t u a t i o n , i n which the factor i s not varied. With the exception of small-group analysis, t h i s method i s seldom suitable for use i n economics or i n sociology/anthropology. 2-.1.4.2. S t a t i s t i c a l method. Certain factors are held constant or canceled out by s t a t i s t i c a l manipulation, i . e . suppose we wish to trace the long-term trend of potato prices over years, we calculate the average seasonal v a r i a t i o n for f i f t y years, and cancel out seasonal fluctuations f o r each i n d i v i d u a l year by adding or subtracting the average seasonal v a r i a t i o n from the actual prices.. Thus we may get an uncontaminated long-term price trend, which may r e l a t e with other variables. S t a t i s t i c a l analysis and various tests of association (regression analysis) receive wide application i n economics and sociology. 2.1.4.3. Comparative method. This method i f employed widely i n sociology, and i n economics (mainly by economic hi s t o r i a n s and those interested i n developmental studies). It i s also known as the h i s t o r i c a l method. C l a s s i c a l examples can be found i n the work of Weber, Marx, Sombart, etc. Weber i n his study on re-l i g i o n suggested that h i s t o r i c a l l y c e r t a i n so c i e t i e s had developed r a t i o n a l bourgeois capitalism. Weber asked what were the common c h a r a c t e r i s t i c s of these s o c i e t i e s . Then he turned to s o c i e t i e s that had not developed r a t i o n a l bourgeois c a p i t a l -ism ( i . e . Indian, China), and asked i n what respect they d i f f e r from the former s o c i e t i e s . Through this method Weber attempted to demonstrate that the r e l i g i o u s factor accounted for this difference. Smelser (1965:31) posits that the comparative method i s frequently used "when the number of cases i s too small to per-mit s t a t i s t i c a l manipulation". This i s not the best characteri zation of the comparative method, for i n many works where comparative method has been used i t has been used with s t a t i s t i c a l manipulation as well. A cl e a r example i s Marx's C a p i t a l . o Sweezy and Baran (1966). The comparative method i s e s s e n t i a l l y h i s t o r i c a l and has been used probably since the 5th century of t h i s era when St. Augustine's C i v i t a t e s Dei attempted to show the h i s t o r i c a l development and continuity of C h r i s t i a n i t y v i s a v i s the h i s t o r i c a l development of Roman paganism and i t s i n e v i t able decline. Later, of course, this method has been c a l l e d philosophy of h i s t o r y , historiography, etc.; and i t s best ex-ponents are Bossuet, V o l t a i r e , Herder, Kant, Hegel, Marx, etc. 2.1.4.4. Mathematical models. Mathematical models are used more frequently i n economics than i n sociology. Economic data (prices, income, etc.) are more r e a d i l y quantifiable than socio l o g i c a l data (with the possible exceptions of the analysis of behavior i n small-groups, population, and m o b i l i t y ) ; hence, economists have produced neat, simple, and quantified models. 2.1.4.5. Case study. Case studies are used i n economics and sociology. In economics, case study has been used i n the analy-s i s of patterns of imperfect competition i n p a r t i c u l a r industries. In sociology, case study has been used i n the study of s o c i a l class behavior i n a l o c a l community. 2.1.4.6. Survey method. A sample of the population with the desired data i s interviewed. In economics th i s method i s widely used to c o l l e c t facts about households and firms - t h e i r assets and expenditures, t h e i r attitudes about future states of the market, etc. In sociology i t i s even more widely used to c o l l e c t attitudes and opinions, etc. The a t t i t u d i n a l data pro-duced by surveys supplement the recorded s t a t i s t i c s ( i . e . newspapers, census data, e t c . ) . But one must bear i n mind that attitude data gathered i n interviews can be s u p e r f i c i a l . 2.1.4.7. We could also name other procedures used by anthro-pologists and s o c i o l o g i s t s i n t h e i r data c o l l e c t i o n on economic a c t i v i t y , such as: kinship analysis, where most of the economic a c t i v i t y i s embedded i n simple s o c i e t i e s ; p articipant observation and/or observation, used, for example, i n the analysis of labor exchange or r e c i p r o c i t y as well as i n i n d u s t r i a l sociology. 2.1.5. Analytic Focus of Economic Anthropology and Sociology. Smelser (1965:32) has suggested a d e f i n i t i o n of economic sociology and anthropology as being: 3 the a p p l i c a t i o n of the general frame of reference, var i a b l e s , and explanatory models of sociology (anthropology) to that complex a c t i v i t i e s concerned with the production, d i s t r i b u t i o n , exchange, and consumption of scarce goods and services. The 24 "first focus...is on economic a c t i v i t i e s alone (i. e . ) how these a c t i v i t i e s are structured into roles and c o l l e c t i v i t i e s . . . ( e t c . ) The second focus...is on the r e l a t i o n s between s o c i o l o g i c a l variables as they manifest themselves i n the economic context and s o c i o l o g i c a l variables as they manifest themselves i n non-economic contexts. Furthermore, Smelser (1965:33) points out, the interplay of so c i o l o g i c a l variables i n the economic and non-economic spheres can be observed i n the following settings: (1) Within concrete economic units ( i . e . the study of status systems, power, and authority r e l a t i o n s within the i n d u s t r i a l firm). (2) Between economic units and t h e i r s o c i a l environment. (This leads to "large issues", i . e . public p o l i c y , labor-management c o n f l i c t , and r e l a t i o n s between economic classes.) (3) F i n a l l y , (the study of) d i s t i n c t i v e l y socio-l o g i c a l aspects of the cen t r a l economic variables themselves - money as one of many types of sanctions i n s o c i a l l i f e . Smelser's p o s i t i o n may be too general i f we ra i s e the f o l -lowing question: what do we do with the body of theory accumu-lated by economists that purports to explain economic a c t i v i t y i n Western society? We fin d Raymond Firth's, p o s i t i o n as being the most comprehensive and the one that circumscribes best the analytic focus of economic anthropology and sociology. We s h a l l , then, reproduce F i r t h ' s p o s i t i o n . F i r t h (1951) asserts that the s o c i a l analyst (anthropologist or s o c i o l o g i s t ) i s interested i n the structure and organization of the economic a c t i v i t y for two reasons; F i r s t , most s o c i a l r e l a t i o n s have an economic c o e f f i c i e n t . Second, many s o c i a l r e l a t i o n s are primarily concerned with economic values. Conse-quently, the economist has set out to discover the p r i n c i p l e s of economics - the abstract body of theory attempting to explain the economic aspects of human behavior at i t s most general and universal l e v e l . But the task of the s o c i a l analyst i s to ex-amine how these p r i n c i p l e s work i n s p e c i f i c s o c i a l or c u l t u r a l contexts. To put i t i n other terms: Economic organization i s a type of s o c i a l action. It involves the combination of various kinds of human services with one another and with non-human goods i n such a way that they serve given ends. ( F i r t h , 1951). There i s value given to these goods and services, and choice i s exercised i n r e l a t i o n to these values. Choices are not discontinuous or unrelated. They form a system and display an indiscreet r e l a t i o n i n time and action sequence. Choices are also related i n terms of values; that i s , i n regard to a "series of q u a l i t i e s assigned to the rel a t i o n s involved i n action". Then, i t follows that economic organization i s embedded i n a s o c i a l framework of rel a t i o n s between groups and persons that are expressed i n d i f f e r e n t conceptual Ways and emphasis, such as values,ssymbols, rules of conduct, and patterns of behavior. An inspection of economic propositions indicates that most of the economic propositions, except the formal and abstract ones, are set f o r t h i n terms of i n s t i t u t i o n a l i z e d concepts. Obviously these i n s t i t u t i o n s are peculiar to the s o c i e t i e s where the contemporary economic theory has been fostered. In addition, from the t h e o r e t i c a l standpoint, economic analysis i s based upon assumptions about s o c i a l behavior (see 2.1.2.); and economists have tended to analyse transactions as separate e n t i t i e s . But, i f the economic system described belongs to the r e a l world, then there i s need for empirical data to provide a basis for the assumptions as to what people w i l l r e a l l y do i n response to changes i n t h e i r economic conditions and by how much t h e i r be-havior w i l l be l i k e l y to vary. It i s in this sense that the contributions of the s o c i a l analyst become pertinent. The s o c i a l analyst, i n order to translate general proposi-tions of economic theory to a p a r t i c u l a r society or a p a r t i c u l a r segment of a society, must expound the s o c i a l factors which are of most relevance i n the preference scale of the members of a society; and the r e g u l a r i t i e s or i r r e g u l a r i t i e s of the system of wants must be made clear q u a n t i t a t i v e l y i f possible. The body of economic theory i s accepted as v a l i d by the s o c i a l analyst. So we can say that i f : economics deals with the p r i n c i p l e s of the use of resources i n general, economic anthropology deals with concomitant s o c i a l r e l a t i o n s or the s p e c i f i c ways i n which the p r i n c i p l e s are exemplified i n a range of given s o c i a l s i t u a t i o n s . Economic anth-ropology i s an empirical study, and a comparative one. ( F i r t h , 1951). F i r t h has also defined very pointedly the s o c i a l situations that may be the subject matter of economic anthropology and sociology such as: s i m p l i c i t y of technology, s o c i a l context of choice-making i n resource a l l o c a t i o n , exchange systems. He also proposes a characterization of the p r i n c i p a l features of peasant economies. For our purposes we do not need to reproduce these elements i n d e t a i l . As a f i n a l note, F i r t h (1951) offers the following statement that integrates most of the aforementioned contentions: Economic a c t i v i t y i s subordinate to s o c i a l ends. It i s only by studying those ends that one can see how p a r t i c u l a r economic systems work. 2.1.5.1. For the sake of completeness, though not d i r e c t l y re-lated with this essay, we should l i k e to expound b r i e f l y the 27 ongoing debate i n eeonomic. anthropology between the Formalists and the Substantivists. As we have shown elsewhere (see 2.1.2.), Malinowski 1s approach to the analysis of economic a c t i v i t y among primitive people was e s s e n t i a l l y negative. However, during the 40's, anthropological analysis carried out by F i r t h , Herskovits, and Goodfellow began systematically using economic theory i n t h e i r analysis. A concomitant r e s u l t was that anthropological analysis of primitive and peasant economics began growing i n s o p h i s t i c a t i o n , p a r t i c u l a r l y i n economic organizations s i m i l a r to those of the Western world. For example, Sol Tax's (1953) Penny Capitalism i s a successful application of conventional economic theory among Guatemalan peasants. Likewise, Nash (1961) argued for the u n i v e r s a l i t y of p r o f i t - o r i e n t e d behavior, as well as decision making behavior, and the a p p l i c a b i l i t y of conventional economic theory i n analysing these forms of behaviors. Along these l i n e s appeared Parson and Smelser 1s (1956) Economy and Society^ where i t i s suggested that the economy i s a part of the s o c i a l system, and there exists some kind of meaning-f u l equilibrium between society and economy. KarlPPolanyi,. an economic h i s t o r i a n , appeared on the scene as a leading counterreactionary figure to the above approach. He e s s e n t i a l l y argued for the existence of two meanings of "econo-mic", the "Substantive" meaning and the "formal" meaning of "economic", the d i s t i n c t i o n s being the following: The substantive meaning of economic derives from man's dependence for his l i v i n g upon nature and his fellows. It refers to the interchange with h i s natural and s o c i a l environment... The formal meaning of economic derives from the l o g i c a l character of the means-ends rel a t i o n s h i p as apparent i n such words as "economical" or "economizing". It refers to a d e f i n i t e s i t u a t i o n of choice, namely that between the d i f f e r e n t uses of means induced by an i n s u f f i c i e n c y of those means... (Polanyi, 1957. as quoted i n Le C l a i r and Schneider, 1968:122). Polanyi suggests that there i s no necessary connection be-tween the two and goes further by saying that i n non-market oriented s o c i e t i e s , choice does not exis t i n the "formal" mean-ing of "economic", and i t follows that choice making i s a c h a r a c t e r i s t i c of market-oriented s o c i e t i e s . The core of this t h e o r e t i c a l debate between "formalist" and "su b s t a n t i v i s t " seems to l i e i n the relevance of formal economic theory to non-market s i t u a t i o n s . 2.2 Exchange and Markets^ It has been set fo r t h (Belshaw, 1965:4) that " a l l enduring s o c i a l r e l a t i o n s involve transactions which have an exchange aspect". Economists l i k e Boulding (1941) have also argued i n a simi-l a r manner. In e f f e c t , Boulding (1941:3-8) states that the system of production, d i s t r i b u t i o n (exchange), and consumption constitute the spheres of a c t i v i t y with which economists are primarily concerned; furthermore, Boulding argues that almost a l l of the economist's a c t i v i t i e s are eventually related to exchange. Other economists l i k e Robbins (1937) have taken the po s i t i o n that economics i s "concerned with a spe c i a l point of view about a l l action" (Belshaw, 1965:4). The implication of t h i s p osition for sociology and anthropology, p a r t i c u l a r l y as i t relates to 29 economic a n t h r o p o l o g y , has been s e t out by Raymond F i r t h , "and i s c o n s i s t e n t w i t h t h e p o s i t i o n t a k e n by T a l c o t t P a r s o n s i n The S t r u c t u r e o f S o c i a l A c t i o n (1949). R o b b i n s ' (1935:1-21) d e f i n i t i o n o f economics i s as f o l l o w s : Economics i s the s c i e n c e w h i c h s t u d i e s human b e h a v i o u r as a r e l a t i o n s h i p between ends and s c a r c e means w h i c h have a l t e r n a t i v e u s e s . To a v o i d c o n f u s i o n on the i m p l i c a t i o n s of t h i s s t a t e m e n t , Belshaw (1963:4-5) s u g g e s t s some o f R o b b i n s ' own i l l u s t r a t i o n s amended t o f i t c r o s s - c u l t u r a l a n a l y s i s : We do n o t say t h a t the p r o d u c t i o n o f p o t a t o e s ( r i c e , yams) i s economic a c t i v i t y and the p r o -d u c t i o n o f p h i l o s o p h y ( B u d d h i s t r e l i g i o n , c e r e -m o n i a l s a t i s f a c t i o n s ; i s n o t . We say r a t h e r t h a t , i n s o f a r as e i t h e r k i n d o f a c t i v i t y i n v o l v e s the r e l i n q u i s h m e n t o f o t h e r d e s i r e d a l t e r n a t i v e s , i t has i t s economic a s p e c t s . F u r t h e r m o r e : When ti m e and t h e means f o r a c h i e v i n g ends a r e l i m i t e d and c a p a b l e of a l t e r n a t i v e a p p l i c a t i o n , and t h e ends a r e c a p a b l e o f b e i n g d i s t i n g u i s h e d i n o r d e r o f i m p o r t a n c e , t h e n b e h a v i o r n e c e s s a r i l y assumes t h e form o f c h o i c e s . E v e r y a c t which i n -v o l v e s t i m e and s c a r c e means f o r t h e achievement of one end i n v o l v e s the r e l i n q u i s h m e n t o f t h e i r use f o r t h e achievement o f a n o t h e r . I t has an economic a s p e c t . . . I f , i n a l i m i t e d l i f e t i m e , I would w i s h t o be b o t h a p h i l o s o p h e r and a mathe-m a t i c i a n ( o r a canoe b u i l d e r and a c l e r k o f a N a t i v e A u t h o r i t y and a P o l i t i c i a n ) , but my r a t e of a c q u i s i t i o n of knowledge i s such t h a t I cannot do b o t h c o m p l e t e l y , t h e n some p a r t o f my w i s h f o r p h i l o s o p h i c a l o r m a t h e m a t i c a l competence o r b o t h must be r e l i n q u i s h e d . I t has been t h e c o n t r i b u t i o n o f Raymond F i r t h t o a n a l y s e P r o f . R o b b i n s ' c o n c e p t i o n o f economics and d i f f e r e n t i a t e i t s im-p l i c a t i o n s f o r economic a n t h r o p o l o g y . I n t h i s c o n t e x t Belshaw (1963:5) remarks: Raymond F i r t h makes t h i s problem of c h o i c e ( w i t h i n a framework o f c u l t u r a l i m p e r a t i v e s ) a c e n t r a l i s s u e of s o c i a l o r g a n i z a t i o n . I f one s t a r t s w i t h 30 th i s kind of assumption, actions are not economic or non-economic. There are not separable categories of economic acts and s o c i a l acts...But how can acts, whether of individuals or of corporate groups acting together, be shown to be interconnected i f we are looking merely at aspects of them? There are two answers to t h i s question, points out Belshaw: a) From the economic standpoint, actions i n a s o c i a l con-text involve exchange. "Exchange becomes that aspect of behavior which provides interconnections between i n d i v i d u a l acts of choice, and the p o s s i b i l i t y of i n s t i t u t i o n a l i z e d mechanisms of adjust-ment, such as price reaction." (Belshaw, 1963:5). Economics may analyse the actions of a s p e c i f i c i n d i v i d u a l , but through the s o c i a l phenomena of exchange an economy becomes a system. b) From the s o c i a l and c u l t u r a l standpoints, action i s goal-oriented. (For the economist "goal" would be equivalent to "wants".) A goal s e l e c t i o n implies choice, which i n turn implies some psychological mechanism whereby the cost/benefit i s judged. But t h i s choice i s determined and made within the context of a c u l t u r a l system of a society. "Thus the interconnectedness of actions i s based upon a premise of a value system produced by c u l t u r a l processes (the anthropological theme i n action)." (Belshaw, 1963:6). Within the spectrum of the c u l t u r a l and/or value systems, ce r t a i n r e g u l a r i t i e s emerge which determine the formation of s o c i a l roles and i t s relationships among them. A system of roles ( s o c i a l structure) provides another framework for action and i t s interconnectedness. Once more, economic interconnectedness may be based upon a s o c i a l structure. If we wish to study f i n a n c i a l investment, we must also specify the meaning of exchange. For one cannot conceive of any 31 type of investment without exchange. Belshaw (1963:6) has remarked that exchange as an i n s t i t u -t ion "penetrates through the s o c i a l f a b r i c and may be thought of as a network holding society together". This concept i s p e r t i -nent whether we think of an Oceanic culture i n which r e c i p r o c a l services and obligations l i n k together i n r e f l e c t i o n of s o c i a l structure and values, or capitalism and communism where ex-change system i s another aspect of the r e g u l a r i t i e s of s o c i a l r e l a t i o n s h i p s . Homans (1962) has also set f o r t h s i m i l a r views. Exchange as found within a market system has had p a r t i c u l a r attention among economists. Nevertheless, there are varied con-ceptions as to what a market constitutes. The economist's con-ception of market i s rather abstract and can only apply approxi-mately to empirical situations. Fraser (1937:131-33) defines market i n the following manner: The word "market" need not detain us long. In economics i t means, not a p a r t i c u l a r building or l o c a l i t y , but a state of a f f a i r s . There i s a "market" i n a commodity ( i . e . a commodity class) when there are a number of buyers and s e l l e r s , and when the unit price offered and paid by each i s affected by the decision of a l l the others. The market i s said to be "perfect" when each buyer has f u l l knowledge, and the a b i l i t y to use i t , of what every s e l l e r i s demanding, and each s e l l e r has f u l l knowledge, and the a b i l i t y to use i t , of what every buyer i s o f f e r i n g . . . Both the concept of a commodity class and the con-cept of a perfect market are e s s e n t i a l l y abstract and " f u n c t i o n a l " terms. An approximation to t h e i r r e a l i z a t i o n i s to be found i n the f i n a n c i a l world... But outside t h i s circumscribed area the conditions envisaged by the theory of pure competition are not to be found i n a l l t h e i r p u r i t y . The above conditions can hardly be found even to an approximate degree. This raises the problem we have discussed i n (2.1.2.), 32 or that of the "givens" (assumptions) of economic analysis. Certainly, the above simplification of variables can generate highly analytic models, but their relevance is limited to small sectors of our own economy (i.e. entrepeneurs). Bohannan and Dalton (1962) have addressed themselves to this problem, and they speak about the applicability or inapplic-a b i l i t y of the "market principle" in reference to the institutions they have empirically examined as being market places. Accord-ingly, market places are "sites with social, economic, cultural, p o l i t i c a l , and other referents, where buyers and sellers meet for purposes of exchange". But to .what degree do they use market principles? It is a varying aspect, but we may seldom find market principles wholly absent, and we may find market principles being applied in other institutional contexts. Belshaw (1963:8) carries this taxonomic approach one step further, and suggests that the market principle is not just one principle, but a compendium of principles. Hence we should be asking the characteristics of exchange systems with respect,to: (1) the impersonality of otherwise of the inter-action of buyers and sellers (this we w i l l have to translate into more adequate socio-logical categories); (2) the systematization of exchange values (that i s , prices), so that we may see whether and how they affect one another; (3) the degree to which buying and selling of specific goods and services are specialized functions; (4) the range of goods and services for which buying and selling are conventionally valid; (5) the degree to which exchange transactions enter into the stages of production from raw resources to consumable product or service; 33 (6) the degree and nature of competition i n buying and s e l l i n g ; and (7) the degree to which buying.and s e l l i n g may be d i f f e r e n t i a t e d through the i n t e r p o s i t i o n of a medium of exchange ( i f there i s no medium of exchange, barter i s an act of both buying and s e l l i n g on the part of each i n d i v i d u a l ) . A l l these variables are e s s e n t i a l elements of the market p r i n -c i p l e . Exchange systems and markets, p a r t i c u l a r l y as set f o r t h by Belshaw, constitute a whole f i e l d , barely scratched, that may bring f o r t h valuable t h e o r e t i c a l implications. 2.3 A Statement on I n t e r d i s c i p l i n a r y Research. An i n t e r d i s c i p l i n a r y approach i n the 'analysis of s o c i a l phenomena i s eventually linked up with the t o t a l study of a.total society. By t o t a l society i s b a s i c a l l y meant a nation-state^ which can be considered as a dominant form of human organization. The boundaries of a nation-state coincide with p o l i t i c a l and economic i n s t i t u t i o n s that define a national way of l i f e . The culture of these i n s t i t u t i o n s i s embedded i n p o l i t i c s , education, economic organization, etc., a l l of which are subject to the authority of the nation-state. Further, power groups (at the national and the international l e v e l s ) determine p o l i c i e s and 8 the l i k e , within a nation-state. In the past, most of the i n t e r d i s c i p l i n a r y research has been car r i e d out within the context of the t o t a l analysis of a t o t a l society, while our purposes are not to analyse r i s k i n f i n a n c i a l investment within the context of a t o t a l society, but r i s k i n f i n a n c i a l investment i n a s p e c i f i c segment of a society; nevertheless, we s h a l l review i n t e r d i s c i p l i n a r y research i n t o t a l study models of society. We must, f i r s t , point out that a t o t a l study of society implies that the study would cut across concrete s p a t i a l and organizational segments with the concepts abstracted according to the rules of d i s c i p l i n e s such as psychology, sociology, anthropology, economics, and geography. Hence, a r e a r t i c u l a t i o n of these d i s c i p l i n e s would seem necessary, bringing together the pertinent contributions of these various d i s c i p l i n e s and stating relationships between the events conceptualized from several perspectives. This could be considered to be the general modus operandi for a t o t a l study of a society. During the 19th century Durkheim argued for epiphenomenalism or separate d i s c i p l i n e s . In his Sociology and 9 Philosophy, he takes propositions purporting to r e l a t e proposi-tions from psychology and physiology, and posits that were one to accept the contention that "the memory i s s o l e l y a property of the t i s s u e s , there i s no mental l i f e (and) no r e a l f i e l d for psychology". Mental phenomena, being epiphenomenal to the physical world, would simple r e p l i c a t e physical laws. Durkheim suggests that mental processes are produced through the i n t e r -action of mental elements. Thus., the existence of a domain of mental phenomena sui generis. and s i m i l a r l y , the existence of a s o c i a l r e a l i t y s u i generis a n a l y t i c a l l y independent of the psy-chological substrate. On the other hand, i t would be inconceivable that psychological and s o c i o l o g i c a l variables would be independent of one another since both are aspects of the same concrete behavioral event. A model of a " t o t a l society", while recognizing the d i s t i n c t -ness of various t h e o r e t i c a l l e v e l s , must be con-cerned with statements which l i n k a term on one l e v e l with a term on another... The issue.becomes one of i d e n t i f y i n g transformation concepts which 35 l i n k concepts on two or more t h e o r e t i c a l l e v e l s . These transformation concepts w i l l r e f e r to "mechanism" by which a change i n the economy affe c t s personality or a change i n r e l i g i o n a f f e c t s the secular p o l i t y . (Klausner, 1967:6). 