Section Days abstract book 2010.indd - RUB Research School ...

Economists in recent years have devoted an extraordinary amount of time and attention to the
study of financial derivatives. Still, the symptomatology of derivatives trading reveals them to
be rather an ethical, not just an economic or mathematical, problem. The dissertation aims at
taking up the economic suppositions on derivatives in order to gather their normative
assumptions, to reflect on them and, if necessary, to challenge their accuracy.
The investigation is organized around two distinct themes. First, it argues that the peculiar
nature of the dangers posed by derivatives still remain poorly understood. Whereas carefully
chosen derivatives deals may reduce the risk inherent in doing business, e.g. by hedging, there
are transactions which can provide powerful leveraged mechanisms for creating risk with a
negative influence on economic stability. The dissertation assumes that speculative
derivatives trading used for gambling purposes may increase the risk-bearing of both parties
to the contract, just as gamblers increase their risk by betting. 4 There is empirical evidence
that this is likely to result in increased market risk, reduced investor returns, price distortions
and bubbles which diminish social welfare. 5 For further investigation it seems necessary to
analyze the widespread (moral) resentments against derivatives gambling and speculation on
financial markets as they might provide criteria for dealing responsibly und justly with
financial risk.
Second, the dissertation focuses on the normative dimensions of financial risk. The lack of a
qualified ethical analysis is probably one of the major reasons why so many mistakes have
been made in the management of financial risk. Unfortunately, neither deontological nor
rights-based moral theories have the means to deal adequately with the moral problems of
risk. 6 The dissertation argues that moral theories have to be extended so that they cover
actions whose outcomes are not determinable beforehand. It suggests that decisions on
investments and activities on financial markets can only be understood against the
background of the risks involved and the people affected. As Hansson points out, several
morally relevant aspects of situations of risk and uncertainty have to be taken into
consideration: A moral analysis of risk should go beyond the information provided by
probabilities and deterministic utilities and operate on person-related aspects such as agency,
intentionality, consent, etc. 7 Therefore it proves necessary (a) to reveal the conditions under
which the right not to be exposed to risk may be overridden and (b) to detect those conditions
under which there are no sufficient reasons for accepting the risk as such. In this context it
might be useful to understand derivatives trading as an exchange system embedded in the
reciprocal orders of society. 8
Theoretically and practically this approach provides us with new and important insights into
areas as diverse as economic ethics, the philosophy of risk, and the structure of financial
markets.
4
For example, if a person not presently owning the stock of a company sells it forward (goes short), then the
risk-bearing of both parties to the contract is increased. A large number of the individuals and institutions that
trade in derivatives do so in hope of earning quick profits by predicting price changes.
5
Cp. Stout, Lynn A.: Why The Law Hates Speculators: Regulation and Private Ordering In The Market For
OTC Derivatives. In: Duke Law Journal 48 (1998/99), pp. 701-786.
6
Cp. Hansson, Sven Ove: Ethical Criteria of Risk Acceptance. In: Erkenntnis 59,V (2003), pp. 291-309, p. 293
ff.
7
Hansson, Sven Ove: Philosophical Perspectives on Risk. In: Techné: Research in Philosophy and Technology
8,1 (2004), pp. 10-35, p. 29f.
8
Cp. Hansson 2003 and 2004: Referring to Hansson, the exposure of a person to a risk can be regarded as
acceptable if it is part of an equitable social system of risk-taking that works to her advantage.