Enacting a rational actor: Roboadvisors and the algorithmic performance of ideal types

Adam Hayes*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Weber famously invoked ‘ideal types’ as an analytic device with which to measure empirical reality against some hyper-rational fabrication. Case in point: non-professional (lay) investors appear to be the antithesis of rational economic man. They have been cast as less-informed, less-skilled, and less-knowledgeable than professional market practitioners, and with ample evidence that they tend to lose money in the market as a result. This study builds the case that a new class of algorithmic financial advisor, commonly known as ‘roboadvisors’, enacts lay investors as rational market actors. This is achieved through algorithmic devotion to modern portfolio theory (MPT), which the roboadvisors embody, automate and perform, conjuring some version of homo economicus into existence. Through this example, I show how Weberian ideal types and the particular kind of rational action associated with them (e.g. the ideal type investor) become the very empirical reality they were intended to be a foil to–accomplished through the technological articulation of financial models, even in the hands of ordinary individuals.

Original languageAmerican English
Pages (from-to)562-595
Number of pages34
JournalEconomy and Society
Volume49
Issue number4
DOIs
StatePublished - 2020
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2020 Informa UK Limited, trading as Taylor & Francis Group.

Keywords

  • economic sociology
  • financial markets
  • ideal types
  • non-professional investors
  • performativity
  • rationality

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