Hostname: page-component-586b7cd67f-2brh9 Total loading time: 0 Render date: 2024-11-27T14:30:22.179Z Has data issue: false hasContentIssue false
  • English
  • Français

Risk, information and noise: risk perception and risk management of French and German banks during the nineteenth century1

Published online by Cambridge University Press:  12 September 2008

Monika Pohle  and
Iain L. Fraser
Monika Pohle
Affiliation:
European University Institute
Get access Rights & Permissions [Opens in a new window]

Abstract

An abstract is not available for this content so a preview has been provided. Please use the Get access link above for information on how to access this content.
Image of the first page of this content. For PDF version, please use the ‘Save PDF’ preceeding this image.'
Type
Articles
Information
Financial History Review , Volume 2 , Issue 1 , April 1995 , pp. 25 - 39
Copyright
Copyright © European Association for Banking and Financial History 1995

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

2 For a criticism of this see March, J. G. and Shapira, Z., ‘Managerial perspectives on risk and risk taking’, Management Science, 33 (1987).CrossRefGoogle Scholar

3 Rasmusen, E., Games and Information: An Introduction to Game Theory (Cambridge, Mass., 1990)Google Scholar. In the case of most games Rasmusen describes, risk aversion by the players is assumed: see p. 47 and 89ff.; Backhouse, R., A History of Modern Economic Analysis (New York, 1987), p. 299Google Scholar. For a critical view by a sociologist, see Baecker, D., ‘Rationalität oder Risiko?’, in Glasgow, M., Willke, H. and Wiesenthal, H. (eds), Gesellschaftliche Steuerungsrationalität und partikulare Handlungsstrategien (Pfaffenweiler, 1989).Google Scholar

4 Starting with von Neumann, J. and Morgenstern, O., The Theory of Games and Economic Behavior (Princeton, NJ, 1944).Google Scholar

5 Von, Neumann and Morgenstern, , Theory of Games (3rd edn, 1953), p. 7Google Scholar; Friedman, M. and Savage, L. J., ‘The utility analysis of choices involving risk’, Journal of Political Economy, 56 (1948).CrossRefGoogle Scholar

6 Oser, J. and Blanchfield, W. C., The Evolution of Economic Thought (New York, 3rd edn, 1975), p. 220Google Scholar. For critical reviews see Fishburn, P. C., ‘Expected utility: an anniversary and a new era’, Journal of Risk and Uncertainty, 1 (1988)CrossRefGoogle Scholar, Heap, S. H. et al. , The Theory of Choice: A Critical Guide (Cambridge, Mass., 1992)Google Scholar; Hirshleifer, J., The Analysis of Uncertainty and Information (Cambridge, 1992).CrossRefGoogle Scholar

7 Prominent critics from within the ranks, and their fundamental articles, are: Allais, M., ‘Le comportement de l'homme rationnel devant le risque: critique des postulats et axiomes de l'école Américaine’, Econometrica, 21 (1953)CrossRefGoogle Scholar; Arrow, K. J., ‘Alternative approaches to the theory of choice in risk-taking situations’, Econometrica, 19 (1951)CrossRefGoogle Scholar; Shackle, G. L. S., Uncertainty in Economics and Other Reflections (Cambridge, 1955)Google Scholar; Pratt, J. W., ‘Risk aversion in the small and the large’, Econometrica, 32 (1964)CrossRefGoogle Scholar; Ross, S. A., ‘Some stronger measures of risk aversion in the small and in the large with applications’, Econometrica, 49 (1981)CrossRefGoogle Scholar; Kahneman, D. and Tversky, A., ‘Prospect theory: an analysis of decision under risk’, Econometrica, 47 (1979).CrossRefGoogle Scholar The Journal of Risk and Uncertainty, published since 1988, offers old and new critics, particularly from the ranks of experimental and information economics (Arrow, Pratt, Kahneman, Tversky, Rothschild, Samuelson, Grossman, Stiglitz), a new forum; see for example, Munier, B. R., ‘Market uncertainty and the process of belief formation’, Journal of Risk and Uncertainty, 4 (1991)CrossRefGoogle Scholar; Heath, C. and Tversky, A., ‘Preference and belief: ambiguity and competence in choice under uncertainty’, Journal of Risk and Uncertainty, 4 (1991)CrossRefGoogle Scholar; but also Simon, H., ‘A behavioral model of rational choice’, Quarterly Journal of Economics, 69 (1955)CrossRefGoogle Scholar; Sen, A. K., ‘Rational fools: a critique of the behavioral foundations of economic theory’, Philosophy and Public Affairs, 6 (1977).Google Scholar

