CHAPTER
5
Case Study I:
Experts-Risk-Financial Markets
The first case study is on a case of strong public interest: experts and financial markets, particularly stock markets. U. S. legal decisions early in the 20th century made expert advice necessary for many trustees—for example, trustees of pension funds (see Burk, 1988). This gave rise to the stockbroking profession.In Shanteau's performance listing of experts (see Table 2.3), stockbrokers are listed on the side of the poor performers. This is an astonishing fact for several reasons:5
Case Study I:
Experts-Risk-Financial Markets
| a. | There seems to be a clear idea about performance in stock markets: Gains and losses are effectively measured in price differences; each participant can be clearly and immediately informed about every stock price; all of the data on previous prices and market changes are accessible. Thus, the stock market seems a paradigmatic case for rational decision making. |
| b. | Stock markets are within the focus of an encompassing and still growing body of economical research and theory. We introduce Markowitz's (1952, 1959) theory of portfolio selection; but there is even more theory and research on markets, finance, and investments that has reached the status of textbook science (e.g., Sharpe, Alexander, & Bailey, 1995), notwithstanding the fully fledged professions of financial business. |
One key to understanding expertise in financial markets, from a theoretical as well as a practical point of view, is human behavior toward risk—that is,
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Publication information:
Book title: The Social Psychology of Expertise: Case Studies in Research, Professional Domains, and Expert Roles.
Contributors: Harald A. Mieg - Author.
Publisher: Lawrence Erlbaum Associates.
Place of publication: Mahwah, NJ.
Publication year: 2001.
Page number: 92.
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