2.3.1. Attempts to Integrate the Social Sciences. There have been several methods used to a r r i v e at v a l i d i n -t e r d i s c i p l i n a r y statements. "One approach has been to focus upon a s u f f i c i e n t l y abstract l e v e l so that p r i n c i p l e s of structure and change among events become formal p r i n c i p l e s which hold i r r e -spective of the substantive content which i s so ordered." (Klausner, 1967:6). The e f f o r t s of Whitehead (1929) can be c l a s s i f i e d as following t h i s p a r t i c u l a r trend. Whitehead (1929:4) attempts to develop a general notion of organism such that "everything of which we are conscious, as enjoyed, perceived, w i l l e d , or thought, s h a l l have the character of a p a r t i c u l a r instance of the general scheme." A society of individuals or a society of body c e l l s may constitute an organism, and nexus i s a general concept of connections between events at any l e v e l . The authors of the substantive The International Encyclo-pedia of Unified Sciences (1955) have attempted another orienta-t i o n on t h i s issue. For example, Charles Morris i n his c o n t r i -bution to the encyclopedia e n t i t l e d "Theory of Signs," treats science as a form of discourse. Science i s considered to be as a set of statements formulated according to the rules of a r e l a t i v e l y generic language. Hence, each science constitutes a p a r t i c u l a r language; and a language may be thought of as con-s i s t i n g of signs, objects, and behavioral events. The behavioral events are responses to signs, and define the meaning of the objects which the signs represent-. The study of the r e l a t i o n s 36 among signs, objects, and behavior, i s ca l l e d semiotics. Semiotics i s offered as a metatheory of the i n t e r r e l a t i o n s among s c i e n t i f i c concepts and i t i s divided into: semantics, or the r e l a t i o n between signs and objects; pragmatics, or the r e l a t i o n between signs and behavioral interpretations; and syntactics, or the r e l a t i o n among the signs themselves. A t h i r d approach has attempted to assemble statements from each of the s o c i a l sciences i n such a way that each d i s c i p l i n e studies p a r a l l e l l y but separately i t s own subject - matter i n society, i . e . several books have appeared on nation-states, based p r i m a r i l y on data from the Human Relations Area F i l e s , showing pertinent material on the economy, r e l i g i o n , family, agricu l t u r e , etc. In this trend, Murdock's (1949) work i s a propos, and has taken the additional step of setting f o r t h i n t e r d i s c i p l i n a r y propositions using data from the Human Rela-tions Area F i l e s . He (Murdock) correlates... family and economic patterns through ratings on both dimensions for a series of s o c i e t i e s . These propositions do not present an integrated i n t e r d i s c i p l i n a r y model of a single t o t a l society. Rather, they are nomothetic statements which express the general c o r r e l a t i o n of, say, f a m i l i a l and econo-mic factors i n a number of s o c i e t i e s . (Klausner, 1967:8). Further, points out Klausner (1967:8), on thi s approach: Attempts to understand a t o t a l society by co-ordinating the contributions of a series of d i s c i p l i n e s have been dwarfed by the emergence of new i n t e r d i s c i p l i n a r y , usually b i - d i s c i p l i n a r y , sciences. Physical chemistry, biochemistry, and biophysics i n the natural sciences are p a r a l l e l e d by s o c i a l psychology, p o l i t i c a l economy, and culture and personality i n the behavioral sciences. 37 L a s t l y , Parson's general theory of action exemplifies the fourth approach. Parson's (1951 a.; 1951 b.) theory of action i s a substantive one. A l l s o c i a l sciences begin with the pro-v i s i o n of concrete acts of human behavior. Each p a r t i c u l a r d i s c i p l i n e has a peculiar perspective on these acts, and an abstraction from them with reference to i t s own o r i e n t a t i o n . Action i t s e l f becomes a perspectival or abstract concept and a system of action i s the set of ab-stractions from some p a r t i c u l a r perspective. The interconnections of the actions of an i n d i v i d u a l constitute the personality system. The s o c i a l system abstracts from the process of i n t e r a c t i o n between two or more actors; the i n t e r a c t i o n process as such i s the focus of the s o c i a l perspective. A c u l t u r a l system i s constituted by the organization of the values, norms, and symbols which guide the choices made by the actors. (Klausner, 1967:9). T r a d i t i o n a l l y , d i s c i p l i n a r y s p e c i a l i s t s concern themselves with one or another of these systems, i . e . psychologists study per-s o n a l i t y , s o c i o l o g i s t s the s o c i a l system, and anthropologists the c u l t u r a l system. From the Parsonian standpoint, a t o t a l study model of a society focuses primarily on the s o c i a l system and i t s subsystems. Parsons and Smelser (1956) write: A society i s a t h e o r e t i c a l l y l i m i t i n g case of the s o c i a l system which, i n i t s subsystems, comprises a l l of i t s important roles of the persons and c o l l e c t i v i t i e s composing i t s population. Accordingly, the subsystems of the s o c i a l system are d i f f e r e n t i -ated according to t h e i r contributions to the workings of the broader system. As already pointed out (see 2.1.3.), Parsons distinguishes four such functions, which we w i l l repeat here for c l a r i t y : 38 (1) The adaptive system involves processes which deal with the broader system's subjection to s t r e s s f u l inputs...(i.e.) means for coping with the environment which enable the system to a t t a i n i t s goals.. .-.(i.e. ) the economy. (2) A c t i v i t i e s which contribute to the broader system's goal attainment...(i.e.) the organi-zation of power...(that) orders the r e l a t i o n between a system and i t s environment...(i.e.) a p o l i t y . (3) The integrative subsystem involves the pattern-ing of relationships among.actors within the broader system and the a r t i c u l a t i o n of c u l t u r a l value patterns with motivations of i n d i v i d u a l a ctors...(i.e.) r e l i g i o u s i n s t i t u t i o n s , s t r a t i -f i c a t i o n systems... (The above three functions) involve processes of i n t e r a c t i o n among members of the society, or between them and members of other s o c i e t i e s . (4) A fourth system serves as a dual resource for a l l three of these i n t e r a c t i v e systems. (a) Pattern maintenance, the maintaining of general c u l t u r a l patterns from which the other systems draw s p e c i f i c norms and values...(i.e.) family, educational i n s t i t u t i o n s . . . . (b) Tension management... the maintenance of motivation to act.of actors i n the i n t e r -active systems. This includes management of stress which might a f f e c t the a l l o c a -t i o n of i n d i v i d u a l and s o c i a l energies. (Klausner, 1967:10-11). The above s o c i a l subsystems correspond - more or less - to academic s p e c i a l t i e s i n current u n i v e r s i t i e s , i . e . economists concentrate on a l l o c a t i o n of resources and i t s a l t e r n a t i v e uses, p o l i t i c a l s c i e n t i s t s concentrate on power d i s t r i b u t i o n and the l i k e . There are some students and psychotherapeutic i n s t i t u t i o n s concerned with tension management i n family s e t t i n g , education, etc. 39 2.3.2. We would l i k e now to turn our attention to K-lausner's (1967:12-13) suggestion on the conditions for a "good" b i - d i s -c i p l i n a r y statement, that i s a statement which rel a t e s concepts from two d i s c i p l i n e s at the time. A good b i - d i s c i p l i n a r y statement s a t i s f i e s two conditions. (2.3.2.1.) The f i r s t of these guarantees that i t i s b i - d i s c i p l i n a r y . Each of i t s two p r i n c i p a l variables belongs to a d i f f e r e n t system or sub-system: one r e f e r r i n g to personality and the other to the s o c i a l system... (2.3.2.2.) The second conditions i s that the variables in the two systems be mediated by the t h i r d v a r i a b l e , the r o l e of which i s to transform a concept at one system l e v e l or r e f e r r i n g to one type of system function to a concept to another system l e v e l or r e f e r r i n g to another type of system function. Lacking t h i s mediating or transforming variable or concept, the r e l a t i o n between the two systems would e i t h e r be "unex-plained", a mere co-occurrence, or the systems would be isomorphic. In addition, a b i - d i s c i p l i n a r y statement must take account of the fact that each of i t s main variables i s defined by i t s position in a network of variables or i t s own system l e v e l . And the p r i n c i p a l function of the transforming concept i s to r e f e r to a process which takes into consideration the d i f f e r e n t p r i n c i p l e s of conceptual organization on the two l e v e l s or the d i f f e r e n t functional orientations of the two subsystems. As an example of a b i - d i s c i p l i n a r y statement, Klausner c i t e s Erikson's (1958) Young Man Luther, where: pattern maintenance or tension management processes may constitute the mediating mechanism between personality andssociety. If t h i s noninteractive subsystem i s appealed to alone, the transformation remains s o c i a l l y indeterminate. However, the pattern maintenance - tension management subsystem has overlapping boundaries with - that i s , serves as a c u l t u r a l or motivational resource for - each of the 40 three i n t e r a c t i v e systems. Consequently, i t may operate through t h e i r i n t e r a c t i v e structures as a locus of personality-society transformation. (Klausner, 1967:17). Erikson suggests that a personality variable can be ramified into a p o l i t i c a l variable by v i r t u e of a resonant response on the part of others. The incident of Luther's f a l l i n g dumb i s interpreted by Erikson as a r e f l e c t i o n of Luther's need to say something worthwhile i n his native tongue. Luther's t r a n s l a t i o n of the New Testament into German was p a r t l y due to this language need and a general verbal renaissance of the time; hence, by vi r t u e of being read, he enjoyed audience response and c o n t r i -buted to the c u l t i v a t i o n of the vernacular (an aspect of the development of nationalism). Thus, an in d i v i d u a l personality variable (the need to communicate i n vernacular) i s linked up with the development of nationalism (a change i n the national way of l i f e ) . The mediating process i s the dialogue between an author and an audience - an educative process (pattern mainten-ance system). The boundary structures are r e l i g i o u s and p o l i t i c a l i n s t i t u t i o n s ^ There are two steps i n the transformation. In the i n t e r a c t i v e context of the r e l i g i o u s i n s t i t u -• t i o n , a matching of Luther's motive with the motives of many others ramifies or amplifies the motive into a s o c i a l factor. Then the s o c i a l -r e l i g i o u s variable i s transformed into a s o c i a l -p o l i t i c a l variable across the pattern maintenance boundary constituted by the common language, an aspect of nationalism. (Klausner, 1967:18). 2.4 "Closed Systems and Open Minds". 1 0 . Notwithstanding the above developments (2.3; 2. 3.1. ; 2. 3. 2. ) , there s t i l l seems to remain the issue as to what r e a l l y c o n s t i -tutes the domain of s o c i a l anthropology and sociology v i s a v i s 41 other d i s c i p l i n e s whose subject matter "overlaps" i n some p a r t i -cular instances with the subject matter of s o c i a l anthropology and sociology. Or putting i t i n another way: given a s i t u a t i o n , faced by several s o c i a l anthropologists and s o c i o l o g i s t s , i . e . Bailey (1964), i n which the problem at hand for i t s analysis requires techniques somewhat -different from an orthodox problem, the question becomes: what must be the "modus operandi"? S h a l l we just l a b e l the "unexplained" aspects as "given"? Devons and Gluckman (1964:158-261) have made a substantial contribution i n the analysis of the above problem. They begin describing the f i e l d of study of sociology and s o c i a l anthropology i n accordance with the view of A. R. Radcliffe-Brown. R e a l i t y -as Whitehead put i t - i s a "passage of events" i n space-time. These events can be observed and. have a varying duration. While some events ( i . e . the earth and the sun) are "long events", others are "short events", perhaps even "transient events" l i k e a spoken sentence. A l l these events can be observed, and we do not need to enter into the centuries-long epistemological problem of how these events are observed. Any event which influences how men l i v e together may thus be part of the f i e l d which an anthro-pologist studies - the heavenly bodies and t h e i r movements, or r a i n and s o i l , as well as books and words and men's feelings, (pp. 159) With t h i s view, many of the d i f f i c u l t i e s that some s o c i a l s c i e n t i s t s are concerned with can be avoided, such as the idea that each d i s c i p l i n e must have i t s own f i e l d of f a c t s , and con-ceive these facts - i n a Durkheimian fashion - as "things". Durkheim's attempt to delineate an "exclusive domain" for sociology i n his The Rules of S o c i o l o g i c a l Method (1938) led to 42 many problems. For example, he had to concede that drinking, sleeping, reasoning, communications, also habitat and topography, were to be excluded from the domain of " s o c i a l f a c t s " and hence of sociology. But Durkheim pointed out that society i s con-cerned that the above functions be exercised i n an orderly manner. In accepting the Radcliffe-Brown view, we avoid these d i f f i c u l t i e s . Furthermore, r e g u l a r i t i e s of events i n s o c i a l l i f e and ind i v i d u a l behavior can be observed, and we can.assume that these r e g u l a r i t i e s of events depend upon one another i n a systematic way. Different d i s c i p l i n e s may study the same r e g u l a r i t i e s of events, but they look for d i f f e r e n t kinds of interdependencies between the r e g u l a r i t i e s , or d i f f e r e n t kinds of r e l a t i o n s . The d i f f e r e n t ( s o c i a l sciences) are i n the main distinguished not by the events they study.but by the kinds of re l a t i o n s between the events which they seek to esta b l i s h . Events themselves are neutral to the d i f f e r e n t d i s c i p l i n e s . (pp. 160) Accordingly, every s i t u a t i o n can be viewed from d i f f e r e n t standpoints. For example, the behavior of workers i n a factory has i t s economic, p o l i t i c a l , and psychological aspects. In a general sense a l l these aspects are. part of the complex r e a l i t y of l i f e , and t h i s i s not separable into economic, p o l i t i c a l , etc. aspects. But i f we want to analyse society, we ...must s p l i t up r e a l i t y by i s o l a t i n g a p a r t i c u l a r aspect which presents c e r t a i n r e g u l a r i t i e s as i s r e l a t i v e l y autonomous and independent of the other aspects...If the aspects which one thinks are r e l a t i v e l y independent, are i n fact c l o s e l y i n t e r -r e l a t e d , then confining one's study to a p a r t i c u l a r aspect leads nowhere i n terms of understanding r e a l i t y . (pp. 161) 43 The issues appear now clearer. We are e s s e n t i a l l y facing two sets of questions. How does one decide where to demarcate a f i e l d of data out of a t o t a l flow? Secondly, how can an anthro-pologist decide whether or not to take notice of the work of other s o c i a l s c i e n t i s t s who are studying the same set of events by other techniques and modes of analysis? And f i n a l l y a ques-ti o n c l o s e l y related with the l a t t e r one, what l i m i t a t i o n s did these decisions impose on the anthropologist's a b i l i t y to ex-p l a i n the nature of r e a l i t y ? Considering the above sets of questions, Devons and Gluckman (1964:162-167) have suggested f i v e procedures by which f i e l d s of study may be demarcated. These procedures are the following: '< 2.4.1. The anthropologist delimits his f i e l d i n space and time. He circumscribes or cuts off a manageable f i e l d of r e a l i t y from the t o t a l flow of events, by putting boundaries around i t i n terms of what i s relevant to his problems, and how and where he can apply h i s techniques of observation and analysis. 2.4.2. The anthropologist may take as "given" facts some events which exert marked influence i n his f i e l d . The anthropologist incorporates these facts into his f i e l d . 2.4.3. Frequently an anthropologist has to base hi s analysis on more complex combination of r e l a t i o n s between f a c t s , which are appropriately studied by other d i s c i p l i n e s . Statements about a complex of facts f a l l i n g outside the anthropologist's competence cannot be taken for granted or incorporated. 2.4.4. Conclusions by other s c i e n t i s t s have to be summarized and often s i m p l i f i e d . This procedure i s termed abridgement. If an anthropologist abridges research carried out by appropriate s p e c i a l i s t s , i t i s a validated abridgement. But where he has to make a judgment on some complex of r e l a t i o n s i n the absence of research by appropriate s p e c i a l i s t s , i t i s a postulated abridge-ment. He must "validate" his summary as well as he can and not build more of h i s analysis on i t than i t can j u s t i f i a b l y carry. 2.4.5. Abridgement moves a step further when the anthropologist takes over not only complex combinations of f a c t , appropriate to the investigations of other d i s c i p l i n e s but also t h e i r postulates and hypothesis. This procedure i s c a l l e d compression. 2.4.6. The anthropologist may also make naive assumptions about the complexes of events which l i e at the boundaries of his circumscribed f i e l d or about aspects of these events that are studied by other d i s c i p l i n e s . 2.4.7. The s o c i a l s c i e n t i s t follows a quite d i f f e r e n t procedure within his circumscribed f i e l d . He has to simplify facts and variables, a procedure c a l l e d s i m p l i f i c a t i o n . Generally, the anthropologist s i m p l i f i e s r e l a t i v e l y l i t t l e , since he i s con-cerned with complexities within narrowly circumscribed f i e l d s . In contrast, economists simplify to a r e l a t i v e l y high degree, since they deal with fewer and more aggregated variables i n wider f i e l d s . 45 CHAPTER 3 THE THEORY OF DECISION MAKING I Our aim i n th i s chapter i s to present an exposition of decision making theory, derived from a competent decision mak-ing t h e o r i s t . Unfortunately such a work i s not a v a i l a b l e , nor can we attempt to make a "postulated abridgement" (2.4.4.) on this theory for that would constitute a book i n i t s e l f due to the diffuseness of the theory. We w i l l r e s t r i c t ourselves to presenting an outline of the most s a l i e n t points of decision theory i n reference to our purposes. In this pursuit we s h a l l follow the work of the psychologist Edwards (1954c), who i s perhaps the only s o c i a l s c i e n t i s t who has attempted to codify the d i f f u s e domain of decision making theory, a l b e i t this theory has been the main concern of economists since the days of Bentham (1748-1832). 3.1. The d e f i n i t i o n s offered thus far about decision theory have been ostensive d e f i n i t i o n s , such as saying: I cannot de-fine an elephant but I know one when I see one. Rather than d e f i n i t i o n s , examples have been offered to i l l u s t r a t e what i s meant by decision making. Thus, Edwards (1954c:380) of f e r s the following as an instance of decision making: Given two states, A and B, into either one of which an i n d i v i d u a l may put himself, the i n d i v i d -ual chooses A i n preference to B (or vice versa). Borch (1968:3-4), i n addition, o f f e r s the following examples: ( i ) Let us assume that a l l metereological forecasts agree that i t w i l l be a dry summer. This should mean that "sensible" farmers w i l l plant potatoes on a l l t h e i r land. If they do so, 46 the price of potatoes w i l l f a l l dramatically, and the aberrant farmer who planted wheat w i l l p r o f i t from a general shortage of wheat. This farmer may have been u n r e a l i s t i c or have outguessed the world by thinking of prices which are influenced by the decisions made by other farmers. ( i i ) Let us assume that we have some money to invest i n the stock market. After studying the prospects of various com-panies and the prices of th e i r stock,we then select one p a r t i -cular stock as the "best buy" i n the market. To reach this decision we have made use of advanced mathematics. But i f we buy the stock i n question, there i s necessarily a s e l l e r who thinks that at the present time and at the present p r i c e i t i s rig h t to s e l l the stock which we consider the best buy. If the s e l l e r has used the same procedures to reach h i s decision as we have, i t may be useful for us to think twice. These examples suggest that there are two types of decision problems which are fundamentally d i f f e r e n t . If our decision problem i s what we can c a l l a game  against nature, we may have to take the problem as given. (Or) t r y to find out more about the laws of nature i n order to reduce the uncertainty and make our decision e a s i e r . . . ( i . e . the meteorological forecast). I f , on the other hand, we have to make a decision i n a s o c i a l context, the problem may not be "given" i n the same sense. The data of the pro-blem may be determined by the decisions made by other persons who are i n a s i t u a t i o n similar to our own... (Borch, 1968:4) Consequently "the economic theory of decision making i s a theory about how to predict such decisions", (Edwards, 1954c:380). Decision theory has been broadly d i f f e r e n t i a t e d into r i s k l e s s and r i s k y choices; the l a t t e r i s further divided into decisions of r i s k and uncertainty. The t h e o r e t i c a l l i t e r a t u r e developed 47 by economists and mathematicians i n these types of choices i s overwhelmingly abundant. Consequently, no complete review of this literatoare i s avail a b l e , except for a few sporadic attempts. Kauder (1953a; 1953b) reviewed the early h i s t o r y of u t i l i t y ; S t i g l e r (1950) and Viner (1925) reviewed the l i t e r a t u r e up to those dates, and Edwards (1954c) offers an extensive bibliography on the theory of choice since 1930. Economic theorists have been concerned with decision theory i n r e l a t i o n to the problem of consumer's choice, or as we would c a l l i t , the theory of consumer's decision making. 3.2. The Theory of Riskless Choice The procedure of those theorists concerned with this theory has been e s s e n t i a l l y an armchair method. They make assumptions from which they derive theorems that can presumably be tested, though i t often appears that this t e s t i n g w i l l never occur. Edwards (1954c:381) pointedly remarks: The most important set of assumptions made i n t h i s theory of r i s k l e s s choice may be summarized by say-ing that i t i s assumed that the person who makes any decision to which the theory i s applied i s an economic man. What are the c h a r a c t e r i s t i c s of this homo oeconomicus. to whom we have made b r i e f reference elsewhere (2.1.2.)? Accord-ing to Edwards (1954c:381), he has three c h a r a c t e r i s t i c s : (a) he i s completely informed, and assumed to know not only a l l the courses of action open to him, but also what the outcomes of any action w i l l be; (b) he i s i n f i n i t e l y sensitive and his a v a i l -able alternatives are continuous, i n f i n i t e l y d i v i s i b l e functions; (c) he i s r a t i o n a l . This i s a c r u c i a l c h a r a c t e r i s t i c , comprised of two elements: (1) he can organize into weak order the states into which he can get. (In other words, he must state preferenc or indiff e r e n c e , given any two states, and a l l his preferences must be t r a n s i t i v e . ) Also, (2) he must make his choices as to maximize something; thus i n the theory of r i s k l e s s choice he i s assumed to maximize u t i l i t y , and i n the theory of r i s k y choice he i s assumed to maximize expected u t i l i t y . It must be pointed out that c h a r a c t e r i s t i c s (a) and (b) of homo oeconomicus can be relaxed somewhat with no serious change in the theory of r i s k y choice or game theory. This notion of maximization i s mathematically u s e f u l , since th i s may allow a theory to specify a unique point or a unique subset of points among those available to the decider. Edwards (1954c:382) finds t h i s notion unobjectionable with psychology. We also find that t h i s notion does not contradict s o c i a l anthro-po l o g i c a l analysis. For example, F i r t h has organized his d i s -cussion ( i . e . F i r t h 1929; 1939; 1946) around orthodox economic notions such as r a t i o n a l c a l c u l a t i o n which c l e a r l y implies u t i l i t y maximization. In addition, Belshaw (see 1.2.) has sug-gested that the economist's notion of u t i l i t y be ca r r i e d over into anthropological and s o c i o l o g i c a l analysis. In general, studies of Firm Theory i n microeconomics ( i . e . Ferguson, 1969); p r i n c i p l e s i n mental functioning ( i . e . Freud, 1925); and p o l i t i -c a l systems i n society ( i . e . Leach, 1954) "focus on something that seems r e a l (yet incomplete). People do not always t r y to maximize money, or basic b i o l o g i c a l s a t i s f a c t i o n s , or power, though a l l of these c e r t a i n l y do enter into our decisions, and, i n a general way, the more we have, the happier we expect to be. (Burling, i n Le C l a i r and Schneider, 1968:181). The above references support our contention that the concept of maximiza-tio n per se appears to be r e l a t i v e l y unobjectionable to the behavioral sciences. However, we should heed Edwards' (1954:382) warning: Assumptions about maximization only become s p e c i f i c , and therefore possibly wrong, when they specify what i s being maximized. It i s easy, for any kind of behavioral s c i e n t i s t , to point out that the c h a r a c t e r i s t i c s of homo oeconomicus are those of an id e a l behavior rather than an operational one; and on these grounds theories derived from these assumptions have been usually rejected. Edwards (1954c:382) contends that the behav-i o r a l s c i e n t i s t ' s r e j e c t i o n of this method has been too hasty without considering the h e u r i s t i c merit of i t . If the theorems f i t the data, then the theory has at least a h e u r i s t i c value. However, we f e e l that Edwards' c r i t i c i s m of the behavioral s c i e n t i s t ' s hastiness does not apply to some of the research done i n Economic Anthropology; for as we have shown e a r l i e r (2.1.2.) some of the economist's notions have been applied i n f i e l d work by anthropologists, i . e . c a p i t a l , saving, income, etc. Perhaps one of the best examples i s F i r t h and Yamey's (1964) c o l l e c t i o n of papers on c a p i t a l , c r e d i t , and savings i n peasant s o c i e t i e s . Having stated the basic assumptions of the theory of r i s k -less choice and having discussed the basic notion of maximization, which we found r e l a t i v e l y unobjectionable to the behavioral sciences, we next turn to an explanation of how the assumption of u t i l i t y maximization has been embodied i n economic analysis. The l i t e r a t u r e on this subject i s p a r t i c u l a r l y extensive and 50 mathematical i n presentation. We only wish to point out the most s a l i e n t points. Most of the c l a s s i c a l economists ( i . e . Jevons, Walras, Menger, and Marshall) made use of u t i l i t y theory to est a b l i s h the nature of the demand for various goods. On the assumption that the u t i l i t y of any good i s a monotonically increasing negatively accelerated function of the amount of that good, i t i s easy to show that the amounts of most goods which a con-sumer w i l l buy are decreasing functions of p r i c e , functions which are p r e c i s e l y s p e c i f i e d over the shapes of the u t i l i t y curves are known. (Edwards, 1954c:383). This e f f e c t i s what the economists needed and i s c l e a r l y a testable theorem. But complexities a r i s e i n the u t i l i t y theory once we consider the relations between the u t i l i t i e s of d i f f e r -ent goods. Most of the c l a s s i c a l economists had assumed that the u t i l i t i e s of d i f f e r e n t commodities can be combined into a t o t a l u t i l i t y by simple addition. The economist Edgeworth, who was concerned with non-independent u t i l i t i e s ( i . e . r i g h t and l e f t shoe), pointed out that the t o t a l u t i l i t y was not neces-s a r i l y an add i t i o n a l function of the u t i l i t i e s a t t r i b u t a b l e to separate commodities. In the process, he introduced the notion of indifference curves, and thus began the gradual destruction of the c l a s s i c a l u t i l i t y theory. An indifference curve i s . . . a constant u t i l i t y curve. Suppose that we consider apples and bananas, and suppose that you get the same amount of u t i l i t y from 10-apples-and-l-banana as you do from 6-apples-and-4-bananas. Then these are two points on an i n d i f -ference curve, and of course there are an i n f i n i t e number of the other points on the same curve. It may also be true that you are i n d i f f e r e n t between 13-apples-and-5-bananas, and 5-apples-and-15-bananas. These are two points on another higher indifference curve. A whole family of such curves i s c a l l e n an indifference map. (Figure below represents such a map.) (Edwards, 1954c:384) 51 -i 1 1 1 j — 5 10 15 20 25 Number of Bananas In general, t h i s indifference curve approach i n i t s various •forms has f i r m l y established i t s e l f as the structure of the theory of r i s k l e s s choice. Its predictions have been worked out i n d e t a i l , i . e . Johnson (1913); Slutsky (1915); Hicks and Al l e n (1934); Lange (1933); to mention only a few. Any attempt to summarize the above works i s c l e a r l y a wishful one, not only because of the voluminous quantity of l i t e r a t u r e but also be-cause of the large domain of t h i s topic. To our knowledge not even economists have attempted i t . 