Uncertainty, Risk, and Trust: Russian and American Credit Card Markets Compared

By A. Guseva, Ákos Róna-Tas. American Sociological Review, 2001

274 citations recorded by the source corpus.

The strategies that Russian and American banks use to evaluate the creditworthiness of prospective credit card holders are compared. Drawing on Knight's theory of risk and uncertainty, the authors argue that uncertainty, inherent in any credit transaction, can only be reduced to measurable risk if there are institutions that create stability over time, categorize events properly, and allow for verification and accumulation of information. In the United States, the gradual evolution of institutions underpinning rational calculation permits the transformation of uncertainty into risk. In Russia, however, such institutions are absent, and a great degree of uncertainty prevails in consumer credit. Using data from original fieldwork in Moscow, this study demonstrates that when actors face uncertainty and are unable to calculate risk, they rely on trust. Russian banks use and extend their existing social ties, or in some cases build new ties. They also exploit cardholders’ own networks, unrelated to the bank, to increase their accountability through anchoring. These strategies, however, keep the market embedded, limited in size, and uninsurable. The authors conclude that calculation of probabilities (and economic rationality in its formal sense) is not an innate human ability but a social capacity that exists courtesy of institutional arrangements.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/475e18166350c16ac66579d4d54417e5bbe28f15

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Citations in the corpus

Democracy of Credit: Ownership and the Politics of Credit Access in Late Twentieth-Century America1 (2016, background): “…in the form of the credit report; 10 by the late 20th century, the development of credit scoring transformed the information contained in credit reports into a compact statistical prediction of the risk of default (Guseva and Rona-Tas 2001; Poon 2007; Carruthers and Ariovich 2010; Hyman 2011).”
The State and the Development of Social Trust (2008, background): “Hardin (1996, 1998), Huck (1998), Levi (1998), Offe (1999), Rothstein (2000), Guseva and Rona-Tas (2001), Heimer (2001), and Darley (2004), among others, have all highlighted the role of the state in enforcing contracts, and the positive consequences of this for social trust.”
Visualizing the Signatures of Social Roles in Online Discussion Groups (2007, background): “Similarly, analysts of credit markets use clean and consistent driving records as proxy signatures for good credit risks where credit data are unavailable (Guseva and Rona-Tas 2001).”
Classification situations: Life-chances in the neoliberal era (2013, unknown): “Because they increase trust (Guseva & Rona-Tas, 2001) and efﬁciency, there is ample evidence that these new techniques have increased equality ex ante by broadening formal access to the ﬁnancial system and shrinking the percentage of people excluded from services.”
Financialization of the Economy (2015, background): “…that enables the reduction of uncertainty to calculable risks, the Russian credit card industry developed in an alternative way, which relies on the personal-level trust embedded in existing social relationships, consequently hindering the wider expansion of the market (Guseva & Rona-Tas 2001).”
‘Lending by numbers’: credit scoring and the constitution of risk within American consumer credit (2007, background): “…of revenue and default losses across the portfolio exceeding a certain anticipated amount, is inherently connected to the proliferation of credit-scoring mechanisms within consumer lending (Glassman and Wilkins 1997: 55; Guseva and Rona-Tas 2001: 632; Makuch 2001a: 17 18; Barth 2002: 311 12).”
Financialization and the Consumer Credit Boom (2008, unknown): “In contrast, credit reporting and scoring have come to literally re-reckon the uncertainties of repayment ‘at-a-distance’ over the last couple of decades (Guseva & Rona-Tas 2001; Marron 2007).”
Moral Views of Market Society (2007, background): “Recent research thus elaborates the dramatic expansion of individual credit reporting (Guseva & Rona-Tas 2001), the new politics of transparency (Best 2005), the rise of corruption ratings (Bukovansky 2006, Larmour 2006), accounting techniques (Miller 2001), financial analysis (Zorn et al. 2004),…”
The Conditional Nature of Embeddedness: A Study of Borrowing by Large U.S. Firms, 1973–1994 (2006, background): “…have demonstrated the effects of interfirm ties on a range of firm strategies and outcomes, including mergers and acquisitions (Haunschild 1993), adoption of the multidivisional form (Palmer, Jennings, and Zhou 1993), takeover defense strategies (Davis 1991), and firm survival (Uzzi 1996).”