Predicting the unpredictable: Value-at-risk, performativity, and the politics of financial uncertainty

Erin Lockwood

Review of International Political Economy, 2015, vol. 22, issue 4, 719-756

Abstract: Starting from an observation about the high-profile predictive failures of Value-at-Risk (VaR), an internationally instituted financial risk model, this article has attempted to make sense of its continued use by analyzing its productive, rather than predictive, power. This line of inquiry leads me to identify VaR's (counter)performative effects and the way in which it produces banks as authoritative, responsible managers of an uncertain financial future. Viewing financial markets through the lens of Keynesian uncertainty and model performativity helps explain VaR's failures by revealing VaR to be an inherently limited and potentially destabilizing practice. Its use participates in the construction of a financial system that is only temporarily stable and controllable. At the same time, VaR is an important source of authority for banks vis-�-vis regulators and the public because it represents the future as statistically calculable and expert prediction as the optimal, objective mode of preparing for that future. This, in turn, makes less thinkable other responses to uncertainty - ones that might be better suited to contend with the possibility of devastating losses unforeseeable - and perhaps produced - by the widespread use of VaR.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/09692290.2014.957233 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rripxx:v:22:y:2015:i:4:p:719-756

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rrip20

DOI: 10.1080/09692290.2014.957233

Access Statistics for this article

Review of International Political Economy is currently edited by Gregory Chin, Juliet Johnson, Daniel Mügge, Kevin Gallagher, Ilene Grabel and Cornelia Woll

More articles in Review of International Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().