3.3. The Theory of Risky Choices. Economists and s t a t i s t i c i a n s have d i f f e r e n t i a t e d this f i e l d into r i s k and uncertainty; however, there does not seem to exist any agreement as to which concept should be associated with what term. We s h a l l take Knight's (1946:233-264) d e f i n i t i o n s . He has argued that i n a decision making s i t u a t i o n we face r i s k y or uncertain conditions. In one case, the s i t u a t i o n may be amen-able to measurement; this i s termed as " r i s k " . But i n another case the s i t u a t i o n may not be amenable to measurement and thi s i s termed "uncertainty". Thus under " r i s k " s i t u a t i o n s , proposi-tions about future events may be based on accepted p r o b a b i l i t i e s , i . e . i f I toss a coin, the p r o b a b i l i t y that I w i l l get a head i s ( .5) . But what i s the p r o b a b i l i t y that a f t e r f i n i s h i n g this paper I s h a l l drink a glass of beer? It i s neither impossible nor c e r t a i n , but i t i s impossible to f i n d out what the proba-b i l i t y might be, or even to set up generally accepted rules about how to fin d out. Such conditions are considered as cases of "uncertainty", rather than of " r i s k " . However, i n the l i t e r a t u r e of r i s k y choices, one does not find such a systematic d i f f e r e n t i a t i o n of r i s k and uncertainty. It seems that i f any study has something to do with game theory, then the study i s considered as belonging to the f i e l d of "un-certainty"; and the other papers that deal with r i s k y choices but not d i r e c t l y with game theory are related to " r i s k " condi-tions. We s h a l l present some of the most important notions related to r i s k y choice. The t r a d i t i o n a l mathematical notion for dealing with games of chance i s the idea that choices must be made so as to maxi-mize expected value. Thus, where: p = pr o b a b i l i t y ; $ = value of an outcome; and pj + P 2 + ... + P n = 1. then: E V = p 1 $ 1 + p 2 $ 2 + ... = p n $ n Nonetheless, people do not behave the way t h i s mathematical notion says they should. People are w i l l i n g to buy insurance despite the fact that the person who s e l l s the insurance makes p r o f i t . Consideration of this problem led Daniel Be r n o u l l i to propose that i t could be resolved by assuming that people act so as to maximize expected u t i l i t y . 3.3.1. Daniel B e r n o u l l i (1700-1782), cousin of the celebrated Nicolas B e r n o u l l i (1695-1726) Professor utriusque j u r i s of the University of Basle, while a member of the St. Petersburg Imperial Academy of Sciences wrote his famous paper (published post-humously i n 1783) e n t i t l e d "Specimen Theoriae Novae de Mensura S o r t i s " . Exposing a new theory for the measurement of r i s k , B e r n o u l l i (1783:23) begins by discarding the following generally agreed proposition: Expected values are computed by multiplying each possible gain by the number of ways i n which i t can occur, and then d i v i d i n g the sum of these pro-ducts by the total, number of possible cases where, in this theory, the considerations of cases which are a l l of the same p r o b a b i l i t y i s i n s i s t e d upon. If this proposition i s accepted - adds Bernoulli - what remains to be done i s the enumeration of a l l the a l t e r n a t i v e s , t h e i r breakdown into equiprobable cases and, f i n a l l y , t h e i r i n s e r t i o n into corresponding c l a s s i f i c a t i o n s . Furthermore, the examina-t i o n of this proposition indicates that i t rests upon the following assumption: Since there i s no reason to assume that of two persons encountering i d e n t i c a l r i s k s , either should expect to have his desires more c l o s e l y f u l f i l l e d , the r i s k s anticipated by each must be deemed equal i n value. ( B e r n o u l l i , 1783:24). Accordingly, no personal c h a r a c t e r i s t i c s should be consid-ered, but only those aspects concerning r i s k . To c l a r i f y t h i s matter, the following example i s offered by B e r n o u l l i : A very poor man somehow obtains a l o t t e r y t i c k e t that w i l l y i e l d with equal p r o b a b i l i t y either nothing or $20,000. W i l l t h i s man evaluate h i s chance of winning at $10,000? Would he not be i l l -advised to s e l l t h i s l o t t e r y t i c k e t for $9,000? For B e r n o u l l i 54 the answer i s i n the negative. On the other hand, Bernoulli i s i n c l i n e d to believe that a r i c h man would be i l l - a d v i s e d to refuse to buy the l o t t e r y t i c k e t for $9,000. Thus, Bernoulli concludes saying that " a l l men cannot use the same rule to eval-uate the gamble", and the above proposition must be discarded. Hence: The concept of value (as i t has been used above) must be defined i n a way which renders the entire procedure u n i v e r s a l l y acceptable without reservation. To do t h i s the determination of the value of. an item must not be based on i t s p r i c e . but rather on the u t i l i t y i t y i e l d s . The p r i c e of the item i s dependent only on the thing i t s e l f and i s equal for everyone; the u t i l i t y , however, i s dependent on the p a r t i c u l a r c i r -cumstances of the person making the estimate. ( B e r n o u l l i , 1783:24). The above concept of u t i l i t y - points out Bernoulli - i f carried out further would only lead to a paraphrase of the same p r i n -c i p l e . Nevertheless, this hypothesis requires some elucidation, and the following fundamental ru l e i s suggested: If the u t i l i t y of each possible p r o f i t expectation i s m u l t i p l i e d by the number of ways i n which i t can occur, and we then divide the sum of these products by the t o t a l number of possible cases, a mean u t i l i t y (moral expectation) w i l l be obtained, and the p r o f i t which corresponds to this u t i l i t y w i l l equal the value of the r i s k i n question. ( B e r n o u l l i , 1783:24). Thus, i t i s evident that a measurement of the value of r i s k must give consideration to i t s u t i l i t y ; however, i t seems specious to make a generalization on u t i l i t y , since the u t i l i t y of an item may change with circumstances. For example - argues Bernoulli - though a poor man generally obtains more u t i l i t y than does a r i c h man from an equal gain, i t i s nevertheless con-ceivable that a r i c h prisoner who possesses $2,000 but needs another $2,000 to repurchase his freedom w i l l place a higher value on a gain of $2,000 than does another man who has less 55 money than he. Our Swiss scholar r i g h t l y asserts that although exceptional cases are abundant, i t would be better to consider what usually happens. Therefore, to c o r r e c t l y perceive the problem i t s h a l l be assumed that there i s an imperceptibly small growth i n the individual's wealth which proceeds continu-ously by i n f i n i t e s i m a l increments. Now i t i s highly probable that any increase i n wealth no matter how i n s i g n i f i c a n t , w i l l always r e s u l t i n an increase of u t i l i t y which i s inversely proportionate to the quantity of goods already possessed...quantity of goods connotes food, c l o t h -ing, a l l things which add to the conveniences of l i f e , and even to luxury - anything that can con-tribu t e to the adequate s a t i s f a c t i o n of any sort of want...For the great majority the most valuable portion of t h e i r possessions so defined w i l l consist i n t h e i r productive capacity, t h i s term being taken to include even the beggar's tal e n t . . . ( I n a more succinct manner the above may be put as follows) i n the absence of the unusual, the u t i l i t y r e s u l t i n g from any small increase i n wealth w i l l be inversely proportionate to the quantity of goods previously possessed. (Ber n o u l l i , 1783:25). Before proceeding with our exposition of the theory of r i s k y choices, i t is worthwhile to stop and determine the place of the B e r n o u l l i hypothesis i n sociology and anthropology. In the past, s o c i o l o g i s t s and anthropologists have used the notion of u t i l i t y i n r i s k l e s s choices. For example, Belshaw (1965) contends that wealth i s useful and exchangeable. An actor per-ceives that c e r t a i n goods and services are valuable to him, which leads us to the concept of u t i l i t y i n i t s purely subjec-t i v e sense. However, i t seems cle a r to us that Belshaw i s re-f e r r i n g to r i s k l e s s u t i l i t y . Likewise, i n the l i t e r a t u r e of Economic Anthropology whenever the notion of u t i l i t y has been used, i t has been the notion of r i s k l e s s choice. For example Or t i z (1967:194) writes: 56 It i s i n this wider sense, where s o c i a l and so-ca l l e d economic returns are in t e r l i n k e d with each other, that I am using the concept of u t i l i t y . Preference may be to increase productive assets or to increase s o c i a l assets. The B e r n o u l l i hypothesis, that assumes expected u t i l i t y i n the analysis of r i s k y choices, has not been given proper attention by s o c i o l o g i s t s and anthropologists. In the analysis of our empirical data we s h a l l proceed i n terms of the Be r n o u l l i hypothesis. We must point out that economists, i . e . Friedman (1962: 68-73) have made a f u l l use of the u t i l i t y analysis of uncer-ta i n t y , p a r t i c u l a r l y as i t relates to pr i c e theory. The mathe-maticians Herstein and Milnor (1953) have discussed the mathe-matical assumptions of the Be r n o u l l i p r i n c i p l e of u t i l i t y , whereby we know that Bernoulli's p r i n c i p l e i s mathematically consistent. 3.3.2. According to Edwards (1954c:392) the modern period i n the study of r i s k begins with the publication of von Neumann and Morgenstern*s (1944) Theory of Games and Economic Behavior. Von Neumann and Morgenstern pointed out that the usual assumption that economic man can always say Whether he prefers one state to another or i s i n -di f f e r e n t between them needs only to be s l i g h t l y modified i n order to imply cardinal u t i l i t y . The modification consists of adding that economic man can also completely order p r o b a b i l i t y combinations of states. A v a r i e t y of implications i s embodied i n t h i s apparently simple notion. In the attempt to examine and exhibit c l e a r l y what these implications are, a number of axiom systems d i f f e r -ing from von Neumann and Morgenstern but leading to the same re s u l t have been developed, i . e . Friedman and Savage (1948, 1952); Herstein and Milnor (1953); Marschak (1950, 1951); etc. A discussion of these complex a l t e r n a t i v e axiom systems i s be-yond the scope of our exposition. One recent discussion of these by Georgescu-Roegen (1953) has concluded on reasonable grounds, that the o r i g i n a l von Neumann and Morgenstern set of axioms i s s t i l l the best. According to Edwards (1954c:392), i f these notions are correct, the following implications can be drawn from the empirical standpoint: F i r s t , i t means that r i s k y propositions can be ordered i n d e s i r a b i l i t y , j u st as r i s k l e s s ones can. Second, i t means that the concept of ex-pected u t i l i t y i s behaviorally meaningful. F i n a l l y , i t means that choices among r i s k y alternatives are made i n such a way that they maximize expected u t i l i t y . C l e a r l y Edwards' conclusions support our e a r l i e r intention of analysing the u t i l i t y (expected u t i l i t y ) of r i s k taking (see 1.2.) However, i t i s s i g n i f i c a n t to point out that Edwards (1953a; 1953b; 1954) i n a series of experiments has shown that subjects when they bet prefer some p r o b a b i l i t i e s to others and show preferences or d i s l i k e s for r i s k taking. These preferences cannot be accounted for by u t i l i t y considerations. However, Edwards' experiments did not measure p r o b a b i l i t y preferences but only showed that these preferences e x i s t . But even the existence of this p r o b a b i l i t y preference means that the simple von Neumann-Morgenstern method of u t i l i t y measurement cannot succeed. In considering this problem, Edwards suggests that i t may be possible to design experiments that measure u t i l i t y and p r o b a b i l i t y preferences. His approach i s d i f f i c u l t due to the problem of measuring subjective p r o b a b i l i t i e s and variance preferences, the discussion of which i s beyond our scope. 58 F i n a l l y , we would l i k e to give only an outline of game theory, for t h i s i s a mathematical subject of a highly technical sort. The theory of games presents an elaborate mathematical analysis of the problem of choosing from among alte r n a t i v e strategies i n games of strategy. It does not o f f e r a mathemat-i c a l model for predicting the outcomes of such games, except i n a few sp e c i a l cases. A l l i t o f f e r s i s useful concepts and language for t a l k i n g about games, and a method to predict whether cer t a i n alternatives w i l l not occur. Edwards (1954c:407-408) offers the following as being the main concepts of a game theory. Strategy i s a set of personal rules for playing the game. For each possible f i r s t move on your part, your opponent w i l l base a possible set of responses (and so on). A strategy i s a l i s t which s p e c i f i e s what your move w i l l be f o r every conceivable previous set of moves of the p a r t i c u l a r game you are playing... Imputations. an imputation i s a set of payments made as a r e s u l t of a game, one to each player. In general, d i f f e r e n t imputations w i l l be associated with d i f f e r e n t set of strategies, but for any given set of strategies there may be more than one impu-tat i o n . ..Imputation X i s said to dominate imputation Y i f one or more of the players has separately greater gains (or smaller losses) i n X than i n Y, and can, by acting together.,.enforce the occur-rence of X, or of some other imputation at least as good. A solution i s a set of imputations, none of which dominates another, such that every imputation out-side the solution i s dominated by at least one imputation within the solution. The task of game theory i s to find solutions - as asserted by von Neumann and Morgenstern. For any game there may be one or more solutions. One bad feature of the theory of games i s that i t frequently gives a large, or even i n f i n i t e , number of solutions for a game. (Edwards, 1954c:407). 59 The minimax loss p r i n c i p l e . The notions of domina-ti o n and solution imply a new fundamental r u l e for decision making...This r u l e is...minimizing the maximum l o s s . . . (It) considers for each possible strategy that you could adopt, what the worst possi-ble outcome i s , and then to select that strategy which Would have the best i l l - e f f e c t s i f the worst possible outcome happened. Another way of putting the same idea i s to c a l l i t the p r i n c i p l e of maxi-mizing the minimum gain, or maximum gain. If this r u l e i s expressed geometrically, i t asserts that the point you should seek i s a saddle-point, s i m i l a r to the highest point i n a mountain pass that minimizes the maximum height. Games may be among any number of players, but the simplest game i s a two-person game. Two kinds of payoff arrangements are possible. (Zero-sum game), where one player wins what the other player loses. In non-zero sum games. a n a l y t i c a l complexities a r i s e . These can be diminished by assuming the ^existence of a f i c t i t i o u s extra player, who wins or loses enough to bring the sum of payments back to zero. Games involving more than two persons introduce the possi-b i l i t y that two or more players w i l l cooperate to beat the r e s t , which is termed c o a l i t i o n and frequently involves side-payments among the members of the c o a l i t i o n . Edwards (1954c:408) sums up game theory thus: The theory of games i s not a model how people a c t u a l l y play games..., nor i s i t l i k e l y to be of any p r a c t i c a l use i n t e l l i n g you how to play a complicated game; the crux of the theory of games i s the p r i n c i p l e of choosing the strategy which minimizes the maximum expected f i n a n c i a l l o s s ; and the theory defines a solution of a game on a set of imputations which s a t i s f i e s this p r i n c i p l e for a l l players. 60 3.4. Buchler and Nutini (1969) have suggested the following possible applications of game theory to s o c i a l theory. The reader w i l l note that t h e i r i n t e r p r e t a t i o n of game theory varies from that of Edwards, i . e . note the differences i n the concept of "strategy". Buchler and Nutini (1969:6) state that: Game theory makes a d i s t i n c t i o n between the rules that structure the game and the i n d i v i d u a l options of the actors playing the game, or, as game theorist s formally put i t : ground rules and s t r a t -egy rules...anthropologists and s o c i o l o g i s t s are aware of the d i s t i n c t i o n when they speak of c u l t u r a l norms or j u r a l r u l e s , on the one hand, and s t a t i s t i c c a l deviations from these norms or r u l e s , on the o'fcher.. .To- put i t d i f f e r e n t l y , ground rules may be termed mechanical (deterministic) models or i d e a l paradigms of what people should do, while strategy rules are s t a t i s t i c a l (stochastic) models of what people a c t u a l l y do. At the h e u r i s t i c l e v e l , we would l i k e to point out i n t h i s connection that much of the work done by anthropologists and socio-l o g i s t s suffers seriously because of the overwhelm-ing concern of the former with i d e o l o g i c a l behavior and the l a t t e r with actual behavior. U n t i l s o c i a l s c i e n t i s t s become f u l l y aware of the complementarity of deterministic and stochastic models, they s h a l l continue to present lopsided descriptions and explana-tions of s o c i a l phenomena. However, the question arises as to whether game theory may be h e l p f u l i n combining s o c i o l o g i c a l and psychological aspects of human a f f a i r s . To t h i s question Buchler and Nutini (1969:7) reply: F i r s t , i t seems to us obvious that the ground-rules l e v e l - or i d e o l o g i c a l l e v e l - i s primarily s o c i o l o g i c a l , that i s , i t has to do with consensual action; while the strategy-rule l e v e l - or stochastic l e v e l - i s to a considerable extent psychological, that i s , i t has to do with private and group options and i s the l e v e l at which decision-making takes place. Secondly, since i t i s assumed that these two l e v e l s cannot be separated, the thresholds where sociology and psychology became causally e f f i c i e n t must be regarded as strategic areas of conceptualization. These thresholds, we strongly believe, can only be adequately formulated i n terms of mathematics, by which the proper components are brought to the fore. 61 In addition, Buchler and Nutini (1969:23-253) offer an ele-mentary exposition of the new approaches in contemporary mathe-matics (i.e. linear programming, graph theory, information theory, flows in networks, etc.) that may be applied in the analysis of social phenomena. In the last analysis, the Buchler and Nutini (1969) reader has as a goal the launching of the development of a new f i e l d that may be called "mathematical anthropology". Lastly, in reference to the theory of games, Barth (1966: 33) 1 1 has remarked the following: (this) type of model seems to me to give the greatest scope for empirical investigation of the nature and degree of order, through attention to relative fre-quencies of behavior, the determinants of this order and the social processes whereby they act... (It) already seems clear that they enable us to analyse natural or ecological constraints in a common frame-work with social constraints and thus encompass- a large variety of determinants in a single, analyti-cally coherent model, and also provide a poss i b i l i t y •for understanding, not only the degree of disorder, but also change by means of simple cumulative feed-back mechanism in such models... In conclusion, i t is evident that game theory may contri-bute significantly to the theoretical development of sociology and anthropology. 62 CHAPTER 4 THE DECISION MAKING THEORY II In t h i s section we want to discuss some aspects of the theory of r i s k y choice that, i n our view, economists and stat-i s t i c i a n s have not properly considered. We w i l l be considering the aspect of unmeasurable uncertainty. As pointed out before, Knight (see 3.3.) has defined unmeasurable uncertainty as those events where the d i s t r i b u t i o n s of outcomes cannot be known either by a p r i o r i c a l c u l a t i o n or by s t a t i s t i c a l inference. Knight c i t e s the formation of opinions concerning some future state of a f f a i r s as an instance of unmeasurable uncertainty. We postulate that, according to this d e f i n i t i o n , unmeasurable un-certainty has behavioral content; due to the unconscious forma-ti o n of opinions by some s o c i o l o g i c a l processes. For example, i t is quite conceivable that c e r t a i n r i s k attitudes can be ac-quired through s o c i a l i n t e r a c t i o n . 4.1. Psychologists have developed models of unmeasurable uncer-tain t y that we consider worth examination for our purposes. They lab e l l e d unmeasurable uncertainty as "ri s k - t a k i n g " behav-io r - a term which we w i l l hence f o r t h adopt. Kogan and Wallach (1967:116) have stated that i f a general model has been developed that predicts human decision-making with a high degree of p r e c i s i o n , and yet ignores i n d i v i d u a l differences i n alleged ri s k - t a k i n g dispositions and differences i n the context or c i r -cumstances under which decisions are made, then r i s k - t a k i n g concepts must be ignored. Kogan and Wallach (1967:116-118) have examined various de-63 c i s i o n making models proposed by economists i n regard to both their p r e d i c t i v e adequacy and comprehensiveness. We have a l -ready presented these models i n dealing with the theory of r i s k y choices, i . e . expected value and expected u t i l i t y , but we con-sider i t worthwhile to reproduce the psychological interpreta-t i o n of these models. ( i ) Expected value (EV) i s the oldest and simplest model. In this model, the p r o b a b i l i t i e s and the monetary amounts are taken at t h e i r objective face value. However, i f a l l decisions could be cast into an expected-value model, and i f subjects uniformly maximized expected value i n their choice behavior, then the analysis of decision making could end r i g h t at this point. Regretably, neither of the foregoing conditions holds, and this has complicated the work of those who seek a general model for gambling behavior... Empirical evidence accumulated by Edwards (1953; 1954a; 1954b; 1954c) and others..„has been quite damaging to the expected value p o s i t i o n . Subjects do not choose the bet with the higher expected value. This w i l l hardly come as a surprise to gambling .casinos and insurance companies, both of which have long operated on the p r i n c i p l e that t h e i r c l i e n t e l e do not maximize expected value... (pp. 116-117) ( i i ) Subjectively expected money (SEM). In this model,the objective p r o b a b i l i t i e s of the EV model are replaced with sub-12 j e c t i v e p r o b a b i l i t i e s . It can incorporate the d i s t i n c t prob-a b i l i t y preferences that subjects display i n a gambling context. Application of the present model to gambling pref-erences i n the laboratory (see Edwards, 1955; Suppes and Walsh, 1959) yi e l d s a somewhat better f i t to data than does the simple EV model, but as P r u i t t (1962) has pointed out, the SEM model i s grossly inaccurate i n predicting choices i n a v a r i e t y of gambling situations, (p. 117) 64 ( i i i ) Expected u t i l i t y (EU). In r e l a t i o n to the EV model, the EU p o s i t i o n replaces monetary values with u t i l i t i e s . Accord-ingly, superior prediction of betting decisions would be possible i f d o l l a r values were replaced with subjective values. However, the measurement of EU i s complicated due to the p o s s i b i l i t y that a subject's decision may r e f l e c t subjective d i s t o r t i o n s of ob-j e c t i v e p r o b a b i l i t i e s or discrepancies between money value and u t i l i t y . Though there i s some evidence (Hosteller and Nogee, 1951) that an EU model i s somewhat better than the -^s-imple-EV model i n the predictions of gambling de-c i s i o n s , i t i s P r u i t t ' s (1962) view that the measure-ment of ambiguities inherent i n the EU model are presently so strong that one cannot draw any meaning-f u l conclusions from i t . (p. 117) (iv) Subjectively expected u t i l i t y (SEU). Here both prob-a b i l i t i e s and values assume the subjective form. As i n the case of the EU model, the SEU model poses complicated problems of measurement. For example, Edwards (1962a),an o r i g i n a l proposer of t h i s model, deals with the fundamental problem of measurement almost by f i a t . F i n a l l y , i n regard to the p r e c i s i o n and comprehensiveness of the above models, Kogan and Wallach (1967:118) comment: A l l the models discussed have yielded a moderate l e v e l of success i n predicting choices between bets - approximately 55 to 70 per cent (against a 50 per cent chance baseline). The models, i n short, do somewhat better than a random generator, but the degree of precision attained hardly begins to f u l -f i l l the requirement of a "completely' ldeterministic account" of human gambling.decisions. Perhaps, a f t e r a l l , there i s room for a r i s k - t a k i n g construct i n the decision-making domain. The above contentions support our postulate that there exists a behaviorally oriented decisions theory based upon r i s k -taking d i s p o s i t i o n s . It i s now i n order to review the available l i t e r a t u r e on r i s k taking, and i t seems appropriate to d i s t i n -guish the "kind" of r i s k taking theory relevant to our purposes. 4.2. It stands to reason to assume that there are variations i n ris k - t a k i n g behavior among in d i v i d u a l s . Kogan and Wallach (1967:120) report to us that P r u i t t has developed a sophisticated model taking into account the pattern and l e v e l of r i s k (PLR). This model proposes that i n gambling situations one can d i s t i n -guish patterns and levels of r i s k , and that these are sa l i e n t components from the point of view of the gambler. Pattern of r i s k refers to the p r o b a b i l i t i e s of the outcomes and the payoff r a t i o s (the amount that can be won r e l a t i v e to the amount i n -vested). The l e v e l of r i s k i s a function of the size of the gambler's stake, weighted by the p r o b a b i l i t y of i t s loss. Pattern and l e v e l are presumed independent of each other. In addition, included i n the model are concepts such as " i d e a l l e v e l of r i s k " (the most preferred l e v e l by an i n d i v i d u a l i n a given pattern), and "maximum acceptable l e v e l of r i s k " (the highest l e v e l v o l u n t a r i l y accepted for any given pattern). Sev-er a l propositions are offered by P r u i t t , and his empirical data f i t s the model exceedingly well. Although P r u i t t ' s model showed s i g n i f i c a n t improvement i n predicting gambling behavior as com-pared to the SEU model, p a r t i c u l a r l y by incorporating r i s k -taking parameters, P r u i t t ' s model has been considered inadequate. Kogan and Wallach (1967:121) c r i t i c i z e the P r u i t t model i n these words: The data that P r u i t t employed to test h i s model came from a study by Coombs and P r u i t t (1960) i n which subjects were run i n a large group and were informed that a l l choices were imaginary ( i n the 66 sense that no opportunity would be provided to play the bets for the amounts of money listed)...As S l o v i c , Lichtenstein, and Edwards (1965) noted, the experimental setting c h a r a c t e r i s t i c of the Coombs-P r u i t t work very l i k e l y induced feelings of boredom and monotony i n subjects. Under such conditions, individuals might well u t i l i z e more simple and con-si s t e n t strategies than would be the case i f greater realism prevailed. Hence, to avoid possible p i t f a l l s , throughout th i s essay we w i l l emphasize decision data e l i c i t e d from a natural s e t t i n g when possible rather than experimentally e l i c i t e d . Furthermore, according to the Bernoulli p r i n c i p l e , the u t i l i t y attached to any r i s k - t a k i n g behavior i n a laboratory s e t t i n g i s i n s i g n i f i -cant, i f at a l l present. Thus we w i l l now turn to review r i s k -taking studies with emphasis on natural settings. 4.3. From the available r i s k - t a k i n g constructs, we are i n t e r -ested i n a construct to which we can r e l a t e our f i n a n c i a l invest-13 ment function and our s o c i o l o g i c a l variables. However, such a risk-taking construct does not e x i s t ; and understandably so, since this p a r t i c u l a r f i e l d has been mainly expanded by mathe-maticians, economists, and, of l a t e , psychologists. Hence, the existent data and/or t h e o r e t i c a l constructs are pertinent to these d i s c i p l i n e s . Along these l i n e s , Fredrikson (et a l 1965:3) has pointed out the existence of a f r o n t i e r f i e l d i n the analysis of finan-c i a l investment and management. This i s the f r o n t i e r of r i s k evaluation. Likewise, the same f r o n t i e r exists i n economic anth-ropology. Barth (et a l 1963) and O r t i z (1967) have col l e c t e d data on decision-making processes among Norwegian entrepeneurs and Colombian Paez peasants respectively. But r i s k evaluation i n the f i e l d of Economic Anthropology appears non-existent. Therefore, as far as we know, there i s no available r i s k - t a k i n g construct related to f i n a n c i a l investment. To proceed onwards with our essay, we s h a l l make a "postulated abridgement" (see 2.4.4.) and a "compression" (see 2.4.5.) of what we consider to be the pertinent aspects of r i s k taking. This procedure w i l l be based on the following defining c r i t e r i o n : 4.3.1. The mathematical approach to decision making will.be dispensed with, for we are interested i n behaviorally induced decision making rather than i n mathematical decision making. 4.3.2. Behaviorally oriented decision theory, or " r i s k taking" as i t i s c a l l e d by psychologists, w i l l be emphasized throughout. However, as expected, the domain of r i s k taking i s rather diffuse.. To impose some order, Kogan and Wallach (1967:123) have divided the risk - t a k i n g domain into three categories: 4.3.2.1. S i t u a t i o n a l influences on risk - t a k i n g . This category i s concerned with the following issues: chance and s k i l l , i n f o r mation-seeking, effects of gains and costs i n hypothetical de-c i s i o n s i t u a t i o n s , r e a l versus imaginary choices, effects of p r i o r gains and losses, and ri s k - t a k i n g i n natural settings. 4.3.2.2. The ro l e of personal c h a r a c t e r i s t i c s i n ri s k - t a k i n g . This category i s concerned with the following issues: demograph i c c orrelates, personality and motivational c o r r e l a t e s , r i s k -taking and i n t e l l e c t i v e functioning on objective t e s t s , cognitive-judgmental aspects, and generality and s p e c i f i c i t y of risk- t a k i n g . 4.3.2.3. Group decisions involving r i s k . At f i r s t sight i t appeared that t h i s category would be rather important for our purposes. But a close inspection of the data presented showed us that what i s c a l l e d a "group decision" means, generally, that f i v e or s i x subjects (usually college students) previously unac-quainted were asked to f i l l out a dilemmas-of-choice ::t.asks , i n d i v i d u a l l y f i r s t , and l a t e r to reach consensus on the same task, as a group. Clearly this i s an experimental setting and does not f u l f i l l our c r i t e r i o n set f o r t h below i n (4.3.3.). Nevertheless, some considerations of this category are relevant, and these w i l l be presented. An inspection of the above aspects corresponding to the three categories of risk-taking leads us to propose the follow-ing aspects of risk-taking as being germane to our purposes: from 4.3.2.1., ris k - t a k i n g i n natural settings; from 4.3.2.2., demographic correlates of r i s k - t a k i n g ; and l a s t l y some t y p i c a l perspectives of group ris k - t a k i n g w i l l be presented from type 4.3.2.3. Whether or not these aspects of r i s k - t a k i n g are per-tinent to our problem can only be v e r i f i e d empirically. 4.3.3. We have set f o r t h that Bernoulli's p r i n c i p l e of u t i l i t y w i l l be used i n our analysis of r i s k , thus i t follows that only those r i s k constructs amenable to u t i l i t y analysis w i l l be emphasized. Risk-taking i n a natural setting w i l l be stressed, and data derived from experimental laboratories w i l l not be taken into account here, regardless of the fact that psychologi-c a l research has taken into account subjective p r o b a b i l i t y i n the analysis of r i s k - t a k i n g among subjects i n laboratory setting. We think that an estimate of an outcome can hardly be compared to the B e r n o u l l i p r i n c i p l e i n the analysis of r i s k , considering the realism of the concept as has been noted elsewhere (Rogan and Wallach, 1967:121). 69 4.4. A Review of Risk-Taking from the Psychological L i t e r a t u r e . Before going into the review of the ris k - t a k i n g l i t e r a t u r e "per se" and i t s pertinent aspects, we would l i k e to report some data i n d i r e c t l y related to our analysis of r i s k and the invest-ment function. Slovic (1968) has described the expert uses of information i n decision-making processes among stockbrokers with the use of the ANOVA technique. This technique consists of a quantitative analysis of variance i n a si m i l a r manner to diagnosis by radio-l o g i s t s of malignancy i n gastric ulcers on the basis of roent-genological signs. Although the ANOVA technique proved capable of describing the use of information by ind i v i d u a l r a d i o l o g i s t s or stockbrokers due to i t s s e n s i t i v i t y to configurational pro-cessing, r i s k - t a k i n g aspects pertinent to our purposes cannot be found. Also i n the risk - t a k i n g l i t e r a t u r e "per se", Davie and others (1968) have submitted the existence of two d i f f e r e n t l i n e s of research i n connection with r i s k - t a k i n g . On one hand, research has been done using highly quantitative and precise d e f i n i t i o n s of the variables involved i n ri s k - t a k i n g , i . e . the works of Edwards (1954a; 1953b; 1954b); Coombs and P r u i t t (1960; 1962). This approach has been mainly concerned with the e s t i -mation of parameters that guide decisions, and i t has been normative i n the sense of discovering. For example, optimal decisions given p a r t i c u l a r circumstances. The concepts of this approach are not at a l l related to s o c i a l and/or i n d i v i d u a l behavior. On the other hand, a second research trend i n risk - t a k i n g has aimed at the examination of i n d i v i d u a l differences such as personality and s u s c e p t i b i l i t y to s o c i a l contexts, i . e . the works of Marquis (1962); Wallach, Kogan & Bern (1962; 1964); Kogan and Wallach (1964); Rettig (1966a; 1966b); Rabow, Fowler, Bradford, H o f e l l e r and Shibuya (1966); Cl e a r l y , this trend i s related quite c l o s e l y to the Kogan and Wallach approach (see 4.3.2.2.) and i s germane to our purposes. We could safely assume that the Kogan and Wallach (1967) a r t i c l e i s the most exhaustive analysis of ri s k - t a k i n g behavior as a function of the s i t u a t i o n , the person, and the group. Elsewhere (see 4. 3.2.1.... 4.3. 2.4. ) we have exposed the Kogan and Wallach (1967) d i f f e r e n t i a t i o n of the risk-taking domain, and have submitted the risk-taking aspects that may be germane to our purposes. It i s these r i s k - t a k i n g aspects that we s h a l l next expound. 4.4.1. Risk-Taking i n a Natural Setting. We are interested i n ri s k - t a k i n g i n a natural setting f i r s t l y because our data w i l l come from a natural s e t t i n g , i . e . the stock market. Secondly, i t i s obvious that experimentally derived data i s limited to laboratory settings. T h i r d l y , the u t i l i t y of r i s k - t a k i n g behavior can be derived more r e a d i l y i n a natural s e t t i n g . Unfortunately, data on ri s k - t a k i n g behavior i n varying tasks and contexts d i r e c t l y related to central l i f e a c t i v i t i e s of the subjects i s p a r t i c u l a r l y meager. In f a c t , American investiga-tors have focused t h e i r studies on a r t i f i c i a l and/or hypotheti-c a l task»s of gambling behavior (Kogan and Wallach, 1967:160-163). 71 One of the few investigators of risk - t a k i n g behavior as manifested i n r e a l l i f e context i s the B r i t i s h researcher, Cohen. He notes the wide v a r i e t y of common l i f e situations with inherent r i s k - t a k i n g elements: (The pedestrian) i s in c l i n e d to exaggerate his chance of not getting h i t by a car; he bears the motto "Accidents can't happen to me". The prob-a b i l i t y of being involved i n an accident of the roads during any week i s ( i n B r i t a i n , for example) about 1 i n 8,000. This seems n e g l i g i b l e to the pedestrian by comparison, say, with his chance of winning the f i r s t p r ize i n a l o t t e r y , where the order of magnitude of the odds belong to the realm of radio astronomy. (Cohen, 1964:73). Elsewhere Cohen (1964:78) continues: If safety on the road i s to become a r e a l i t y instead of remaining a dream, we have to recog-nize i t s kinship with situations which, at f i r s t sight, seem to have nothing to do with t r a f f i c . To confine our study to the t r a f f i c s i t u a t i o n as such would not take us fa r . Man not only drives automobiles. Nor i s he only a pedestrian. He engages i n a multitude of tasks which share some-thing fundamental i n common with his dr i v i n g behavior, i n business, i n sport, i n s o c i a l enter-prises of one kind or another. These are a l i k e to the extent that they are undertaken i n some uncertainty; they are forms of ris k - t a k i n g . However, for experimental psychologists l i k e Kogan and Wallach (1967:162), Cohen's str a t e g i c research s i t e for the study of r i s k i s open to c r i t i c i s m for his lack of intere s t i n the psychological basis for i n d i v i d u a l differences, the absence of discussion about generality or s p e c i f i c i t y of r i s k - t a k i n g dispositions i n varying tasks and s i t u a t i o n a l contexts, and i n general for sketchy t h e o r e t i c a l treatment. In our view, Cohen's approach to the study of ri s k - t a k i n g offers more r e a l i s t i c analysis of r e a l l i f e s i t u a t i o n s . Further, t h e o r e t i c a l r i s k models derived from experimentally controlled 72 gambling data may only be able to explain the behavior of the subjects while under experimentation. In addition, i t appears that r i s k - t a k i n g models i n a natural setting can be best trans-posed to a market s i t u a t i o n ; and the u t i l i t y of r i s k may be more r e a d i l y derived. Compare, for example, the possible u t i l i t y implications to: (a) sophomore students engaged i n an experi-mental gambling s i t u a t i o n where they may lose money that does not belong to them or win as much as $5.00; or (b) investors i n the stock exchange who make, d a i l y , hundreds or thousands of r i s k y decisions that may involve merely today's bacon, or a successful transaction with handsome rewards. These kinds of differences i n number and size of r i s k s with respect to d i f f e r -ent y i e l d s of u t i l i t y are more r e a d i l y apparent i n a natural setting than i n experimental laboratories. 4.4.2. Demographic Correlates of Risk-Taking. Ea r l y work of Kogan and Wallach (1959; 1961) i n r i s k -taking was concerned with sex and age differences i n adult sub-j e c t s . Using the twelve-item hypothetical choice-dilemmas task described by them, they looked at r i s k levels achieved by college age and e l d e r l y men and women. No o v e r a l l sex d i f f e r -ence was found, though men and women did y i e l d d i f f e r e n t i a l r i s k - t a k i n g , p a r t i c u l a r l y i n areas where masculine or feminine roles could be distinguished. When the decision-making task was changed by introducing monetary payoffs, there was l i t t l e evidence of feminine conservatism. 1 3 The o v e r a l l findings did not o f f e r a neat separation between male risk-takers and female conservatives. 73 Kass (1964) has collected data on risk-taking among c h i l -dren, and observed a sex difference. Slovic's (1966) study of a sample of chil d r e n i n the age range s i x to sixteen yielded no sex differences i n risk-taking for the younger childre n (ages s i x to ten), and s i g n i f i c a n t or n e a r - s i g n i f i c a n t sex d i f f e r -ences i n favor of boys for the older children (ages eleven to sixteen). C l e a r l y , the Kass and Slovic data are not congruent with the r e s u l t s previously reported f o r adults. The discrep-ancy may have manifold sources, i . e . instruments and/or con-texts employed by the researchers, or a developmental pattern between the sexes i n respect to r i s k - t a k i n g behavior. In sum, as f a r as sex difference i s concerned i n r i s k - t a k i n g , Kogan and Wallach (1967:167) state: "So l i t t l e research has been s p e c i f i -c a l l y directed to the problem of sex differences i n risk-taking behavior that we are d i s t i n c t l y handicapped i n a r r i v i n g at generalizations for both children and adults." What about age differences i n risk-taking? Kogan and Wallach (1961) i n t h e i r e a r l i e r study analysed a sample of e l d e r l y subjects (mean age of approximately seventy) that were the i n t e l l e c t u a l equivalent of an available sample of college students. The two groups were compared i n t h e i r r i s k prefer-ences on the hypothetical choice-dilemmas instrument. The older subjects, both males and females, were s i g n i f i c a n t l y more conservative than the college students. There are some aspects of t h i s study that may have some implications for us. The authors, for example, present the s p e c i f i c items d i f f e r e n t i a t i n g both e l d e r l y men and women from t h e i r younger counterparts. A l l were concerned with a choice between modest f i n a n c i a l gains as a "sure thing" and substantial f i n a n c i a l gains with the r i s k of high l o s s . Kogan and Wallach suggested that t h i s may r e f l e c t the f i n a n c i a l anxieties that a s s a i l the aged of our society. However, the r e s u l t s obtained were surprising i n view of the widely accepted statement to the e f f e c t that present day Ameri-can youth are security-minded i n contrast to the i n d i v i d u a l i s t i c -16 entrepreneurial bent of foregone generations. Given the pro-j e c t i v e nature of the task administered by Kogan and Wallach, one might have expected such generational value differences to be r e f l e c t e d i n the choices made. Thus, the present set of findings about American youth poses important questions re-garding the r e l a t i v e dominance of s i t u a t i o n a l and i d e o l o g i c a l determinants i n decision making. It i s worthwhile to point out the dearth of information about r i s k - t a k i n g behavior of adults beyond college age. With the scanty data e l i c i t e d by the choice-dilemmas instrument, there can be observed a steady decrease with age i n r i s k - t a k i n g for women i n t h e i r l a t e r years. No such r e l a t i o n has been ob-tained for the men; that i s , men seemed to reach a plateau (possibly associated with retirement) beyond which any further age increase has no ef f e c t i n r i s k - t a k i n g . In addition, there was found a greater consistency within an i n d i v i d u a l regarding ri s k - t a k i n g i n e l d e r l y samples than i n college students, sug-gesting the p o s s i b i l i t y that r i s k - t a k i n g considerations may possess greater salience for the former than the l a t t e r . These observations pertain to hypothetical choice-dilemma tasks only. The e f f e c t s described may vary i n other kinds of decision-making situ a t i o n s . C l e a r l y , information regarding age differences in 75 r i s k - t a k i n g i s s t i l l quite meager. In regard to childhood and r i s k - t a k i n g , research needs to be c a r r i e d out before we can suggest any differences i n r i s k -taking between children of varying ages. However, there exists a r e l a t i v e wealth of material regarding children's thinking and behavior which may have implications for r i s k - t a k i n g ; for example, children's concept of p r o b a b i l i t y and the learning of p r o b a b i l i t y . However, we do not consider i t worthwhile for our purposes to detain ourselves on t h i s l i n e of research. In sum: ... evidence can be found for both sex and age differences i n risk-taking behavior. Regrettably, the evidence i s not of a form that makes i t possi-ble to draw broad general conclusions concerning changes i n r i s k taking for males and females across the t o t a l l i f e span. Our knowledge about changes i n the adult years, though quite skimpy, . somewhat exceeds what we know about changes between early childhood and late adolescence. We seem to be on somewhat firmer ground when generalizing about sex differences than about age differences. For adult groups, there does not seem to be any i n d i c a t i o n that men perform i n a consistently more r i s k y fashion than women, or v i s a versa... The problem area of age and sex differences i n r i s k taking might well p r o f i t from the use of greater d i v e r s i t y of instruments i n an investiga-t i o n spanning the ages between early childhood and senescence. (Kogan and Wallach, 1967:1710172). We s h a l l now expose what Kogan and Wallach (1967:172-3) have c a l l e d " s o c i a l class v a r i a b l e s " i n r i s k taking. One of the firmer generalizations that the authors have been able to draw i s the pronounced conservatism of college students i n a wide v a r i e t y of decision-making sit u a t i o n s . The large bulk of the data on t h i s issue has been e l i c i t e d from college students; therefore we could conclude that the alleged conservatism of college students i s r e a l l y a c h a r a c t e r i s t i c of the population; but fortunately we do have comparative data from other popula-tions , though scanty. There are two published studies that s p e c i f i c a l l y compare the decision-making behavior of college students with National Guardsmen (Hosteller and Nogee, 1951), and with A i r Force en-l i s t e d men (Scodel, Ratoosk, and Mivas, 1959). Both of these studies involved decision making i n a gambling s i t u a t i o n . However, the tasks d i f f e r considerably, one e n t a i l i n g bidding against an experimenter, the other involving bet preferences. Yet i n both cases the college students manifested more conserv-ative decision-making behavior than t h e i r National Guard or Air Force counterparts. Relative to optimal expected values, the students deviated i n the conservative d i r e c t i o n , the National Guardsmen and A i r Force personnel i n the "extravagant" d i r e c t i o n . Scodel and his collaborators (1959:27) remarked that low payoff betters (college students) as compared to high payoff betters (Air Force e n l i s t e d men or National Guardsmen) are more other directed, more s o c i a l l y assimilated, and more middle-class oriented. We next consider some public opinion survey data concern-ing demographic differences i n experience with games of chance (Back and Gergen, 1963). Such data indicated that about 60% of the American population participated i n some form of chance game, i . e . horse betting, bingo, poker, etc., i n the preceding year. When gamblers and non-gamblers were divided by educa-t i o n a l and occupational status, there was a clear r e l a t i o n between higher status and p a r t i c i p a t i o n i n gambling a c t i v i t i e s . Hence, " i t seems that s o c i a l and occupational status are con-ducive to p a r t i c i p a t i o n i n gambling a c t i v i t i e s , but may lend a conservative stamp to such a c t i v i t i e s . Correspondingly, lower status reduces the l i k e l i h o o d of p a r t i c i p a t i o n i n gambling, but may well enhance the r i s k y character of the gambles taken by those who do i n fact engage i n such a behavior". (Kogan and Wallach, 1967:173). Or putting i t d i f f e r e n t l y , lower-status individuals are less l i k e l y to gamble p r e c i s e l y because they f e e l impelled to take greater r i s k s when they do. The preceding generalization i s , of course, conjectural. The authors' conclusions were based on a r e l a t i v e l y incongruent survey analysis and laboratory data. Nevertheless, we f e e l that i t i s an important lead. 4.4.3. Group Decisions and Risk-Taking.^ So f a r we have dealt with r i s k - t a k i n g at the i n d i v i d u a l l e v e l . It i s c l e a r l y obvious that an i n d i v i d u a l , whatever his i n d i v i d u a l p e c u l i a r i t i e s , more often than not w i l l make his decision i n a s o c i a l context. However, before turning to our exposition of t h i s t o p i c , we should examine the " t y p i c a l per-spective" of the t r a d i t i o n of experimental s o c i a l psychology. As we s h i f t our focus of analysis from an individual's r i s k - t a k i n g behavior to his r i s k - t a k i n g behavior as a member of a group, we put aside the issue of personality differences that may d i s t i n g u i s h i n d i v i d u a l s . This i s a matter of analytic frames of reference rather than r e a l i t y - argue Kogan and Wallach - since the in d i v i d u a l does not shed his personality when he functions as a part of a group or vice versa. Like-79 wise,Katona (1963:36-37) has argued s i m i l a r l y : Psychological processes occur only i n the i n d i v v i d u a l being, not i n the group; only the i n d i v i d u a l acts, not the group. But the i n d i v i d u a l does not think and act i n the same way i r r e s p e c t i v e of whether he i s or i s not a member of a group. Action i n groups - s o c i a l behavior - may d i f f e r greatly from i n d i v i d u a l action, but must and can be explained i n terms of the same psychological p r i n c i p l e s . . . Just as. a stimulus or a motive i s part of i t s whole or f i e l d , so i s the i n d i v i d u a l part of h i s f i e l d , u s u a l l y of h i s group. Nevertheless, the authors f e e l that important generaliza-tions can be made concerning an individual's behavior i n a group when making r i s k y decisions without taking into account his personality differences. They (Kogan and Wallach, 1967: 227-28) continue saying: When r e s p o n s i b i l i t y for the making of a r i s k y decision i s invested i n a group rather than i n an i n d i v i d u a l , or when an i n d i v i d u a l with t h i s r e s p o n s i b i l i t y seeks the counsel of others as an aid i n deciding what to do, either p o s i t i v e or negative value judgments can be applied to the r e s u l t . Some w i l l say that by involving more than one person, a better decision w i l l be made than i f the i n d i v i d u a l were l e f t s o l e l y to h i s own devices. However, as pointed out e a r l i e r (see 4.3.2.3.), "group de-c i s i o n " as used within t h i s context i s not pertinent to us. For i t does not, f i r s t l y , f u l f i l l our c r i t e r i o n spelled out else-where (see 4.3.1.';.. .4.3.3.). And secondly, i t i s not clear whether "group decisions" i n experimental settings are nothing other than the fact that high risk-takers may display a higher degree of persuasiveness and/or leadership, inducing a s h i f t toward enhanced ris k - t a k i n g (Kogan and Wallach, 1967:243). Brown (1965:656-709) has also suggested the fact that leader-ship i n experimental small groups may favor high r i s k s , and that r i s k i t s e l f may be an expected value among c e r t a i n s o c i a l groups, i.e. students of Industrial Management. It is unfortunate that group decision studies in a natural setting are non-existent, with the possible exception of Le Bon's work on crowd behavior. It appears then that the only aspect of interest to us in this type is the "typical perspec-tive" of group decision making. 81 CHAPTER 5 THE INVESTMENT FUNCTION 5.1. S o c i o l o g i c a l Remarks on the Investment Function. Belshaw (1965:137) has remarked that inasmuch as the amount of physical labor available i s s t r i c t l y limited by p h y s i o l o g i c a l and c u l t u r a l considerations. It follows that a major element i n the capacity of an economy to grow i s i t s a b i l i t y to invest, that i s , by creating new tools i n the shape of new and pre-existent modes of production or by improving the organization of the economic system. This p r i n c i p l e has been well applied i n our contemporary modes of production. Belshaw (1965:138) further adds: S o c i o l o g i c a l l y , investment thus covers an enormous range of creative human behavior. It begins with a state of knowledge, and as a technical matter, i s e s s e n t i a l l y the process of cumulative c u l t u r a l change or innovation. It must be recognized, of course, that not a l l c u l t u r a l change i s cumulative, i n the sense of adding resources, since there are instances of the decline of c i v i l i z a t i o n s . Belshaw (1965:138-41) also proposes other s o c i o l o g i c a l con-ditions for the occurrence of investment, for example, the degree of mobility and f l e x i b i l i t y i n the society i t s e l f , f i n a n c i a l mechanisms, d i v i s i o n of labor between i n d u s t r i a l and commercial units for the stimulation of productive c a p i t a l accumulation, a v a i l a b i l i t y of quantity of money in r e l a t i o n to the quantity of transactions to be served by i t , and so f o r t h . Nonetheless, as F i r t h (1964) has argued elsewhere, the anthropologist's contributions to the analysis of the diverse range of economic a c t i v i t y have not been very impressive. A case i n point i s the analysis of f i n a n c i a l investment. But some research has been carried out i n thi s d i r e c t i o n , p a r t i c u l a r l y i n contexts d i f f e r e n t from the i n d u s t r i a l modes of production and exchange. Anthropologists have been able to study i n some d e t a i l the economic a c t i v i t y of some simple socie t i e s as a part of an o v e r a l l system of s o c i a l r e l a t i o n s . In other words, econo-mic a c t i v i t y has been understood i n a context of s o c i a l , p o l i t i c a l , r i t u a l , moral, and even aesthetic a c t i v i t i e s - a n d values, and i n turn the effects of these. For example, Baric' (1964) has studied some aspects of c r e d i t , saving, and invest-ment i n a non-monetary economy; Barth (1964) has studied c a p i t a l , investment, and the s o c i a l structure of a pastoral nomad group i n South Persia; and Bohannan (1957) has studied some p r i n c i p l e s of exchange and investment among the Tiv. C l e a r l y , this pio-neering work has been carried out outside of a monetary-i n d u s t r i a l economy. Our purpose i s to study f i n a n c i a l investment i n a monetary-i n d u s t r i a l economy. This top i c , of course, i s the topic "par excellence" of contemporary macroeconomic analysis. Hence, we s h a l l make an abridgement (2.4.4.) and compression (2.4.5.) of the economic l i t e r a t u r e for analytic purpose. 5.2. Economic A n a l y s i s of the Investment Function. Samuelson (1961:241-385) points out the s i g n i f i c a n t role played by investment i n the determination of national income 18 and i t s flu c t u a t i o n s . Keynes (1935:61-65) defines income i n the current period as equal to current investment plus current consumption expenditures. Moreover, saving i n the current period i s defined as equal to current income minus current consumption. Where: Y = income; C = consumption; I = investment; and S = saving. Then: Y t = I t + C t S t = Y t - C t ( t h a t i s> Y t = S t + Gt> Therefore: I = S A l l the variables r e l a t e to current period as indicated by the subscript t. This can be considered to be the current analysis of the investment function as i t relates to the determination of national income. Insofar as the l e v e l of investment i s concerned, there has been a great deal of discussion about the r e l a t i o n s h i p between the rate of i n t e r e s t and the volume of investment spending per unit of time. T r a d i t i o n a l l y economists tended to consider that investment was highly sensitive to interest rate changes. But skepticism towards th i s view developed i n the 30's due to some inconclusive s t a t i s t i c a l corroboration to the e f f e c t that the inte r e s t rate i s an unimportant determinant of the l e v e l of investment. Derenburg and McDougall (1968:127-131) posit that the e f f e c t of the i n t e r e s t rate on the l e v e l of investment w i l l vary with the stage of the business cycle and the rate of technical change. Thus, the interest rate w i l l be i r r e l e v a n t as an economic c a l c u l a t o r during depressions since such periods w i l l be marked by the existence of excess capacity. It i s clear, then, that expectations play a s i g n i f i c a n t r o l e i n the p o s i t i o n of the investment demand schedule. A firm with an optimistic view of future sales prospects w i l l be more w i l l i n g to invest than one with pessimistic views of the future, because a firm's expectation about the future i s based upon i t s past experience. La s t l y , a technical progress w i l l a f f e c t the current l e v e l of investment, for a firm's whole view of the future can be shifted i f an invention occurs that renders part of i t s stock obsolete. A l l these factors taken together determine the posi-t i o n of the investment demand schedule. The importance of ex-pectations i n investment decisions i s a large part of the explanation of the c y c l i c a l v a r i a t i o n s i n the volume of investment. In addition, there have been several al t e r n a t i v e models for the analysis of the investment l e v e l . Ackley (1961:500-501) has summarized the e a r l i e r investment models thus: a) The simplest theory on investment suggests that invest-ment, l i k e consumption, depends upon the l e v e l of income. This model, however, cannot explain the turning points i n business cycles, i . e . high income can only produce high investment, and low income low investment. b) The simple accelerator theory points out that: The acceleration p r i n c i p l e makes investment depend on the change i n income (or consumption). Combined with a lagging consumption function, the simple accelerator produces a model which can generate c y c l i c a l fluctuations of income. However, i n a tech-no l o g i c a l r e l a t i o n s h i p , i t involves the e n t i r e l y impossible requirement that investment must occur (instantaneously) before added output can be forthcoming i n response to an increase i n demand. But i f we break the technological l i n k by introducing a lag, then we convert the acceleration p r i n c i p a l into a simple and f a r from plausible theory of business expectations - namely, the assumption by businessmen that future demand le v e l s w i l l always just equal the present l e v e l (no matter how high or low the present l e v e l nor how much i t may just have changed from preceding l e v e l s ) . The other major and c l e a r l y f a t a l flaw i n the simple accelerator theory i s i t s ignoring of l i m i t s on the rate of investment - l i m i t s either on disinvestment or upon po s i t i v e investment. In ef f e c t the supply curve for c a p i t a l goods i s taken as i n f i n i t e l y e l a s t i c , regardless of the l e y e l of demand (and t h i s i s i n the short run). c) The Goodwin hypothesis recognizes l i m i t s both on i n -vestment and disinvestment - the capacity of the c a p i t a l goods industry on the one hand, and physical depreciation on the other; however, i t s t i l l retains the assumption that the optimum stock of c a p i t a l depends on the current l e v e l of demand. Again th i s implies the businessmen's assumption that present output levels - whatever they may be - w i l l p e r s i s t i n the future. During depressions, businessmen assume that they w i l l continue forever; during booms, the same. Perhaps i t may be safe to suggest that Keynes' work (1935: 147-165), The General Theory of Employment Interest and Money, i s the most elegant and the standard treatment of investment. Keynes' theory substitutes the idea of an increasing cost supply schedule for c a p i t a l goods instead .of the capacity con-cept. However, argues Ackley (1961:502): It i s to be doubted that a strong systematic r e l a -tionship exists between output of c a p i t a l goods and the prices at which these are sold...the serious shortcoming of the Keynesian investment theory i s i t s ignoring of the "feedback" from current income to the optimum stock c a p i t a l . . . t h i s "feedback" can-not be taken as simple and mechanical, because the l i n k runs v i a businessmen's expectations, and i t i s absurd to suppose that businessmen always expect current demand levels to continue. Nevertheless, continues Ackley (1961:502): Keynes stressed the importance of businessmen's ex-pectations i n the determination of investment... (and) argued s p e c i f i c a l l y that businessmen could not be taken as assuming current l e v e l s of demands to p e r s i s t i n the future. But despite some sparkling observations, he provided no theory df how business expectations are formed and revised. He stressed only t h e i r s e n s i t i v i t y and v o l a t i l i t y , and t h e i r tendency to sharp and simultaneous r e v i s i o n by many 1 businessmen. In t h i s connection he emphasized (perhaps overemphasized) the importance of the l e v e l of share prices as an influence on the investment decision of entrepreneurs, and showed, quite b r i l l i a n t l y , how this l e v e l of prices i n an organized stock market i s influenced by speculative considera-tions having l i t t l e or nothing to do with the " r e a l " business outlook...About the only systematic element appearing i n Keynes 1 discussion of expectations i s an idea with a long h i s t o r y i n English business cycle l i t e r a t u r e . This i s the notion that good times breed over-optimism, bad times over-pessimism; however, t h i s idea, by i t s e l f , cannot explain turning points. In the f i n a l analysis, i t appears that i n investment theory there exists a c o n f l i c t between theories that stress c a p i t a l "deepening" - that i s , investment which increases the c a p i t a l - i n t e n s i t y of production a ;and those that stress c a p i t a l "widening" - investment which accompanies a growth of t o t a l output. Ackley (1961:503) posits that Keynes and h i s c l a s s i c a l predecessors e s s e n t i a l l y emphasized the former. Modern theory, i n i t s concern with growing economies, has stressed the l a t t e r . Keynes and most pre-Keynesians saw investment as a means of 87 using more-capital to produce the same output - the substitution of c a p i t a l f o r other factors of production. Post-Keynesian theories'stress the adjustment of the c a p i t a l stock to the growth of t o t a l output with no change i n c a p i t a l i n t e n s i t y . It must also be emphasized that so f a r th i s b r i e f exposi-ti o n on investment has been mainly concerned with investment i n plant and equipment. S i g n i f i c a n t elements of investment theory have been omitted, i . e . investment i n r e s i d e n t i a l housing, inventory investment, and technological change. We have been mainly r e f e r r i n g to r e a l investment. 5.3 F i n a n c i a l Investment While economists tend to concentrate on investment as i t re-lates to the creation or maintenance of c a p i t a l goods for use in production, f i n a n c i a l investment (our t o p i c a l consideration) has not been the object of much study by economists. This i s so be-cause of the following reasons: most f i n a n c i a l investment i n -volves a transfer of stock between individuals traders, and this does not represent a r e a l investment (or the creation of actual production goods). Second, r e a l investment decisions are made by firms whose stocks are traded i n the exchange and not by in d i v i d u a l traders. The i n d i v i d u a l trader merely supplies finan-c i a l c a p i t a l . The intermediary between the firm which i s investing and the individuals, who are extending t h e i r f i n a n c i a l c a p i t a l i s the underwriter. The function of the underwriter i s to determine the f e a s i b i l i t y of a proposed investment. 5.3.1. L i q u i d i t y Preference Theory Nevertheless, l i q u i d i t y preference theory can probably be 88 considered, at Least, the prolegomenon of f i n a n c i a l investment theory i n economic analysis. Keynes (1935:ch.13) i n h i s General  Theory suggested that the demand f o r money can be divided i n three separate demands. People hold money (1) because they need cash balances; t h i s i s the transaction motive; (2) because i t i s important to have money balances on hand to meet unforeseen contingencies; t h i s i s the precautionary motive; and (3) they may prefer to hold money balances as an asset i n preference to, or i n combination with, other forms of wealth; t h i s i s the specu-l a t i v e motive or l i q u i d i t y preference demands. The t r a d i t i o n a l theory of transactions demand for money assumes that: this demand i s proportional to the l e v e l of income. However because a r i s e i n the rate of interest raises the optimum number of times that wealth holders f i n d i t p r o f i t a b l e to enter the bond market and because this has the e f f e c t of reducing t h e i r average l e v e l of money holding, i t follows that the transactions demand for money i s a decreasing func-ti o n of the rate of i n t e r e s t . The higher the rate, of i n t e r e s t , the more c o s t l y i t i s to hold money r e l a t i v e to other assets, and a r i s e i n the rate of interest therefore produces an incentive to econo-mize money balances and to substitute earning assets i n t h e i r place. (Derenberg and McDougall, 1968:144). The precautionary demand f o r money i s probably quite c l o s e l y related to the l e v e l of money income. However, as i n the case of the transactions demand, the precautionary demand may be responsive to changes i n the rate of i n t e r e s t . An increase i n interes t rates may make the purchase of earning assets so tempting that the salesmen may be w i l l i n g to assume a s l i g h t l y greater r i s k i n the form of a lower precautionary balance i n return for the added interest earnings. (Derenberg and McDougall, 1968:145). But why should anyone desire to hold money i n the form of 19 inactive balances or "hoards"? Keynes reply to t h i s question 89 i s : Fear and uncertainty regarding the future. The desire to hold part of our resources i n the form of money i s a "barometer of the degree of our d i s t r u s t of our own calculations and con-ventions concerning the future". The possession of actual cash " l u l l s our disquietude", and the rate of interest which we demand before we are prepared to exchange cash for earning assets i s a "measure of the degree of our disquietude". Hence, the propensity to hoard i s b a s i c a l l y due to the uncertainty of our expectations, to " a l l sorts of vague doubts and f l u c t u a t i n g states of confidence and courage". L i q u i d i t y preference analy-si s i s based on the presumption that we cannot assume a d e f i n i t e and calculable future. Putting i t d i f f e r e n t l y : The speculative motive, however, relates to the desire to hold one's resources i n l i q u i d form i n order to take advantage of market movements. It i s the speculative motive which pr i m a r i l y involves the propensity to hoard. The object i n view i s to secure p r o f i t from knowing better than, "the market" what the future may bring forth. 'Differ-ent individuals may estimate the prospect d i f f e r -ently. Anyone whose opinion d i f f e r s from the "predominant opinion as expressed i n market quotations may have a good reason for keeping l i q u i d resources i n order to p r o f i t , i f he i s r i g h t . " (Hansen, 1953:128). L i q u i d i t y preference theory f i r s t presented by Keynes, has been c r i t i c i z e d on the ground that i t implies an all-or-none kind of behavior. If the i n t e r e s t earnings of a bond are i n excess of the expected c a p i t a l l o s s , i t w i l l pay to invest ai'l one's funds i n bonds. If the expected c a p i t a l loss i s greater than the i n t e r e s t earnings, no bonds w i l l be held. Consequently, the minute the c r i t i c a l point i s reached where the scales t i p i n favor of the bonds, we would expect a mass exodus from cash into the bonds. (Derenberg and McDougall, 1968:146). However, Keynes' explanation for the non-occurrence of t h i s phe-nomenon was based on the assumption that d i f f e r e n t people have d i f f e r e n t expectations with regard to the future. But, Derenberg and McDougall (1968:146) argue that modern theory of l i q u i d i t y preference ( p a r t i c u l a r l y as expounded by Tobin's (1958) a r t i c l e ) has liberated the theory of speculative demand f o r money from the reliance upon the expectation that i n t e r e s t rates w i l l r i s e i n the future. A l b e i t no future changes i n y i e l d s or asset prices i s expected, wealth holders cannot be c e r t a i n of what the future w i l l bring. The extent of such uncertainty varies with the nature of the asset and tends to run i n the same di r e c t i o n as the expected y i e l d of the asset. Any wealth holder who suffers no d i s u t i l i t y from uncertainty would put a l l his assets into r i s k y s e c u r i t i e s . Such persons are "plungers". However, most investors are " r i s k averters" who arrange t h e i r p o r t f o l i o s i n such a way as to balance, at the margin, the u t i l i t y of additional return against the d i s u t i l i t y of additional uncertainty. Such wealth holders w i l l d i v e r s i f y t h e i r p o r t f o l i o s . In general the investor's preference f o r l i q u i d i t y can therefore be seen to increase with a f a l l i n the rate of i n t e r e s t , and his.asset demand for money may also be a decreasing function of the rate of i n t e r e s t . This appears to be the present state of l i q u i d i t y preference theory. L a s t l y , the fact that l i t t l e attention has been given to f i n a n c i a l investment by economists, Parsons and Smelser (1956: 185-241) have attempted to i s o l a t e areas of "admitted indeter-minacy" i n economics; for example, they suggest that substantive s o c i o l o g i c a l theory must be brought to bear upon economic areas 91 such as the case of the trade cycle, consumption, and investment. (They do not specify the kind of investment, and we assume they mean f i n a n c i a l investment.) 5.4. Early Studies on F i n a n c i a l Investment Elsewhere (4.3.) we pointed out that there was no available study on ri s k - t a k i n g and f i n a n c i a l investment i n the psychologi-c a l l i t e r a t u r e . In the economic l i t e r a t u r e we do fin d a couple of early statements that s p e c i f i c a l l y deal with f i n a n c i a l i n -vestment. Possibly the e a r l i e s t accounts on f i n a n c i a l invest-ment belong to Karl Marx,and to Max Weber, who at the outset of his career studied f i n a n c i a l investment. We should l i k e to make a b r i e f exposition of both of these scholars' contributions and then draw some possible inferences from t h e i r work. Karl Marx i n the t h i r d volume of Capital treats f i n a n c i a l investment and more p a r t i c u l a r l y the stock exchange within the context of the c a p i t a l i s t mode of production as a whole. Marx (p. 435) suggests that the stock exchange i s a necessary devel-opment of the c r e d i t system: I. Development to eff e c t the equalisation of the rate of p r o f i t , or the movements of thi s equalisation, upon which the entire c a p i t a l i s t production rests. II. Reduction of the costs of c i r c u l a t i o n . I I I . Formation of stock companies. (1) An enormous expansion of the scale of pro-duction and of enterprises that was impossible for i n d i v i d u a l c a p i t a l s . At the same time, enterprises that were formerly government enterprises become public. (2) The c a p i t a l , which i n i t s e l f rests on a s o c i a l mode of production and presupposes a s o c i a l concentration of means of production and 92 labour-power, i s here d i r e c t l y endowed with the form of s o c i a l c a p i t a l ( c a p i t a l of d i r e c t l y associated individuals) as d i s t i n c t from private c a p i t a l , and i t s undertakings assume the form of s o c i a l undertakings as d i s t i n c t from private undertakings. It i s the a b o l i t i o n of c a p i t a l as private property within.the framework of c a p i t a l i s t production i t s e l f . (3) Transformation of the...functioning c a p i t a l i s t into a mere manager (or) admin-i s t r a t o r of other people's c a p i t a l , and of the owner of c a p i t a l into a mere owner (or) a mere money-capitalist. Moreover, Engels wrote a supplementary note on the stock ex-change to be added i n the "Supplement" to the volume three of Capital (p. 909): Since the c r i s i s of 1866 accumulation has proceeded with ever-increasing r a p i d i t y , so that i n no indus-t r i a l country, least of a l l i n England, could the expansion of production keep up with that of accum-u l a t i o n , or the accumulation of the i n d i v i d u a l c a p i t a l i s t be completely u t i l i s e d i n the enlargement of his own business; English cotton industry as early as 1845; railway swindles. But with t h i s accumula-t i o n the number of r e n t i e r s . people who were fed up with the regular tension i n business and therefore wanted merely to amuse themselves or to follow a mild pursuit as directors or governors of companies, also rose. And t h i r d i n order to f a c i l i t a t e the investment of t h i s mass f l o a t i n g around as money-c a p i t a l , new l e g a l forms of limited l i a b i l i t y com-panies were established wherever that had not yet been done, and the l i a b i l i t y of the shareholder, formerly unlimited, was also reduced ± (more or less) (joint-stock companies i n Germany, 1890. Subscrip-t i o n 40 percentj). These constitute the b r i e f references set out on financial" investment by Marx and Engels. In 1894, Max Weber published an essay e n t i t l e d "Die Borse", i n Gesammelte Aufsatze zue Soziologie und S o z i a l p o l i t i k . And l a t e r i n 1895 appeared his "Die Ergebnisse der Deutschen Borsenenquete" i n Z e i t s c h r i f t fur das Gesamte Handelsrecht. i n 93 two sections published i n volume XLIII (1895), and the other i n volume XLV (1896). Unfortunately, none of these a r t i c l e s ap-peared to have been translated into another language. However, Bendix (1962:23-30) offers a summary to which we turn next. During Weber's times, the stock exchange had become the symbol of the i n i q u i t y of capitalism. Weber wrote, opposing t h i s widespread view, several a r t i c l e s dealing with economic and l e g a l aspects of the stock exchange, as well as a t r a c t for l a y -men designed to provide basic f a c t u a l information on the opera-tions of t h i s i n s t i t u t i o n . Bendix (1962:24) suggests that two aspects of Weber's treatment can be emphasized: F i r s t , stock exchanges and commodity exchanges are simply market centers for the sale and purchase of c a p i t a l and commodities...The number of s e l l e r s and buyers at both ends of such a deal, and hence the number of transactions involving the same quantity of goods (or stocks and bonds), can, and frequently do, pyramid r a p i d l y . By t h i s mechanism i t i s po s s i -ble to handle a tremendously enlarged volume of trade (and c r e d i t ) . Second, stock and commodity exchanges represent the means by which the i n d i v i d u a l business-man can a t t a i n the legitimate ends of his enterprise with foresight and planning...exchanges (are not) places where sudden spectacular p r o f i t s or losses r e s u l t from lucky or unlucky guesses about price fluctuations i n the future. Weber, however, did recognize that gambling and wild speculation play a r o l e on the exchanges, but such devices as time bargains and trading i n futures (termingeschaft) served e n t i r e l y i n d i s -pensable purposes of the modern economy i n the sense that they enlarged the volume of trade and f a c i l i t a t e d the orderly conduct of large-scale enterprises. Another debate of Weber's times was concerned with le g a l con-t r o l s towards the regulation of admissions of members to the ex-changes. At an e a r l i e r time, markets were open to a l l , and 94 during the 1890's exchanges had developed into centers of trade monopolized by exclusive, g u i l d - l i k e associations of brokers. A professional knowledge of the market and the c r e d i t r a t i n g of the brokers that was necessary f o r a successful operation con-s t i t u t e d a kind of a natural p r i v i l e g e i n the exchanges of the 1890's. Weber noted that i n England and America admissions to the stock exchange were handled i n a d i f f e r e n t manner from the German and Austrian practice. The English exchanges were ex-c l u s i v e private associations governed autonomously i n accordance with t h e i r own statutes. The g u i l d - l i k e character of t h i s association was pronounced. In Glasgow, for instance, the sons of members were e n t i t l e d to admission on payment of ha l f the regular fee, and members were forbidden to engage i n commercial a c t i v i t i e s other than transactions on the exchange. In the London Stock Exchange, transactions were regulated by the rules of the association rather than by the c i v i l j u r i s d i c t i o n of the national government. Thus a l l persons admitted to the exchange were subject to an autonomous, private j u r i s d i c t i o n i n a l l matters a f f e c t i n g transactions on the exchange. In Germany the stock and commodity exchange presented a less uniform picture. Bendix (1962:26) singles out one major feature: The government of German exchanges was for the most part i n the nads of chambers of commerce whose o f f i c i a l s were elected by merchants, by members of the community, or by both, i n accordance with l e g a l regulations that favored those well provided with c a p i t a l . Otherwise, conditions varied widely among the exchanges. In the old Hanseatic towns admissions to and transactions on the exchange were almost en-t i r e l y free. In Hamburg regulations were confined to the maintenance of order on the exchange...However, ce r t a i n developments along the l i n e s of the English 95 exchanges were i n the making i n the form of associa-t i o n s , p a r t i c u l a r l y among brokers i n the d i f f e r e n t commodity markets. In Prussia, the exchanges were organized according to v a r i -ous mutually inconsistent c r i t e r i a . Bendix (1962:26) quotes Weber i n t h i s respect: The exchanges are neither public corporations, nor exclusive (closed) associations, nor formally free markets... they are regulated assemblies of groups of persons whose composition i s mixed and f l u c t u a t -ing i n every respect... there are no spontaneous developments of associations among brokers as i n Hamburg. Admission i s not free; instead the ex-changes are only to be accessible to persons who are p r o f e s s i o n a l l y engaged i n dealing on the ex-change. Weber made sp e c i a l note that a free access to the exchange was believed to be a spe c i a l asset. Few seemed to advance the idea of a s e l f - r e g u l a t i n g association that would exclude from the exchange persons of questionable f i n a n c i a l standing and morality, and yet these were the persons whose operations were mainly responsible for a disquieting e f f e c t on the market. While free admission prevailed at the stock exchange i n B e r l i n as well as i n Hamburg, nevertheless Weber found s t r i k i n g differences among the two. On the Hamburg exchange trading occurred i n a very orderly manner despite the large number of pa r t i c i p a n t s , a consequence that could be a t t r i -buted at le a s t p a r t i a l l y to the e f f e c t i v e t r a d i -tions of the Hamburg merchant c l a s s . On the other hand, the absence of such t r a d i t i o n s i n a c i t y l i k e B e r l i n had presumably contributed to the r e l a t i v e i n s t a b i l i t y of the market, and the o f f i c i a l inquiry concerned i t s e l f with various remedial measures. (Bendix, p. 27). People admitted to exchanges i n Prussia represented a l l groups of the population and consequently were divided among themselves by differences of wealth. The r e s p e c t a b i l i t y and trustworthi-96 ness o f businessmen c e r t a i n l y d i d not i n c r e a s e s i m p l y i n p r o p o r -t i o n t o t h e i r p r o p e r t y . Weber c o n s i d e r e d i t Utopian t o e x p e c t t h a t t h e s e q u a l i t i e s had the same meaning f o r t h e s m a l l specu-l a t o r , who made h i s l i v i n g on t h e b a s i s o f t h e t i n y d a i l y d i f f e r e n c e s i n t h e q u o t a t i o n s , as f o r the independent b r o k e r , whose t r a n s a c t i o n s were based upon p l a n n e d e n t e r p r i s e and s u p p l y o f c a p i t a l . The q u e s t i o n , t h e n , was whether the p e r s o n s specu-l a t i n g on t h e exchanges were f a i r - d e a l i n g . T h i s q u e s t i o n touched upon a paradox i n h e r e n t i n the o r g a n i -z a t i o n o f t h e exchanges. Weber remarks: The p y r a m i d i n g o f s a l e s and p u r c h a s e s f o r the same amounts o f goods o r c a p i t a l was n e c e s s a r y t o h a n d l e the huge q u a n t i t i e s s u p p l i e d and demanded i n the modern w o r l d economy. The many and complex t r a n s -a c t i o n s i n v o l v e d would a c h i e v e t h i s e x t e n s i o n o f t h e market most e f f e c t i v e l y i f s e l l e r s and buyers formed an e x c l u s i v e a s s o c i a t i o n i n w h i c h membership was a synonym o f c o m m e r c i a l r e l i a b i l i t y . And. t h e g u a r a n t e e of t h a t r e l i a b i l i t y would i n t u r n f a c i l i t a t e p l a n n i n g and f o r e s i g h t i n the conduct of an e n t e r p r i s e . Yet the t e c h n i q u e s used i n t h e s e t r a n s a c t i o n s v i r t u a l l y i n v i t e d t h e p a r t i c i p a t i o n o f p e r s o n s w i t h l i t t l e c a p i t a l and l i t t l e e x p e r t knowledge of the market. These more o r l e s s u n q u a l i f i e d p e r s o n s tended t o undermine t h e e t h i c a l s t a n d a r d s g o v e r n i n g exchange t r a n s a c t i o n s , even as t h e i r p a r t i c i p a t i o n i n them was an i n e v i t a b l e b y - p r o d u c t of the market mechanism. ( B e n d i x , 1962:28). C o n s e q u e n t l y , t h e v e r y e x t e n s i o n o f t h e market u n i n t e n t i o n a l l y worked a g a i n s t t h e maintenance o f i t s e t h i c a l s t a n d a r d s . T h i s t e n dency was c o u n t e r a c t e d i f t h e r e a l r e a d y e x i s t e d a merchant t r a d i t i o n c a p a b l e o f e n f o r c i n g such s t a n d a r d s e f f e c t i v e l y . To be s u r e , t h e exchanges d i d c r e a t e o p p o r t u n i t i e s f o r m e r e l y s p e c u l a t i v e g a i n s t h a t a c c e n t u a t e d e x i s t i n g p r i c e f l u c t u -a t i o n s . Weber n o t e d , however, t h a t t h e German Supreme Co u r t i n t h e end had r e s o r t e d to making a d i s t i n c t i o n between the 97 professional broker (equipped with c a p i t a l supply and expertise i n the market) and the "fly-by-night" speculator (who lacked c a p i t a l and knowledge) i n t h e i r l e g a l assessment of economic transactions. Thus, for Weber economis transactions appeared to possess an important subjective element: the intention, and the ethics of businessmen were e s s e n t i a l attributes of t h e i r econo-mic conduct. The stress of Weber's analysis - according to Bendix (1962:29) - i s on the stock and commodities exchanges as an e f f i c i e n t means for the expansion of trade and for the predict-a b i l i t y of economic transactions, notwithstanding the fact that the stock exchange by aiding the expansion of trade and c a l c u l -a b i l i t y of business, had also provided opportunities f o r specu-l a t i v e abuses. The underlying theme i s that economic conduct was inseparable from the ideas with which men pursued t h e i r economic inter e s t and these ideas had to be understood i n t h e i r own terms. Now, we may r a i s e the question: what are the implications of these two studies for this essay? 5.4.1. Perhaps the single most important element„in these two seminal studies i s that f i n a n c i a l investment might be made for purposes other than the rate of i n t e r e s t . Both Marx and Weber point out s o c i a l considerations intervening i n f i n a n c i a l invest-ment. Thus, these two studies may constitute our only j u s t i f i -cation for our attempt to study the s o c i a l context of f i n a n c i a l investment. 5.4.2. From the methodological standpoint, we can c l e a r l y see that these two studies belong to a si m i l a r t r a d i t i o n of legal 98 and economic his t o r y ; i n f a c t , according to Roth (1968:LXIII), Marx and Weber belonged to the same German school of l e g a l and economic h i s t o r y of which "Marxism was an extreme offshoot". That Marx and Weber used the h i s t o r i c a l method (2.1.4.3.) has been discussed and established elsewhere, i . e . Sweezy (1968: 11-20) and Mandel (1968:16-19) have done so for Marx, likewise Roth (1968:XXIX-XXXIV) and Bendix (1962:41-49) fo r Weber. Since both Marx and Weber derived t h e i r studies from h i s t o r i c a l records, then the end r e s u l t of t h e i r work was "the f i r s t s t r i c t l y empirical comparison of s o c i a l structure and norma-ti v e order i n w o r l d - h i s t o r i c a l depth, ( i t transcends) the plenitude of "systems" that remained speculative even as they claimed to e s t a b l i s h the science of society." (Roth and Wetlich, ed. 1968:XXVII). We conclude that the studies of Marx and Weber belong to the set of variables c l a s s i f i e d as macrostructure by Blau (2.1.3.). On the other hand, since we have no h i s t o r i c a l data nor do we propose to investigate i n macrostructural depth, then our study w i l l necessarily f a l l i n the microstructural category. Parenthetically, i t has been said (Lowith, 1967:92) that Marx, concerning Hegelian p h i l o -sophy, stated the following: The nocturnal moth, when the universal sun (Hegel) has set, seeks out the lamp l i g h t of the i n d i v i d u a l (Marx). Analogously, we only seek the l i g h t of a lamp. But this c a l l s for a restatement of our purposes, which i s the subject of the next chapter. 99 CHAPTER 6 RESTATEMENT OF THE PROBLEM Elsewhere (1.1. ;...1.4.) we have raised the issues that we proposed to analyse i n t h i s essay. It i s now necessary that we di r e c t ourselves to the modus operandi of our analysis. Quite obviously, f i n a n c i a l investment, r i s k - t a k i n g , and s o c i a l struc-ture constitute by themselves large flows of events i n space and time. In t h i s chapter we want to "circumscribe" (2.4.1.) th i s f i e l d of research i n terms of (1) where we can apply our techniques of analysis, and (2) how we can apply our techniques of analysis. In other words, we want to cut o f f a manageable f i e l d of r e a l i t y . With regards to the f i r s t point above (where we can apply our techniques of a n a l y s i s ) , we have made some general remarks about macrostructures and i t s segments (microstructures). We now propose to take up this issue. 6.1. Macrostructures and Substructures (Microstructures). Elsewhere (2.1.3.) we have presented Blau's (1967) dynamic conceptualization of s o c i a l structure. Nevertheless, i t i s important to restate Blau's e s s e n t i a l contentions. Blau states that complex s o c i a l structures have as component elements other s o c i a l structures; i n this sense, a society consists of the int e r r e l a t e d s o c i a l groupings and segments, communities and organizations, within i t . Blau, then, d i f f e r e n t i a t e s these interdependent c o l l e c t i v i t i e s of various kinds into substruc-tures of the large s o c i a l structure; these substructures serve as the foundations and i n t e r n a l l y substructured subunits of the 100 large s o c i a l structure. However, we must define the above terminology. A s o c i a l structure i s defined by Blau as being comprised of patterned s o c i a l relations among individuals and groups, includ-ing the recurrent conduct i n which these re l a t i o n s f i n d ex-pressions. From t h i s concept the term "microstructure" i s de-rived and which i s used! to r e f e r to the i n t e r r e l a t i o n s between individuals i n a group; a second concept i s derived: the "macrostructure", which i s used to r e f e r to the i n t e r r e l a t i o n s of these groups i n a larger c o l l e c t i v i t y or of these larger c o l l e c t i v i t i e s i n a s t i l l larger one. Thus, the elements of macrostructures may be either microstructures or themselves macrostructures. Given Blau's d e f i n i t i o n of s o c i a l structure and i t s deriv-atives - microstructure and macrostructure - we w i l l define the concept of s o c i a l relationship following the Weberian exposi-tions of i t , as found i n h i s Economy and Society (1968:26-27). The term " s o c i a l r e l a t i o n s h i p " w i l l be used to denote the behavior of a p l u r a l i t y of actors insofar as, i n i t s meaningful content, the action of each takes account of that of the others and i s oriented i n these terms. The s o c i a l r e l a t i o n -ship thus consists e n t i r e l y and exclusively i n the existence of a p r o b a b i l i t y that there w i l l be a meaningful course of s o c i a l action - i r r e s p e c t i v e , for the time being, of the basis of t h i s p r o b a b i l i t y . Moreover, Weber more e x p l i c i t l y submits that: i t i s e s s e n t i a l that there should be at least a minimum of mutual orient a t i o n of the action of each to that of the others. Its content may be of the most varied nature: c o n f l i c t , h o s t i l i t y , sexual a t t r a c t i o n , friendship, l o y a l t y , or econo-mic exchange. It may involve the f u l f i l l m e n t , the evasion, or the v i o l a t i o n of some other form of "competition";...Hence, the d e f i n i t i o n does not specify whether the r e l a t i o n of the others i s co-operative or the opposite. 101 6.1.1. Nonetheless, in spite of Blau's differentiation of social structure and Weber's definition of social relation, i t is s t i l l not clear where in the social r e a l i t y we can find and/or circum-scribe some set of social events as belonging to a microstruc-ture or macrostructure. Presumably this may be due, according to Blau, to a lack of systematic theory of social structure in order to analyse the interrelations between attributes of a macrostructure and those of i t s substructures on different levels. At this point i t is only possible to adumbrate the general direction that such a theory would be expected to follow. In effect, Blau (1967:309) submits the principle that the struc-tural implications of given value standards depend on the com-pass of organized social relations which they include: (particularistic) standards integrate substructures and create segregating boundaries between them in the macrostructure. What is a particularistic criterion from the perspective of the macrostruc-ture may constitute diverse universalistic c r i t e r i a within the narrower compass of i t s substructures. Universalistic values differentiating social strata in the macrostructure often become the basis of particularistic values that further social integra-tion and solidarity within each stratum. Deviant opposition ideals constitute legitimate values from the narrower perspective of the opposition move-ment i t s e l f and, i f i t is successful, also from the long-range perspective of the future. However, despite Blau's innovative attempt to show the in-terrelations between three facets of the social structure -integration, differentiation, and organization - i t is d i f f i c u l t to determine what really is the defining criterion whereby we can differentiate substructures from a macrostructure. Fortunately, some leads can be found in the literature. Thus, Klausner (1967:173) in reference to the generic problems in the study of total societies postulates two alternative 102 approaches: (1) If a nation state is considered as a closed system for purposes of study and i f uncovered relationships from one society are generalized to another, then we would use total societal measures or macrpvariables; and (2) i f only seg-ments of a society are taken as units of analysis, then we would use measures of social segments or microvariables. Furthermore, some research has been carried out within the context of the above alternatives as postulated by Klausner. For example, Tiryakian (1967) has submitted a model of societal change and i t s lead indicators as an ingress to what he termed as macrodynamic sociology. Tiryakian's model, in addition to discussing the nature of the major dimensions of societal change and the extent that a societal change can be predicted, suggests three i n i t i a l indicators of incipient societal macrodynamics: (1) rates of urbanization, (2) sexual attitudes, and (3) the rate of outbreak of non-institutional religious phenomena. The economist Boulding (1967) has formulated a model on the learning process in the dynamics of total societies. He contends that a social system follows a dialectical image of decay and restoration. Society in some respects moves through repeated c y c l i c a l patterns. Economic consumption and production is an instance of this process. Social symbolic systems spread through symbolic epidemics and rise and f a l l in popularity. The restorative phase is marked by a change in the symbols held in society (a process Boulding calls macrolearning). The biological analogy stresses functional relations within the system. The macrolearning model attends more to the history of the system. The past bequeaths deposits of information to the present. These accumulate and, guided by a constant drive to parsimony based on relevancy, are sorted out. The accumu-lating information may pass a threshold beyond 103 which the society is transfigured, that i s , under-goes a qualitative change. (Klausner, 1967:198). The study of decay and restorations of information over time serves as an approach to the analysis of system dynamics. The researcher would study the people who mediate this communi-cation, their lines of communication, and the changing popula-tion densities which affect the structure of communication. Boulding's information system is conceptualized, in cybernetic terms. Structural changes reflect the balance of input-output relations. His indicators for his model would be reports on where people are, what they are doing, population census material, maps showing the spatial distributions of the population, time budgets of individual a c t i v i t i e s , and analysis of printed, aural, and p i c t o r i a l mass media content during particular seg-ments of time. 6.1.1.1. From Klausner's postulates and the Tiryakian and Boulding models, we postulate that the key to the differentia-tion of a social structure into i t s substructures is the choice of social variables. Thus, macrovariables may be used i f the nation state is considered as unit of analysis; and micro-variables may be used i f only segments of a society are con-sidered as units of analysis. But to the question of what de-fines whether a variable belongs to the micro or macro systems, we have no answer. However, we feel that this choice may re-solve i t s e l f in relation to the problem at hand. 6.1.2. We may now ask ourselves: Can we infer anything from a substructure to a social structure? Before we begin dealing with these questions we cannot overemphasize the fact that theory i n sociology and anthropology i n this respect i s i n c i p i e n t , and our suggestions are merely postulates subject to further testing. To deal with the above questions we need to set up our model analysis. An investigator observing s o c i a l events i n the r e a l world i s confronted with a large mass of events. If he wants to analyse society, he must s p l i t up r e a l i t y by i s o l a t i n g a p a r t i c -u l a r aspect which presents c e r t a i n r e g u l a r i t i e s as i s r e l a t i v e l y autonomous and independent of the other aspects. By abstracting from the r e a l world, i t i s possible to achieve a l e v e l of sim-p l i c i t y at which s o c i a l events may be analysed. But, i n the process of abstraction, the s o c i a l analyst must be careful to preserve the e s s e n t i a l features of the r e a l world problem with which he i s concerned. For t h i s reason the following model analysis has been adapted by Ferguson (1969:3-5): Experi-mental Design Experimental 'Abstraction Real World Theoretical Abstractio Logical Model Experimentation Observa-tions S t a t i s t i c a l Interpreta-t i o n Real World Conclusions Theoretical nterpreta-t i o n Logical Argument Logical Conclusions 105 The r e a l world of s o c i a l events serves, at least t e n t a t i v e l y , as the s t a r t i n g point. A s p e c i f i c problem, or the mere desire to understand, motivates one to move from the complicated world of r e a l i t y into the domain of l o g i c a l s i m p l i c i t y . By t h e o r e t i c a l abstraction one cuts off a manageable f i e l d of r e a l i t y . The re-s u l t i s a l o g i c a l model, presumably suited to explain the events observed. By l o g i c a l argument ( i . e . deduction) one may arrive at model conclusions. But these must be transformed by theoreti-c a l i n t e r p r e t a t i o n into conclusions about the r e a l world. The same r e s u l t may presumably be achieved by the s t a t i s t i -c a l method. Again, we st a r t from the r e a l world, and by experi-mental abstraction we arrive at an experimental design. That i s , by process of s i m p l i f i c a t i o n we may design a s t a t i s t i c a l model that i s useful i n analysing the r e a l world. But, i n this i n -stance, we obtain observations by experimentation, rather than theorems by l o g i c a l deduction. These observations, given proper s t a t i s t i c a l i n t e r p r e t a t i o n , y i e l d conclusions concerning the r e a l world. To be sure, there i s disagreement over the r e l a t i v e merit of the two methods. The tenor of our thinking i s that they are complementary, that deductive and s t a t i s t i c a l methods are mutu-a l l y r e i n f o r c i n g instruments of analysis. Now, l e t us return to the question that we posed ourselves: Can we i n f e r anything from the substructure (or microstructure) to the macrostructure? F i r s t , we submit that a microstructure i s not necessarily a sample of the macrostructure. To c l a r i f y t h i s point, l e t us look b r i e f l y into large sample theory. A fundamental idea i n sample theory i s the concept of population. 106 A population (or universe) i s the t o t a l i t y of the measurements or counts obtainable from a l l objects possessing some common specified c h a r a c t e r i s t i c . (Alder and Roessler, 1964:96). For example, i n a study of the size of a p a r t i c u l a r v a r i e t y of f r u i t at some specified stage of development, we may be i n t e r -ested only i n the f r u i t s of a ce r t a i n limb of a tree; the sizes of these f r u i t s constitute then the population. Since we can r a r e l y investigate a whole population (whether f i n i t e or i n f i n i t e ) then we are obliged to formulate conclusions regarding a popula-t i o n from samples selected from i t . A sample i s a set of measurements which constitute part or a l l of a population. (Alder and Roessler, 1964:97). The main object of a sample i s to draw some conclusionabout the population from which i t i s obtained. The r e l a t i o n of a sample to population i s one of the elementary problems i n s t a t i s t i c a l theory, since good estimates concerning a population necessitate good samples. For our problem we do not need to go any further. Let us take a s o c i a l structure and i t s substructures as de-fined by Blau, and l e t us assume that we have a s o c i a l structure A and we d i f f e r e n t i a t e a microstructure a-^  i n respect to, l e t us say, economic exchange. C l e a r l y , A and a^ constitute populations in their own r i g h t , since A possesses some s p e c i f i c character-i s t i c s , and likewise a^ by Blau's d e f i n i t i o n . It i s also cl e a r that we can apply our model analysis to a^ irr e s p e c t i v e of A and vice versa; since they are populations with t h e i r s p e c i f i c c h a r a c t e r i s t i c s . Hence, since A and a^ are populations by them-selves, we need not consider a^ as a sample of A; i n f a c t , A and a^ as populations can y i e l d their own samples. Nevertheless, i t is e n t i r e l y possible that any substructures x can happen to be 107 a sample of a s o c i a l structure X. So t h i s matter may resolve i t s e l f empirically. 6.1.2.1. In general, we postulate that a microstructure derived from a s o c i a l structure need not necessarily be a sample of such a s o c i a l structure, unless otherwise s p e c i f i e d , and hence as a unit of analysis i t has i t s own c h a r a c t e r i s t i c s . It i s plausible that i n some instances one may want to integrate the substruc-tures to i t s s o c i a l structure. 6.1.3. We should now l i k e to bring the aforementioned conten-tions to bear upon the investment function, p a r t i c u l a r l y as i t relates to society. It i s c l e a r l y obvious that the investment a c t i v i t y i s c a r r i e d out within the boundaries of a nation state; in f a c t , contemporary economic theory takes as given the form and structure of a nation state for the analysis of i t s economic a c t i v i t y . As pointed out by Samuelson (1962:242), the most important single fact about the investment a c t i v i t y of our society i s that i t i s done by d i f f e r e n t people and for d i f f e r e n t purposes. Under the c a p i t a l i s t mode of production of our society, investment or net c a p i t a l formation i s c a r r i e d on by business enterprises„(i.e. corporations), households, and i n d i -viduals. Furthermore, to this l i s t we may add: the government of a nation state, and some i n s t i t u t i o n s such as r e l i g i o u s con-gregations or organizations. At this point we might introduce the d i s t i n c t i o n made i n 20 economic analysis between endogenous and exogenous variables. Endogenous variables are the economic variables whose values are to be determined by the workings of the system. Exogenous v a r i -ables are assumed to be given from outside the system. With 108 these d e f i n i t i o n s i n mind, i t i s evident that Samuelson i n the above paragraph i s r e f e r r i n g to the exogenous (s o c i a l ) agents of the investment a c t i v i t y . 6.1.3.1. From these considerations we submit that inasmuch as the investment function (an endogenous variable) i s carr i e d on in society (an exogenous variable) by s p e c i f i c s o c i a l groupings, segments, and in d i v i d u a l s , the following s o c i o l o g i c a l categori-zation of the exogenous (or so c i e t a l ) agents of investment may be made: Social Agents of Investment 1 S o c i o l o g i c a l Categories Government Macrostrueture Business Enterprises "Non-Profit" In s t i t u t i o n s Microstructure Households Individuals Our s o c i o l o g i c a l categorization of the s o c i a l agents of investment has been made following our postulate (6.1.1.1.) on the defining c r i t e r i o n for the d i f f e r e n t i a t i o n of a s o c i a l structure. 6.1.4. It i s now possible to pinpoint our unit of analysis. Since we have not found any studies available related to the 109 issues we raised for our analysis, i . e . (1.1.;...1.4.) , i t seemed sensible that our unit of analysis be of moderate scope, and we have chosen as our unit a microstructure composed of i n -divi d u a l s . This microstructure, henceforth Mi, i n v i r t u e of our postulate (6.1.2.1.), i s not to be considered as a sample of any s o c i a l structure, and i t presumably possesses c h a r a c t e r i s t i c s of i t s own. Moreover, Mi also contains s o c i a l r e l a t i o n s of "mutual or i e n t a t i o n of the action of each to that of the others", and the content of these s o c i a l r e l a t i o n s i s economic exchange. 6.2. Having established our unit of analysis, our next aim i s to discern how we w i l l apply our techniques. We have made b r i e f reference to t h i s point when we raised the issues (1.1.; 1.2.; 1.3. ) i n which we contended that the f i n a n c i a l investment func-t i o n has not been s u f f i c i e n t l y examined as i t related to some s o c i a l structure variables, i . e . ideology, income and wealth, occupation, and some demographic correlates, and correspondingly s o c i a l structure as related to investment ri s k - t a k i n g behavior. We also contended that the u t i l i t y notion must be used i n so c i o l o g i c a l analysis, and as a case i n point, we would analyse investment r i s k - t a k i n g behavior i n terms of u t i l i t y ; and f i n a l l y , that this kind of problem would require an i n t e g r a l approach operating simultaneously from the s o c i o l o g i c a l , economic, and socio-psychological standpoints. Elsewhere (2.3.) we have pointed out Klausner's conditions for a "good" b i - d i s c i p l i n a r y statement; following t h i s p r i n c i p l e we submit that i n our topic our two p r i n c i p a l variables corres-pond to two d i f f e r e n t systems: the f i n a n c i a l investment func-tion belongs to the economy, and the microstructure (Mi) belongs 110 to the s o c i a l structure. These two systems are mediated by risk- t a k i n g behavior i n a natural s e t t i n g , which i s a socio-psychological variable. From the research methods available to us (see 2.1.4.), we have chosen the survey method (2.1.4.6.) as the seemingly appropriate tool of analysis to e l i c i t data for our topic. As we have already indicated i n (2.1.4.6.), the survey method consists e s s e n t i a l l y of interviewing a sample of a popu-l a t i o n to c o l l e c t the desired data. Our population i s Mi, or the microstructure composed by in d i v i d u a l s . A sample must be derived from population Mi and to this sample we w i l l administer a schedule. Our schedule must e l i c i t the pertinent data for our analysis. Therefore, i t i s quite important to have an appro-pri a t e set of questions to serve the appropriate data. Appro-priate schedules usually grow out of appropriate hypothesis, discussions, and experience with the subject matter. Our questions w i l l come from the hypothesis already expound-ed, which i s the following: 6.2.1. From the s o c i a l system w i l l come the microstructure Mi, from which a sample w i l l be derived. This sample w i l l y i e l d s t r u c t u r a l v a r i a b l e s , and demographic c h a r a c t e r i s t i c s . Mi i s our focus of analysis from which data w i l l be e l i c i t e d . 6.2.2. From the economy, our most important considerations w i l l be: the notions of l i q u i d i t y preference, p o r t f o l i o s e l e c t i o n , and investment objectives and p o l i c i e s . 6.2.3. Risk-taking considerations mediate the above two systems. The most pertinent aspects of ri s k - t a k i n g considerations are the demographic correlates of r i s k , and the " s o c i a l c l a s s " considera-t i o n s . And our a n a l y s i s of r i s k t a k i n g f o l l o w s the cons i d e r a -t i o n s of the " n a t u r a l s e t t i n g " approach. 6.3. Having e s t a b l i s h e d f i r s t our u n i t of a n a l y s i s , second how we w i l l apply our techniques of a n a l y s i s to t h i s u n i t , and t h i r d the kinds of v a r i a b l e s to be considered: primary (econo-mic and s o c i e t a l ) and intermediate ( s o c i o - p s y c h o l o g i c a l ) , we now submit that our u l t i m a t e aim w i l l be the for m u l a t i o n of a s o c i a l model which i n t e r r e l a t e s r i s k t a k i n g w i t h i n s o c i e t y and economy. By " s o c i a l model"/we mean "a r e p r e s e n t a t i o n of an i n t e r r e l a t e d set of assumed f a c t o r s that determine or " e x p l a i n " the phenomenon we observe". (B a r t h , 1966:20). That being the conception of model that we w i l l take, we w i l l a l s o agree with Barth's (1966: 21) suggestion t h a t : Human behavior i s 'explained' i f we show (a) the u t i l i t y of i t s consequences i n terms of values held by the a c t o r , and (b) the awareness on the pa r t of the ac t o r of the connections between an act and i t s s p e c i f i c r e s u l t s . Therefore our a t t e n t i o n w i l l a l s o be focused on the u t i l i t y of r i s k . We have already set out elsewhere (2.4.) our n o t i o n of u t i l i t y . In the next chapter we w i l l d e a l with the p r e s e n t a t i o n of the e m p i r i c a l data, and some of the procedures used i n i t s c o l l e c t i o n . In a d d i t i o n , we s h a l l set f o r t h our s o c i a l model. 112 CHAPTER 7 THE EMPIRICAL DATA Admittedly, the data co l l e c t e d are crude. We thought i t would be f e a s i b l e to obtain a l i s t of i n d i v i d u a l investors from a brokerage house from which to draw a sample. Unfortunately this was not possible. No l i s t of i n d i v i d u a l investors was made availa b l e to us, and i n fact our access to the trading room of a brokerage house for research purposes was rather d i f f i c u l t . Also, i n d i v i d u a l investor members of the professional and managerial occupations were found to be reluctant to donate t h e i r time for an interview, which meant that we could only interview a limited number of volunteers. In this circumstance, where a random sample could not be secured, we faced the a l t e r -natives of proceeding with our research only with a set collected i n a haphazard manner, or not doing i t at a l l on the premises that we had set out. We chose the former al t e r n a t i v e with the rationale of acquiring some experience i n learning how to apply our research t o o l s . In general we sensed suspicion on the part of the established investors as to our purposes. It i s quite possible that invest-ment communities are a c t u a l l y suspicious of any outsider. We r e c a l l that Weber contended that the extension of the market works unintendedly against the e t h i c a l maintenance of the market; thus established investors presumably develop defenses against the intrusion of outsiders. And a casual observer of the Paris stock exchange reports impressions s i m i l a r to ours. Alexandre (1969:42) writes: 113 Depuis l e regne de Louis XVIII, l a Bourse est une mysterieuse maison sans fenetres, un temple dont les colones sont des c h i f f r e s . Son r i t u e l est inaccessible aux n o n - i n i t i e s . L'enfer et l e paradis. Un univers hermetiquement c l o s , dans lequal s'agite, g r o u i l l e , c r i e , s'effondre et s 1enthousiasme, l e choeur des professionnels de 1'argent, avec ses parasites. Moreover, we often could not discern whether th i s suspiciousness was a defensive or maintenance mechanism or p l a i n a l i e n a t i o n . M i l l s (1956:XVI) remarked on this issue that: In the case of the white-collar man, the a l i e n a t i o n of the wage-worker from the products of his work i s carried one step nearer to i t s Kafka-like completion... (For) when white-collar people get jobs, they s e l l not only t h e i r time and energy but t h e i r p e r s o n a l i t i e s as well. They s e l l by the week or month t h e i r smiles and kindly gestures, and they must practice the prompt repression of resentment and aggression. For these intimate t r a i t s are of commercial relevance and re-quired for the more e f f i c i e n t and p r o f i t a b l e d i s t r i -bution of goods and services. In our data c o l l e c t i o n , access to investors was the deter-mining factor i n the selection of our sample, which can only claim to be broadly selected. As a r e s u l t , a disproportionally large number of schedules were secured from individuals that belong to the managerial c l a s s . 7.1. The Schedule Our schedule went through a series of revisions a f t e r i t s early conception. In addition to the considerations expounded i n (6. 2.1. '>zxx6. 2. 3. ) , taken into account i n making up the questions, i t was evident that a hypothetical task by which to perceive r i s k dimensions would be us e f u l . Kogan and Wallach (1967:234-239) have suggested an experimental paradigm for the study of r i s k . It consists of a hypothetical s i t u a t i o n i n which Mr. E, president of a l i g h t metals corporation i n the U.S., i s considering the p o s s i b i l i t i e s of business expansion by either building an additional plant i n the U.S. where there would be a moderate return on the i n i t i a l investment, or building a plant i n a foreign country where lower labor costs and easy access to raw materials would mean a higher return on the i n i t i a l invest-ment. However, the foreign country has a long h i s t o r y of p o l i t i c a l i n s t a b i l i t y and revolution and i n fact the leader of an a c t i v i s t movement i s committed to nationalize a l l foreign investment. The respondent i s asked to choose - from a l i s t of p r o b a b i l i t i e s ranging from 1 i n 10 to 9 i n 10 that the country w i l l remain p o l i t i c a l l y stable - the lowest p r o b a b i l i t y that he would consider advisable for Mr. E's investment venture i n that foreign country. Another a l t e r n a t i v e was the decision of not investing under any conditions. This experimental paradigm had obvious implications for our purposes. Thus we decided to test i t by administering i t to some executives. The results were very disappointing. The experimental paradigm did not make any sense to them. For them i t was l i k e a charade. It reinforced our preference for r i s k i n a natural s e t t i n g rather than a laboratory setting. Though i t could be argued that the experimental paradigm was designed to measure ri s k - t a k i n g behavior i n r e a l investment rather than f i n a n c i a l investment, this difference of degree did not come out i n any way from the executives. Hence we had to devise another way by which we could perceive the dimensions of r i s k . We de-vised two questions (see 7.9.) that eventually e l i c i t e d adequate data. In order to avoid the r a i s i n g of suspicion among investors 115 by the phrasing of the questions, the entire questionnaire was rephrased and many other questions were added. This was accom-plished with the assistance of an executive who had wide exper-ience i n dealing with stockbrokers and customers. During the interviewing h i s aid proved to be necessary to avoid suspicion. In addition, by using the investment jargon, ambiguity i n t h e i r understanding of the questions was s i g n i f i c a n t l y diminished. Our questions were produced from the considerations expound-ed i n (6.2.1.;...6.2.3.). Questions about p o r t f o l i o composition were asked broadly i n percentages. E f f o r t s were made to keep the interview down to less than 30 minutes. Throughout the questionnaire the fixed-question, open-answer technique was used. The interviewing began on June 16 and ended on July 4. A copy of the questionnaire can be found i n the appendix. The questionnaire was pre-tested i n a rather limited manner with six respondent volunteers. 7.2. The Microstructure The place we chose to look for our microstructure of i n d i -v idual investors was a brokerage house (C. M. Oliver & Co.) that has a trading room. We chose th i s house for i t appeared that i t would contain i n d i v i d u a l investors of varied s o c i a l background. As pointed out before, i t was not possible for us to secure a random sample of this microstructure, and a l l we could gather was a haphazard sample of investors, which we cannot possibly claim to be a representative sample of the microstructure of in d i v i d u a l investors. Nevertheless, we s h a l l proceed as i f thi s haphazard sample i s representative of in d i v i d u a l investors. 116 The sample was composed of 30 members, a l l male. Though we attempted to include female volunteers, no female volunteers could be found. We s h a l l proceed to uncover, by data tabulation, the demo-graphic c h a r a c t e r i s t i c s of our sample. In addition, we s h a l l also present some s o c i a l structure variables and r i s k data. Whenever possible we w i l l present comparative data extracted mainly from Porter's (1967) work on Canadian s o c i a l structure. We w i l l consider occupation as the relevant datum for cross-c l a s s i f i c a t i o n , as t h i s seems to be the variable considered by e a r l i e r studies such as Marx, Weber, and also Kogan and Wallach (see 4.4.2.). v Table 1 Sample's Breakdown by Occupation ( i n percentages) Occupation N % Professionals 6 20 Managers 9 30 Salesmen 7 23 "Plungers" 8 27 Total 30 100 In the above table the category of professionals include lawyers, engineers, and i n general those who have attended professional or graduate schools. Managers include business executives, chartered accountants, or commerce graduates. Salesmen are 117 registered representatives or stockbrokers. F i n a l l y , the cate-gory of "plungers" corresponds to those individuals who d a i l y frequent C. M. Oliver's trading room and whose l i v e l i h o o d (at least p a r t l y ) seems to depend upon t h e i r d a i l y trade i n the so-called "penny stocks". Weber referred to them as "fly-by-night" speculators. Most of them are r e t i r e d laborers, and very few are s k i l l e d or professional people. It i s cle a r that white-collar occupations are dispropor-t i o n a t e l y represented (73%) i n our sample, as compared to the r e l a t i v e l y few members of manual occupations (who are usually r e t i r e d ) and are "plungers". This i s not surp r i s i n g , since according to the s t a t i s t i c s of the Department of Labor on the occupational trends i n Canada 1931-1961, (as quoted i n Porter 1967:93), the d i s t r i b u t i o n i n the most recent year (1961) i s r e l a t i v e l y higher for white-collar occupations (38.67o) than for manual occupations (34.9%), followed by service occupations (10.8%), and occupations i n primary industries (13.1%). This high representation of white-collar members i n the stock market i s as i t should be, for as we r e c a l l , Marx and Weber already made scattered references to the tendency of market members to be of white-collar occupation. We s h a l l now turn to the educational background of the sample as measured by the respondent's highest achieved l e v e l of formal education. 118 Table 2 Education by Occupation ( i n percentages) Occupation Highest Standard Achieved Professionals Managers Salesmen "Plungers" Total Grade School Trade School High School Some Univ. B.A./ B tSc, Prof./ Grad. Total N_ 0 0 0 0 0 20 20 6 0 0 0 10 20 0 30 9 0 4 4 6 10 0 24 7 6 6 6 0 4 4 26 _8 6 10 10 16 34 24 100 30 This table indicates to us that i n our sample high educa-t i o n a l achievers (with academic t r a i n i n g beyond high school level) are somewhat disproportionately represented; at least 58% have gone beyond high school l e v e l . On the other hand, compar-ing this trend with the d i s t r i b u t i o n of the male labor force by occupational group and highest l e v e l of schooling i n the year 1961 (as reported by Porter, 1967:100 from Census of Canada 1961) we fin d that only 4.9% have u n i v e r s i t y degrees, which suggests that our sample i s s i g n i f i c a n t l y higher i n educational achieve-ment. We now turn to the t h i r d demographic c h a r a c t e r i s t i c of our sample - r e l i g i o u s background. We must point out that before our interviewing began we were advised not to ask for the spe-c i f i c a f f i l i a t i o n of the respondent, thus our c l a s s i f i c a t i o n of Protestant, Jewish, Catholic, or no r e l i g i o u s a f f i l i a t i o n at a l l . 119 Table 3 Religious A f f i l i a t i o n by Occupation (i n percentages) Occupation Religious A f f i l i a t i o n Protes-tant Cath-o l i c No Jewish A f f i l i a t i o n Total N Professionals 12 0 4 4 20 6 Managers 23 0 0 7 30 9 Salesmen 10 0 0 14 24 7 "Plungers" 6 3 3 14 26 8 Total 51 3 7 39 .100 30 The above table suggests that i n our sample Protestant a f f i l -iated members are disproportionately represented. The next high-est d i s t r i b u t o r s correspond to those with no r e l i g i o u s a f f i l i a -t i o n at a l l , followed by Jewish a f f i l i a t e d members, and l a s t l y by those of Catholic a f f i l i a t i o n . According to the 1961 Canadian Census data (as quoted i n Porter, 1967:83) the d i s t r i b u t i o n of re l i g i o u s a f f i l i a t i o n i s as follows: Catholic 45.7%, Protestant 44.7%; Jewish 1.4%; and others 6.97o. In our sample, as compared to the national census data, the Protestant a f f i l i a t e d members are s i g n i f i c a n t l y represented; the Catholic members are the least represented; the Jewish members are somewhat more repre-sented than the Catholic members; and f i n a l l y , i t i s s i g n i f i c a n t to note the r e l a t i v e l y high number of non-church a f f i l i a t e d members i n our sample. Hence our sample, as compared to the national census data, suggest that a high proportion (51%) of 120 the investors are of Protestant a f f i l i a t i o n , followed by a r e l a t i v e l y high proportion (39%) of non-church a f f i l i a t e d i n -vestors, followed by a somewhat high representation (7%>) of Jewish members (since the national proportion i s only 1.47o), and l a s t l y the Catholic a f f i l i a t e d members (37>). However, i t i s int e r e s t i n g that our sample contains such a r e l a t i v e l y high proportion of non-church a f f i l i a t e d investors. This came as a surprise to us, since the l i t e r a t u r e states the reverse - that church a f f i l i a t i o n , p a r t i c u l a r l y Protestant, i s correlated with high status expectations and f i n a n c i a l a c t i v i t y . For example, Barlow and others (1966:16) i n th e i r study on the economic behavior of the affluent (income of $10,000 and higher) reports a high c o r r e l a t i o n of Protestant church a f f i l i a t i o n with f i n a n c i a l a c t i v i t i e s . Likewise, Porter (1965:88) i n his analy-sis of the Canadian s o c i a l classes and power, also posits that there i s a high c o r r e l a t i o n between high status expectations of financiers with Protestant church a f f i l i a t i o n . However, looking c l o s e l y at the d i s t r i b u t i o n of the non-church a f f i l i a t e d members we can notice that a r e l a t i v e l y high proportion of this category came from sales and "plunger" occupations, which i n r e l a t i o n to Table 2 corresponds to r e l a t i v e l y lower educational achievers. We conjecture that this may be an i n d i c a t i o n that these two occupational categories may belong to the periphery of the f i n a n c i a l world as such, which could account for t h e i r lack of status concern. Only by testing this conjecture would we be able to uncover the meaning of t h i s d i s t r i b u t i o n , that appears to constitute the converse of the Weberian thesis. We should l i k e now to examine the marital status of our sample. 121 Table 4 Mar i t a l Status by Occupation ( i n percentages) Occupation M a r i t a l Status  Single Married Total N Professionals 7 13 20 6 Managers 0 30 30 9 Salesmen 7 17 24 7 "Plungers" 13 13 26 _8 Total 27 73 100 30 In the above table the category of single includes divorced and widowers. It i s quite clear that i n our sample married members are disproportionately represented. According to the national census data of 1961 (as quoted by Porter, 1967:90) the marital status of the labor force of 15 years and over i s as follows: 257o of the male labor force i s single, and 15% i s 21 married. It i s evident that our sample yie l d s a comparable d i s t r i b u t i o n of single and married status. The geographical mobility of our sample w i l l be examined next. 122 Table 5 Geographical M o b i l i t y by Occupation ( i n percentages) Occupation Geographical M o b i l i t y Born i n Moved from Moved Moved Vancouver elsewhere from from i n Canada U.S. Europe Total N Professionals 0 20 0 0 20 6 Managers 3 21 3 3 30 9 Salesmen 10 10 0 4 24 7 "Plungers" 6 10 0 10 26 8 Total 19 61 3 17 100 30 In the above table the categories of "elsewhere i n Canada" s i g n i f i e s anywhere except the province of B r i t i s h Columbia, and "moved from Europe" includes Ireland, England, the Low Countries, U.S.S.R., and Portugal. The table above suggests that i n our sample investors have a high geographical mobility regardless of occupation. The Canada Census i n 1961 (as quoted i n Porter, 1967:71) y i e l d s the following breakdown: 84.4% were born i n Canada; 13.3%> were born i n Europe; and 1.6% were born i n the United States; and the rest (0.7%) i n Asian and other Common-wealth Countries. Moreover, the i n t e r n a l migration of native Canadians shows a net gain of population ( i n hundreds of persons) of (+509) for B r i t i s h Columbia i n the period 1951-1961 (as quoted i n Porter, 1967:74). Our sample's high geographic mobility seems to be i n accordance with the s i g n i f i c a n t immi-gration to Canada and migration within Canada that has occurred 123 within the past few years. B r i t i s h Columbia i s second to Ontario i n the rate of new population gain. L a s t l y , we s h a l l examine average age by occupation i n our sample. Table 6 Average Age by Occupation ( i n percentages) Occupation Average Age Professionals 37 Managers 42 Salesmen 43 "Plungers" 45 Mean Age 41.7 Range 8 Mean Deviation 2.4 The mean age of our sample i s 41 .7 , which f a l l s i n the age group of 30-44 i n the Age Composition of 1961 (as quoted by Porter, 1967:50). This group i s 20.17o of the Canadian population. 7.3. We can now summarize the demographic c h a r a c t e r i s t i c s of our sample. If our sample had been drawn by p r o b a b i l i t y methods, then we could have suggested that the following be considered as the c h a r a c t e r i s t i c s of a microstructure of i n d i v i d u a l s . In any case, we have assumed that we should proceed as i f we had a random sample whose c h a r a c t e r i s t i c s are the c h a r a c t e r i s t i c s of the microstructure. Data tabulation indicates to us the follow-ing pattern of s o c i a l c h a r a c t e r i s t i c s : 7.3.1. No s i g n i f i c a n t s o c i a l differences seem to exist }between the professional and managerial occupations. Both groups have r e l a t i v e l y high educational achievement (Table 2); they tend to be of Protestant a f f i l i a t i o n (Table 3); they are almost a l l married (Table 4); t h e i r geographical mobility i s r e l a t i v e l y higher (Table 5); and the mean age i n both occupations i s 39.5. 7.3.2. The sales occupational group i s characterized by an inter mediate p o s i t i o n between the professional and managerial occupa-tions (7.3.1.) and the occupation of the "plungers" (7.3.3.). Their educational achievement i s average, ranking from at least a high school education to a B.A. (Table 2); they tend to be more non-church a f f i l i a t e d than Protestant (Table 3); they are r e l a t i v e l y geographically mobile, though a s i g n i f i c a n t number came from Vancouver (Table 5); they tend to be married (Table 4); and t h e i r mean age i s 43 (Table 6). 7.3.3. The occupations of the "plungers" or self-employed spec-u l a t o r s , display a wide d i v e r s i t y of c h a r a c t e r i s t i c s because of the great d i v e r s i t y of i n d i v i d u a l components of thi s occupational group, i . e . r e t i r e d people, gamblers, non-practicing profession-a l s , and the l i k e . Their educational achievement i s t h i n l y d i s t r i b u t e d from grade school to professional and graduate schools.(Table 2). A somewhat high percentage are non-church a f f i l i a t e d and the rest are t h i n l y d i s t r i b u t e d among the Prot-estant, Jewish, and Catholic r e l i g i o n s (Table 3). One half are single and the other married (Table 4). Their geographical mobility i s r e l a t i v e l y high (Table 5), and th e i r mean age i s 125 45 (Table 6). These are the three s p e c i f i c patterns that the tabulation of s o c i a l c h a r a c t e r i s t i c s has yielded, maintaining "occupation" as a c r o s s - c l a s s i f i c a t i o n v a r i a b l e . Next we propose to examine some other s t r u c t u r a l variables such as: p o l i t i c a l ideology, and income and wealth. In addition, we s h a l l also examine some economic considerations such as: investment objectives and p o l i c i e s , l i q u i d i t y preference, and some psychological ones bearing on r i s k taking. 7.4 P o l i t i c a l Ideology Any attempt to e l i c i t p o l i t i c a l ideology during an i n t e r -view can be a f r u i t l e s s job, for ideology i s a vast subject, and in our case we could have aroused suspicion. This was an elec-tion year, and - i n addition - students nowadays are considered to have gone astray i d e o l o g i c a l l y . Our questions could have ignited senseless arguments. Hence we decided to e l i c i t responses on party choice, and whether the leader of the party-program played a s i g n i f i c a n t role i n t h i s decision. We asked the following questions: 1. \ Do you think that Premier Bennett has done a good job for the Province? 2. Which party i n B r i t i s h Columbia best represents your thinking? The managers were i n agreement with Premier Bennett, mostly due to t h e i r perception of the l a t t e r ' s f i n a n c i a l accomplishments, and they demonstrated no concern at a l l for p o l i t i c a l programs, save those programs that might harm business. The professional group generally agreed with Premier Bennett's performance; a few defined themselves as L i b e r a l s . 126 The salesmen, though i n agreement with Premier Bennett's f i n a n c i a l performance, showed some concern on i d e o l o g i c a l issues. For example: I vote for Soc i a l Credit to vote anti-NDP, because I think Socialism can be dangerous and chaotic. Another said: I think Socialism i s in e v i t a b l e , i f not Communism. Our problems have become so large that they can only be solved under Socialism. The self-employed speculator group ("plungers") showed s i g n i f i c a n t disagreement with Premier Bennett: Premier Bennett ain't no p o l i t i c i a n ; he's a businessman. No party i n B.C. does what tax-ppayers pay them to do. In general t h i s group indicated that i f they were not against Premier Bennett, they were i n d i f f e r e n t . It was indicated by the above responses that p o l i t i c a l con-cern i s almost n e g l i g i b l e among white-collar occupations, but i t appears, to some degree, among "plungers" who do not usually hold white-collar occupations. Despite the sparseness of our data on thi s matter, we f e e l that our res u l t s bear some simi-l a r i t i e s to C. W. M i l l ' s (1956) analysis of white-collar p o l i t i -c a l ideology. M i l l s (1956:351-352) contends that the lack of p o l i t i c a l awareness and of organization among white-collar occupations stems from the fact that: No common symbols of l o y a l t y , demand, or hope are available to the middle class as a whole, or to either i t s wings. Various segments j o i n already existent blocs to compete by pressure within party and state. The major investments are not d i f f e r e n t i -ated i n such a way as to allow, much less to encourage them, to take upon themselves any s p e c i f i c p o l i t i c a l struggle. Nothing i n their d i r e c t occupational ex-periences propels the white c o l l a r people toward autonomous p o l i t i c a l organization...(As individuals) 127 they do not know where to go...They hesitate, con-fused and v a c i l l a t i n g i n t h e i r opinions, unfocused and discontinuous i n th e i r actions...They may be p o l i t i c a l l y i r r i t a b l e , but they have no p o l i t i c a l passion. They are a chorus, too a f r a i d to grumble, too h y s t e r i c a l i n t h e i r applause. They are rear-guarders. Our data c e r t a i n l y corroborates most of M i l l s ' basic conjectures. 7.5. Income and Wealth It i s f a i r l y obvious that the most important factors to be considered i n any kind of investment decisions are income and wealth. We w i l l now present some data on the varying p r i o r i t i e s of income sources. The three major elements that we w i l l con-sider as income sources are: "guaranteed income" - meaning a secure income from profession or occupation, " c a p i t a l gain" -revenue obtained from tax-free investment, and "cash reserve" -l i q u i d assets. These p r i o r i t i e s w i l l be given i n ordi n a l preference. Table 7 Elements of Income and Wealth by Occupation ( i n ordinal preference) O c c u p a t i o n Elements o f Income and W e a l t h Guaranteed Income Cap i t a l Gain Cash Reserve N Professionals 2nd 3rd 1st 6 Managers 1st* 1st* 1st* 9 Salesmen 2nd 3rd** 1st 7 "Plungers" 2nd 1st 1st 8 *Managers display equal preference for a l l three sources. 128 ** Verbal response indicates that c a p i t a l gain i s not an impor-tant source of income to any of the salesmen, but information on p o r t f o l i o composition (Table 13) indicates that t h i s i s very un-l i k e l y . This difference between i d e a l and operational behavior may be attributed to a suspicion toward the interviewer. The above data indicate that despite occupational d i f f e r -ences, most of the members of our sample give high preference to the holding of l i q u i d assets; and i t appears that guaranteed income i s usually of secondary consideration for everybody ex-cept managers, who display equal preference for a l l three sources. This uniformly high preference f o r l i q u i d assets i s inter e s t i n g i n terms of the L i q u i d i t y Preference Theory (5.3.1.). But before making any further comments on t h i s theory, we should examine more data on thi s issue. 7.5.1. Table 7 has shown that despite occupational differences, most of the members of our sample give high preference to the holding of l i q u i d assets. In the next table we w i l l present data specifying the reasons for holding l i q u i d assets. Table 8 Money Demand by Occupation ( i n ordinal preferences) Occupation Money Demand Transactions Demand Precautionary Demand Speculative Demand Other Professionals 3rd 2nd 1st 4th Managers 4th 2nd 1st 3rd Salesmen 2nd 2nd . 1st "Plungers" 2nd 3rd 1st 3rd 129 The table on the preceding page indicates that despite the occupational differences of our sample, the speculative demand for money occupies the highest p r i o r i t y , followed by the pre-cautionary demand, and l a s t l y by the transactions demand. This high preference for holding resources i n the form of money presumably rel a t e s to the desire to take advantage of the market movements. We s h a l l come back to this l a t e r . 7.6. Attitudes Toward Credit Credit attitudes are important because much investment i s carri e d out with borrowed money. But, due to the c y c l i c a l v a r i -ation of the economy, which may be a r e s u l t of exogenous factors, i . e . wars, s o c i a l unrest, or r i s i n g l e v e l of unemployment and pric e s , investors now face the fear of i n f l a t i o n . Obviously th i s fear can influence the demand f o r money and the predisposi-t i o n toward borrowing. This following table represents data obtained on c r e d i t attitudes. Table 9 Credit Attitudes by Occupation ( i n percentages) Occupation Credit Attitudes Owns Car Owns House Pays Cash For A l l Purchases Paid Cash For Car N Professionals 100 50 100 100 6 Managers 100 64 55 77 9 Salesmen 85 71 85 85 7 "Plungers" 62 ^25 62 50 8 130 Table 9 suggests that professionals are consistent with t h e i r desire to make t h e i r purchases of current goods at cash p r i c e , i . e . a car; though for long-term assets, i . e . a house, c r e d i t i s used. Likewise, this seems to be the tendency among managers and salesmen. However, this trend i s s i g n i f i c a n t l y less marked among "plungers", fewer of whom own t h e i r cars and houses, and fewer of whom paid cash for t h e i r car. From the responses, s i g n i f i c a n t differences are found i n attitudes towards borrowing money by occupations. A high pro-portion of professionals and managers (around 75% of each) con-sidered i t necessary to borrow money for long-term financing alone; t h i s view was also shared (though i n a r e l a t i v e l y smaller proportion, i . e . 60%) by salesmen. However, a high percentage (around 80%) of "plungers" considered money borrowing as unde-si r a b l e under any circumstances. This seems to be caused by the r e l a t i v e l y high interest rates, as fa r as "plungers" are con-cerned, though th i s would not necessarily apply to long-term financing. 7.7 Investment Purposes In t h i s subsection we comment on our attempt to e l i c i t responses on the basic considerations for which investment i s undertaken. From the responses, professionals pointed out the tax-free status of c a p i t a l gains as a s i g n i f i c a n t consideration i n t h e i r market p a r t i c i p a t i o n . The building of c a p i t a l to stay ahead of i n f l a t i o n was also another s i g n i f i c a n t consideration. Retirement, educational financing of chil d r e n , and professional f u l f i l l m e n t played minor roles i n th e i r investment purposes. The o v e r a l l f i n a n c i a l purpose of this occupational group i s to 131 hedge i n f l a t i o n and r i s k . High r i s k i s systematically avoided i n various manners, i . e . choice of s e c u r i t i e s . Stress i s placed upon c a l c u l a b i l i t y of transactions and high returns. They are entrepreneurs for they assume r i s k for the sake of p r o f i t . Obviously, they a l l have been trained academically i n finance and t h e i r i n t e r e s t i n finance generally began during t h e i r u n i v e r s i t y l i f e . However, a small percentage of them see the necessity of r i s k money. The p a r t i c i p a t i o n of managers i n the market seems to be equally aimed at tax-free c a p i t a l gain, as well as "to amuse themselves" - as Engels put it;,- i n outsmarting the market. More-over, replacement of salary by investment income, hedge against i n f l a t i o n , and early retirement by building a d i v e r s i f i e d port-f o l i o of around a m i l l i o n d o l l a r s were s i g n i f i c a n t considerations. In general, managers p a r t i c i p a t e i n the market because some of t h e i r friends or r e l a t i v e s may happen to do so, and consider i t as a mechanism to hedge i n f l a t i o n as well as a lead to early retirement. A s i g n i f i c a n t stress i s placed on the challenge of gambling. In the words of one informant: "There i s something of death-wish, i n the Freudian sense, i n my p a r t i c i p a t i o n i n the stock exchange. The t h r i l l of action of losing or winning i s very important. It's nothing but a gamble, I don't do i t for income, the r e a l thing i s gambling. If c a p i t a l gain comes, i t ' s O.K., but gambling and t h r i l l are the most important things." The p a r t i c i p a t i o n of salesmen i n the market i s mainly based on considerations of tax-free c a p i t a l gains, and the opportunity to make one's own decision (we w i l l c a l l i t work s a t i s f a c t i o n ) was also suggested. In addition, the desires to have a balanced p o r t f o l i o and upward occupational mobility are also strong con-132 siderations among salesmen. Their p a r t i c i p a t i o n i n the market began at the suggestion of a friend or a r e l a t i v e . They are also interested i n the desire to gamble, though to a lesser degree than i n tax-free c a p i t a l gains considerations. For the "plungers" tax-free c a p i t a l gain i s not only t h e i r major consideration, but i n addition to i t constitutes i n almost a l l cases (90%) t h e i r sole source of income and thus t h e i r major purpose for p a r t i c i p a t i o n i n the market. As substantial necessi-t i e s of l i f e are covered, a small group (25%) attempt to diver-s i f y t h e i r p o r t f o l i o , i . e . invest i n r e a l estate, "high-class stocks" (mutual funds). They complain that the rate of commis-sions are too high. Their p a r t i c i p a t i o n i n the market began through the influence of friends and r e l a t i v e s . Some praise themselves as having a gambling i n s t i n c t . Almost a l l (95%) do t h e i r own research on investment opportunities. In general, t h e i r sole objective i s to make ends meet by t h e i r speculative p a r t i c i p a t i o n i n the market. The opinions just presented on the purposes of market p a r t i c i p a t i o n are derived from the questionnaire, with i t s l i m i t a t i o n s of numbers and depth of interviews. Our interests i n e l i c i t i n g the opinions arises because economists have argued (see 5.3.1.) that an investor's preference for l i q u i d i t y w i l l increase with a f a l l i n the rate of i n t e r e s t s ; and that his asset demand for money may also be a decreasing function of the rate of i n t e r e s t . However, our contention i s that t h i s may not be necessarily so; and we can show t h i s by comparing Table 8 on money demand by occupation with the opinions presented above on investment purposes. 133 Table 10 Investment Purposes by Occupation and Money Demand Occupation S p e c i f i c Investment Purposes Money Demand (1st Choice)  Professionals Hedge i n f l a t i o n and r i s k speculative Managers Capital gain and gamble speculative Salesmen Capital gain and work s a t i s - speculative f a c t i o n "Plungers" Capital gain speculative C l e a r l y from the above table, despite occupational d i f f e r -ences, our investors display a uniform preference f o r the spec-u l a t i v e demand for money, that i s they keep l i q u i d assets presumably to take advantage of market movements; but th i s preference does not follow any consideration (decreasing or i n -creasing) of the rate of in t e r e s t . For our investors p a r t i c i -pate i n the money market for various reasons, such as c a p i t a l gains, gambling, and work s a t i s f a c t i o n , rather than as a response to interest rate. However, i t i s possible that professionals do take into account the rate of i n t e r e s t as indicated by t h e i r response i n Table 10. This resembles the p r e s c r i p t i o n of econo-mic theory, which has attempted to describe and predict the behavior of the entrepreneur (see 2.1.1.). 7.8. Investment P o l i c y In this subsection we are interested i n finding out the p r i n c i p l e s that guide the i n d i v i d u a l i n his investment a c t i v i t y . The following data were obtained: 134 Table 11 Investment Policy by Occupation ( i n percentages) Occupation Investment P o l i c i e s Budgets Part of Budgets P o r t f o l i o Salary to Invest Income to Reinvest N Professionals 33 50 6 Managers 11 33 9 Salesmen 14 14 7 "Plungers" 13 50 8 In the above table we are only taking into account perhaps the two most important tools of investment p o l i c y : budgeting part of salary for investment, and budgeting p o r t f o l i o income for reinvestment. We chose not to take into account other mechanisms, for they are rather sophisticated mathematically and they r e a l l y belong to a mathematical analysis of the subject. The above table indicates that budgeting part of one's salary for investment does not seem to be p a r t i c u l a r l y common p r i n c i p l e (except among the professionals). Budgeting p o r t f o l i o income for reinvestment i s more common, p a r t i c u l a r l y among professionals and "plungers". The d i s t i n c t i o n of investment p o l i c y among the occupational groups can be t e n t a t i v e l y explained by the varying investment purposes (Table 10) of our sample. We conjecture that managers and salesmen may be less concerned with investment p o l i c i e s such as budgeting part of one's salary for investment or budgeting p o r t f o l i o income for reinvestment because t h e i r 135 primary concern for t h e i r market p a r t i c i p a t i o n may not necessarily be p r o f i t maximization i n the form of c a p i t a l gains, but other considerations such as work s a t i s f a c t i o n and gambling. Con-versely, we conjecture that professionals and "plungers" p a r t i c -ipation may be primarily concerned with p r o f i t maximization since they seem to be s i g n i f i c a n t l y concerned with p o l i c i e s such as budgeting p o r t f o l i o income for reinvestment i n p a r t i c u l a r . 7.9. Risk-taking As already indicated (7.1.) during our discussion of the questionnaire-building, we needed an hypothetical task by which to perceive the dimensions of r i s k . On the other hand, we also saw that the Kogan and Wallach experimental paradigm for the study of r i s k was not suited for our purposes. Hence, with the aid of an investment executive, we proceeded to construct a continuum of s e c u r i t i e s ranging from the ones that implied no r i s k to the ones that implied high r i s k . Thus the following continuum was devised: No r i s k Government savings bonds Very low r i s k Corporate bonds Convertible debentures Low r i s k Preferred shares Convertible preferred shares Moderate r i s k Mutual funds Common shares paying dividends High r i s k " Speculative common shares We checked the r e l i a b i l i t y of this continuum with four stock-brokers, two executives of banking investment, and a general manager of an investment company, a l l of whom agreed with our ranking of s e c u r i t i e s by th e i r r i s k implications. 136 Having devised the r i s k continuum of s e c u r i t i e s , we pro-posed to use i t by asking our respondents to choose the securi-t i e s that they would generally buy i n order of preference, t h e i r answers giving us an i n d i c a t i o n of t h e i r investment ri s k - t a k i n g behavior. These indications on r i s k choice were checked with t h e i r p o r t f o l i o composition to assess whether the respondents perceived t h e i r choices as being r i s k y choices. With the pre-ceding data and considerations ( i . e . 7.3.;...7.8.) and our assessment of r i s k , we s h a l l attempt to i n f e r the u t i l i t y of r i s k . L a s t l y , we s h a l l attempt to show the interrelatedness between investment ri s k - t a k i n g behavior, u t i l i t y and the microstructure 1s c h a r a c t e r i s t i c s . We s h a l l next present data obtained on choice of securities (Table 12) and p o r t f o l i o composition (Table 13). In both tables, we have tabulated by o r d i n a l preference the choice of s e c u r i t i e s and p o r t f o l i o s e l e c t i o n respectively. Table 12 Securities Choice by Occupation and Investment Risk Choice (i n ordinal preference, 1 = highest preferred choice; 8 = lowest) Occupation Investment Risk Choice  No r i s k Very low Low Moderate High Govt. Corp. Conv. Conv. Mutual Com. Spec. Bonds Bonds Deb. Fref. Pref. Funds Div. Com. Professionals 7 8 2 6 3 4 1 5 Managers 6 7 2 5 4 2 1 3 Salesmen 8 7 4 5 2 6 3 1 "Plungers" 5 8 7 6 4 3 2 1 137 This table suggests that professionals and managers choose moderate r i s k s , and they are l i k e l y to choose as a second a l t e r -native very low r i s k choices. Salesmen and "plungers" tend to choose high r i s k s , though t h e i r second a l t e r n a t i v e v a r i e s , i . e . salesmen a low r i s k choice and speculators a moderate r i s k choice. Thus, the high r i s k takers, according to the above data, are "plungers", followed by salesmen, and l a s t l y come managers and professionals whose moderate r i s k choice i s balance by very low r i s k choices. This preliminary set of r i s k - t a k i n g attitudes must be tested with t h e i r p o r t f o l i o composition to see whether t h e i r r i s k choice i s consistent with t h e i r actual r i s k - t a k i n g . The data given i n Table 13 suggests that common shares constitute the highest frequency i n the p o r t f o l i o composition of professionals, which i s i n accordance with t h e i r choice i n Table 12. The composition of managers' p o r t f o l i o s shows that speculative shares ace t h e i r highest preference, which i s not consistent with t h e i r choice as shown i n Table 12 (common shares). We seem to face here a d i v i s i o n among managers from preference for a moderate r i s k choice (common shares) to preference for a high r i s k choice (speculative shares). Looking c l o s e l y at the p o r t f o l i o composition of managers and professionals, we r e a l i z e that common shares and speculative shares constitute t h e i r f i r s t two choices. One can hypothesize that this constitutes a strategy to balance speculative and common shares i n order to diminish r i s k . On these grounds, we can s t i l l consider both managers and professionals as moderate r i s k takers. As already suggested i n Table 12, salesmen and "plungers" were high r i s k choosers, and t h e i r p o r t f o l i o composition shows Table 13 Po r t f o l i o Composition by Occupation (Individual preference - s p e c i f i c percentages given i n brackets,). Occupation Po r t f o l i o Composition in Percentages and Ordinal Preference Rev.Pro-dueing Real Es. Non-rev. produc-ing Real Estate Bonds Pref. Shares Com. Shares Non-spec-u l a t i v e Shares Specula-t i v e Shares Mutual Funds Other Professionals 4 (12.5) 6 ( 1.6) 3 (16.0) 7 ( .8) 1 (34.2) 5 (8.3) 2 (25.0) 6 (1.6) 0 Managers 5 ( 7.5) 3 (10.6) 7 (2,1) 8 ( .4) 2 (24.4) 5 (7.5) 1 (33.7) 4 (8.8) 6 ( 5.0) Salesmen 5 ( 3.3) 7 ( 1.7) 6 ( 2.2) 8 ( .8) 2 (31.2) 0 1,(40.0) 4 (8.3) 3 (12.5) "Plungers" 0 4 ( 3.1) 5 ( 1.2) 4 ( 3.1) 2 (23.2) 0 1 (58.8) 6 ( .6) 3 (10.0) the same tendency. However, the following differences should be taken into consideration for a more refined assessment of r i s k : p o r t f o l i o d i v e r s i f i c a t i o n , a r i s k diminishing mechanism, must be taken into account, and secondly, percentage differences among types of s e c u r i t i e s must also be considered. Taking into con-sideration not only the respondent's data on r i s k - t a k i n g , but also considering p o r t f o l i o d i v e r s i f i c a t i o n and s p e c i f i c d i f f e r -ences i n percentages of high r i s k s e c u r i t i e s , we can d i f f e r e n t i -ate the following risk-taking patterns: 7.9 .1 . "Plungers" - high r i s k takers (58.87o of speculative shares i n t h e i r p o r t f o l i o (Table 13). Poorly diver-s i f i e d p o r t f o l i o . 7.9.2. Salesmen - high r i s k takers, though to a lesser degree than "plungers". (40% of speculative shares i n t h e i r p o r t f o l i o - Table 13). Somewhat d i v e r s i f i e d p o r t f o l i o . 7.9.3. Professionals and managers - moderate r i s k takers (25% and 33.7% of speculative shares i n t h e i r p o r t f o l i o r e spectively - Table 13). W e l l - d i v e r s i f i e d p o r t f o l i o . Now the question comes: why this difference i n risk-taking? In an attempt to answer t h i s , the question perhaps should be re-phrased to: what u t i l i t y i s yielded by ri s k - t a k i n g as set fort h i n ( 7 . 9 . 1 . ; . . . 7 . 9 . 3 . ) ? At this point one should remember Bernoulli's (1783:25) p r i n c i p l e which says: In the absence of the unusual, the u t i l i t y r e s u l t i n g from any small increase i n wealth w i l l be inversely proportionate to the quantity of goods already possessed. From Table 13 we r e c a l l that professionals and managers maintain w e l l - d i v e r s i f i e d p o r t f o l i o s as compared with salesmen and "plungers". C l e a r l y the greater the p o r t f o l i o d i v e r s i f i c a t i o n , 140 the greater the wealth and vice versa. Now, applying the Be r n o u l l i p r i n c i p l e we propose that for "plungers" whose port-f o l i o i s not w e l l - d i v e r s i f i e d and correspondingly hold limited wealth, any small increase of wealth w i l l y i e l d higher u t i l i t y than for professionals and managers, who possess d i v e r s i f i e d p o r t f o l i o s and correspondingly greater wealth. Thus, i n general, the smaller the wealth the greater the u t i l i t y of high r i s k -taking. 7.10. Summary of Preliminary Generalizations In summation, we propose the following tentative and/or pre-liminary generalizations: 7.10.1. The pattern of s o c i a l c h a r a c t e r i s t i c s that would pre-sumably belong to our microstructure, had we possessed a random sample (7.3.1. ;... 7. 3. 3. ) , seems to correlate with the patterns of investment risk-taking behavior (7.9.1.;...7.9.3.). Thus: Social c h a r a c t e r i s t i c s i n set (7.3.3.) *>high r i s k -taking behavior 07.9.1.). Social c h a r a c t e r i s t i c s i n set (7.3.2.)——>somewhat high r i s k - t a k i n g behavior (7.9.2.). So c i a l c h a r a c t e r i s t i c s i n set (7.3.1.) >moderate ris k - t a k i n g behavior (7.9.3.). 7.10.2. P o l i t i c a l concern i s almost n e g l i g i b l e among a l l occupa-tions" (white-cdllar), though somewhat apparent among "plungers" who do not usually hold white c o l l a r occupations. 7.10.3. There i s a uniform high preference for holding l i q u i d assets, despite occupational differences. Likewise, guaranteed income i s of secondary consideration, except for managers who display equal preference for a l l sources of income. 7.10.4. The speculative demand for money occupies the highest p r i o r i t y , despite occupational differences. This relates to the desire for taking advantage of market situations. 7.10.5. Professionals are consistent with t h e i r desire to make t h e i r purchases of current goods at cash p r i c e s , though for long-term assets c r e d i t i s used. Likewise, the same tendency i s found among managers and salesmen. This trend decreases s i g n i f -i c a n t l y among "plungers". As far as borrowing money i s concern-ed, professionals and managers consider i t desirable to borrow money for financing purposes alone. This tendency decreases among salesmen and even more among "plungers". 7.10.6. The o v e r a l l f i n a n c i a l purposes of our occupational groups are the following: for professionals - to hedge i n f l a t i o n and r i s k aversion are the major considerations; for managers -to obtain tax-free c a p i t a l gain and the desire to amuse them-selves; for salesmen - tax-free c a p i t a l gain and work s a t i s f a c -t i o n ; and for "plungers" - tax-free c a p i t a l gain i s not only t h e i r major f i n a n c i a l purpose, but i n addition i t constitutes t h e i r only source of income. 7.10.7. Considering the investment purposes and money demand by occupation of our microstructure, we propose that i n spite of the uniform high speculative demand for money, the rate of interest i s not taken into account to any considerable extent i n the process of investment, with the possible exception of the professional category that have been c l a s s i f i e d as "entrepre-neurs" (7.7.). This d i s p a r i t y with contentions set out by economists (5.3.1.) may be explained i n reference to the kind of behavior that economics as a science has attempted to predict and describe, which i s that of the "entrepreneur" (2.1.1.). It i s quite possible that entrepreneurs who are mainly concerned with profit-maximization may a c t u a l l y follow the prescriptions of the homo oeconomicus. In our case, the professional category seems to do that, but this i s not necessarily the case with . other occupations. A l t e r n a t i v e l y , we may also argue that the rate of int e r e s t may be taken into account primarily for r e a l investment decisions, rather than f i n a n c i a l ones. The above are conjectures that can be tested. 7.10.8. Considering investment p o l i c y , budgeting p o r t f o l i o income for reinvestment appears to be a somewhat common practice, p a r t i c u l a r l y for professionals and "plungers" rather than for managers and salesmen. We have conjectured that this difference may be related to investment purposes. More s p e c i f i c a l l y , p o l i c y tools ( i . e . budgeting one's salary or p o r t f o l i o income for reinvestment) may be d i r e c t l y related with profit-maximiza-t i o n concerns, as i s the case of professionals and "plungers" (Table 10). 7.10.9. D i v e r s i f i c a t i o n of p o r t f o l i o composition varies greatly with occupation. Professionals and managers display a well-d i v e r s i f i e d p o r t f o l i o , but p o r t f o l i o d i v e r s i f i c a t i o n s diminished to some extent among salesmen and s i g n i f i c a n t l y among "plungers". 7.10.10. The smaller the wealth the higher the ris k - t a k i n g behavior pattern due to i t s greater u t i l i t y , and vice versa. 143 7.10.11. The differences found i n r i s k - t a k i n g behavior v i s - a - v i s age considerations are quite n e g l i g i b l e (Table 6). S i m i l a r l y , we did not f i n d any evidence that ideology i s determinant i n ri s k - t a k i n g behavior. These considerations stressed by Kogan and Wallach (4.4.2.) did not become apparent at a l l at any stage of the research, although we must admit that we did not give primary attention to them mainly because our concern was not ri s k - t a k i n g alone but f i n a n c i a l investment as well. 7.10.12. It was suggested (4.4.2.) that there was a cl e a r re-l a t i o n between higher status and p a r t i c i p a t i o n i n conservative gambling a c t i v i t i e s . Lower status population segments are less l i k e l y to engage i n gambling behavior, but i f they do engage i n such behavior they may take higher r i s k s . If by "higher status" Back and Gergen (1963) meant occupations such as professional and managerial, c l e a r l y our data corroborate the above contentions. 7.11. L a s t l y , from the preliminary generalizations that we proposed (7.10.;...7.10.12.), we set fort h the following s o c i a l model on r i s k - t a k i n g behavior i n f i n a n c i a l investment: 7.11.1. Occupation and wealth greatly a f f e c t the actor's r i s k -taking behavior. 7.11.2. The higher the income and access to wealth as indicated by p o r t f o l i o composition ( i . e . professional and managerial occupations) the greater the r i s k aversion. The investment u t i l i t y i s a source of amusement and a hedge against i n f l a t i o n . 7.11.3. The smaller the income and access to wealth, as indicated by p o r t f o l i o composition, ( i . e . salesmen and "plungers") the 144 higher the ri s k - t a k i n g pattern due to i t s greater u t i l i t y . And the investment u t i l i t y i s to make ends meet and the gain of work s a t i s f a c t i o n . 145 CHAPTER 8 CONCLUSION In t h i s chapter we want to examine c r i t i c a l l y our research procedures, and i n addition to formulate some possible lines of future research. 8.1. To what extent has this essay met the issues raised i n ( 1 1 - 1 3 )? In general, previous research on the three issues (1.1.;... 1.3.) i s scanty. S o c i o l o g i c a l theory related to the analysis of some economic functions and the d i f f e r e n t i a t i o n of s o c i a l struc-tures i s i n a beginning stage, as has been pointed out by various scholars c i t e d throughout this essay. This lack of previous research and the i n c i p i e n t stage of s o c i o l o g i c a l theory on the issues to which we have referred havecconstituted the major handicaps i n this essay. One r e s u l t has been an obvious lack of aesthetic unity and another has been that since pre-existent data was scanty and our data rather crude most of our generali-zations are only conjectures. However, our conjectures are testable. The fact that our conjectures may be proved or d i s -proved may guarantee us, at least p a r t i a l l y , an ingress to the domain of science; for the process of science - as maintained by Joan Robinson (1968:26) - consists e s s e n t i a l l y i n tr y i n g to d i s -prove propositions about events i n r e a l i t y . These propositions may be of a d i f f e r e n t nature, for example, conjectural. But the sine qua non aspect of a s c i e n t i f i c process i s that a proposition ( i . e . conjectural) must be amenable to be disproved, otherwise the proposition belongs to metaphysics ( i . e . a proposition not capable of being tested). In a l l p r o b a b i l i t y our conjectural propositions are testable. It follows then that cumulative research on thi s topic w i l l greatly add to the refinement and prec i s i o n of our model. Nevertheless, i t i s possible to c r i t i c i z e some of the p i t -f a l l s i n our research procedures, i . e . the schedule and sampling procedure. 8 .1 .1. In general, our schedule e l i c i t e d some important date, p a r t i c u l a r l y data i n reference to ri s k - t a k i n g , p o r t f o l i o composi-t i o n , and investment p o l i c y and purposes. However, a l o t of questions could be dispensed with, i . e . questions i n reference to- preference of l i v i n g area, European stocks, and the l i k e . They e l i c i t e d meaningless data because the questions were mean-ingless i n r e l a t i o n to the purposes of the study. 8.1.2. By f a r , our sampling procedure l e f t much to be desired. To our knowledge random sampling of a population of in d i v i d u a l investors has not been done i n the past. Access to a l i s t of in d i v i d u a l investors proved to be impossible to gain. Perhaps i f one i s associated long enough with a brokerage house one may have better chances of gaining access to such a l i s t . The ac-quiring of a random sample of households may prove to be a promising procedure, though of considerable cost. 8.2. We r a i s e the following issues as future l i n e s of research: 8.2.1. The f i n a n c i a l - r e a l investment nexus; It i s now obvious that i n the broad s o c i e t a l context, r e a l investment i s the v a r i -able which has the greatest ^ impact on national income, growth, d i s t r i b u t i o n of the product, and development. F i n a n c i a l invest-ment i s of interest i n this broad s o c i e t a l context only as i t r e l a t e s to r e a l investment. Hence, the nexus may be p a r t i c u l a r l y relevant i n the context of development i n the T/hird World, e s p e c i a l l y insofar as the actors ( r e a l and f i n a n c i a l investors) may represent d i f f e r e n t s o c i o - c u l t u r a l backgrounds and i n t e r e s t . The following scheme may represent an important dimension of the investment nexus i n the developmental nexus. 22 A c t o r 1 s Background and/or Interest Kinds of Investment Real F i n a n c i a l Domestic Preferred Indifferent Foreign Undesirable Indifferent 8.2.2. It has become obvious that r i s k - t a k i n g behavior'ought to be investigated i n the context of multivariate analysis. Our work so f a r has indicated that wealth, income, and occupation are three variables which have d i r e c t relevance to r i s k - t a k i n g behavior. Other s o c i a l structure variables may also be pertinent such as mobility, r e l i g i o n , and ideology. The proper choice of s t a t i s t i c a l tools (e.g. factor analysis and multiple regression analysis) must await the researcher's close acquaintance with them. 8.2.3. The measurement of the variables must be refined by proper s t a t i s t i c a l t o o ls, i . e . multivariate analysis. 8.2.4. This work has attempted to explain r i s k - t a k i n g behavior as measured by mean r i s k . One might also be interested i n ex-pla i n i n g dispersion around the mean i n ris k - t a k i n g behavior. 8.2.5. In t h i s essay we have not taken into account c y c l i c a l v a r i a t i o n s i n business a c t i v i t y . Hence we may also want to de-termine the change of investment r i s k - t a k i n g behavior i n respect to the d i f f e r e n t phases of the cycle ( i . e . depression, recovery, boom, recession). Some unsystematic research has been done i n this area. Katona and K l e i n (1951-1953:11-13) have shown d i f f e r e n t psychological changes in expectations i n respect to the business cycles. 8.2.6. Another consideration that may be taken into account i s whether "plungers" play "penny stocks" because they may have more available time, as opposed to professionals that invest i n common stocks, who presumably have lesser available time. As f i n a l conclusion, we want to emphasize that our analysis was pri m a r i l y concerned with demonstrating the existence of a behavioral content i n f i n a n c i a l investment rather than measuring 149 FOOTNOTES 1. The impact of the Ch r i s t i a n s o c i a l and/or theological teach-ings upon our c i v i l i z a t i o n has been discussed at length elsewhere, i . e . Troeltsch (1956). 2. Henceforth "behavioral sciences" w i l l imply psychology, sociology, and anthropology. "Social sciences" w i l l imply the behavioral sciences plus economics, h i s t o r y , and geo-graphy. This taxonomy i s devised for the purposes of our analysis. 3. It may be stated a propos that elsewhere Belshaw (1955) has made an analysis of the entrepreneur and his c u l t u r a l m i l i e u . 4. S o c i o l o g i s t s , i . e . Smelser (1968); anthropologists, i . e . F i r t h (1946); and psychologists, i . e . Katona (1963); have done research on economic a c t i v i t y within the context of th e i r respective d i s c i p l i n e s . This type of research has been named " s o c i a l economics", "economic anthropology", and "economic psychology". Insofar as anthropology i s pre-occupied with the study of the whole man i n a cr o s s - c u l t u r a l scope, we w i l l c a l l "economic anthropology" the analysis of economic a c t i v i t y within a behavioral context. 5. We w i l l henceforth use both terms interchangeably. 6. Henceforth we reproduce F i r t h (1951:122-54) as reprinted i n Le C l a i r and Schneider (1968). 150 7. Here we follow Belshaw's (1965:1-10) po s i t i o n and develop-ment. 8. Belshaw's (1967) work on the conditions of s o c i a l perfor-mance constitutes a rather timely attempt to analyse a nation-state v i s - a - v i s development. 9. See for example "Individual and C o l l e c t i v e Representations", i n his Sociology and Philosophy (1953). In addition, i n his Suicide (1951) he takes pains to demonstrate that the "suicide rate" i s a s o c i e t a l a t t r i b u t e and cannot be pre-dicted from psychological states. 10. We are following here the development set out by Devons and Gluckman i n Gluckman's (1964). 11. We should mention that Barth (1959) has been able to use game theory i n his analysis of anthropological data. 12. By objective p r o b a b i l i t y i s meant the t h e o r e t i c a l r e l a t i v e frequency d i s t r i b u t i o n outcomes, and by subjective prob-a b i l i t y i s meant the transformation on the scale of mathe-matical p r o b a b i l i t i e s somehow related to behavior. 13. This w i l l be spelled out i n the proper chapter. 14. What follows i s an exposition extracted from Kogan and Wallach (1967:166-73). 15. By "conservatism" i s meant actions or dispositions char-a c t e r i s t i c of low r i s k taking. 16. See for example Whyte, W. H. J r . (1956) The Organization 151 Man. 17. We are extracting material from Kogan and Wallach (1967: 227-66). 18. We are following Hansen's (1953:58) guide to Keynes. 19. We are extracting from Hansen (1953:126-28). 20. We have taken these d e f i n i t i o n s from Kogiku (1968:14-15). 21. This was derived from Porter's (1967:90) Table E2 i n the following manner: Single = single, divorced, and widowed inr)7 t o t a l labor force Married = married 10.07 t o t a l labor force 22. There i s a growing l i t e r a t u r e on f i n a n c i a l / r e a l investment v i s - a - v i s development, p a r t i c u l a r l y i n the area of Latin America. For example, the Mexican economist Urquidi (1969: 91-115) has discussed the possible implications of r e a l investment i n Latin America. The B r a z i l i a n economist Teotonio dos Santos (1968a:94-98, 1968b:431-53) has analysed i n depth the impact of r e a l investment on the L a t i n American structure. Lastly, Frank (1969:281-98) has made a valuable h i s t o r i c a l study of c a p i t a l i s t development and underdevel-opment i n L a t i n America through foreign investment. 1-52 BIBLIOGRAPHY ACKLEY, G. 1961 Macroeconomic Theory. New York. 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JR. 1956 The O r g a n i z a t i o n Man, New York. 159 APPENDIX THE QUESTIONNAIRE No. Code 1. Sex 2. Ma r i t a l Status 3. Occupation (Education) 4. Religion 5. Age 6. If r e t i r e d , give your former occupation 7. Number of children, or none 8. How long have you l i v e d i n Vancouver? 9. Do you own a car? If no, why? 10. Do you own your own house? 11. Do you prefer to pay cash for your purchases? 12. Did you pay cash for your house and/or car? 13. Do you consider i t desirable to borrow money? 14. Do you think that Premier Bennett has done a good job for theeProvince? 15. Which party i n B. C. best represents your thinking? 16. What are the sources of your income? 17. Do you consider c a p i t a l gain as part of your income? 18. Which i s more important to you, c a p i t a l gain or income? 19. Which of the following s e c u r i t i e s would you generally buy i n order of preference: - Government savings bonds - Corporate bonds - Convertible Debentures - Preferred shares - Convertible preferred shares - Mutual funds - Common shares paying dividends - Speculative common shares 20. How often do you check the value of your investments? 21. Do you deal with more than one broker? 22. Do you budget part of your salary for investment? 23. What percentage. roughly, of types of se c u r i t i e s do you have i n your p o r t f o l i o : - Revenue producing r e a l estate - Non-revenue producing r e a l estate - Bonds - Preferred shares - Common shares - Non-speculative shares - Speculative shares - Mutual funds - Other 24. Do you budget your p o r t f o l i o income for reinvestments? 25. To whom do you seek investment advice? 26. What s a t i s f i e s you most about investing? 27. What i s your long-term goal as an investor? 28. Is there anything about investment that you don't l i k e ? 160 29. Define a safe investment. 30. Do you prefer to invest i n a company which operates i n an area i n which you are familiar? i . e . B. C. Tel vs N. J. T e l . 31. Do you invest i n companies which operate i n an industry that i s foreign to you? i . e . e l e c t r o n i c s , computers, etc. 32. Would you invest i n a European stock? Why? 33. How do you f e e l about Europeans investing i n Canadian growth stocks? 34. If you were to l i v e i n a foreign country, which country would you l i v e in? 35. Do you believe i n having a cash reserve i n your p o r t f o l i o ? 36. Why do you keep money i n the bank? 37. How did you become interested i n investing i n your highest preferred security? 

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