8 Samuelson, W. and Zeckhauser, R., ‘Status quo bias in decision making’, Journal of Risk and Uncertainty, 1 (1988).CrossRefGoogle Scholar

9 March, and Shapira, , ‘Perspectives’, pp. 1404–5.Google Scholar

10 Marshall, A., Principles of Economics (London, 1890).Google Scholar

11 Backhouse, , History, pp. 294–5Google Scholar, who also covers critics of this assumption (Arrow, Shackle).

12 Hayes, R. M., ‘Measurement of information’, Information Processing and Management, 29 (1993)CrossRefGoogle Scholar, complains of the confusion among the terms ‘knowledge’, ‘fact’ and ‘information’ in the various disciplines.

13 Rasmusen, , Games, pp. 48ff.Google Scholar; for a critique of this concept of information see Dosi, G. and Egidi, M., ‘Substantive and procedural uncertainty: an exploration of economic behaviour in changing environments’, Journal of Evolutionary Economics, 1 (1991).CrossRefGoogle Scholar

14 Baskin, J. B., ‘The development of corporate financial markets in Britain and the United States, 1600–1914: overcoming asymmetric information’, Business History Review, 62 (1988)CrossRefGoogle Scholar; Bongaerts, J. C., ‘Financing railways in the German states 1840–1860: a preliminary view’, Journal of European Economic History, 14 (1985).Google Scholar

15 On the concept of information in neoclassical economics, see Lewis, M. K., ‘Modern banking in theory and practice’, Revue Economique, 43 (1992).Google Scholar

16 See, for example, Grossman, S. J., Kihlstrom, R. E. and Mirman, L. J., ‘A Bayesian approach to the production of information and learning by doing’, Review of Economic Studies, 44 (1977).CrossRefGoogle Scholar

17 Greenwald, B. and Stiglitz, J. E., ‘Information, finance and markets: the architecture of allocative mechanisms’, Industrial and Corporate Change, 1 (1992), p. 47CrossRefGoogle Scholar. On the closeness of ‘signalling’ and ‘advertising’, see Rasmusen, , Games, p. 221Google Scholar. See also Akerlof, G. A., ‘The market for “lemons”: quality uncertainty and the market mechanism’Google Scholar, reprinted in Akerlof, G. A., An Economic Theorist's Book of Tales (Cambridge, 1984)CrossRefGoogle Scholar; Salop, S., ‘The noisy monopolist: imperfect information, price dispersion and price discrimination’, Review of Economic Studies, 44 (1977)CrossRefGoogle Scholar; Green, J. R. and Laffont, J-J., ‘Alternative limited communication systems: centralization versus interchange of information’, in Heller, W. P., Starr, R. M. and Starrett, D. A. (eds), Uncertainty, Information and Communication: Essays in Honor of Kenneth J. Arrow, vol. III (Cambridge, Mass., 1986).Google Scholar

18 Von, Neumann and Morgenstern, , Theory of Games (1953 edn), p. 6ff.Google Scholar

19 See Sylla, R. and Gianni, Toniolo (eds), Patterns of European Industrialization: The Nineteenth Century (London, 1991)Google Scholar, and especially Sylla, R., ‘The role of banks’, p. 45Google Scholar; Cameron, R., France and the Economic Development of Europe 1800–1914 (New York, 1975), p. 106Google Scholar; Léon, P., ‘Le moteur de l'industrialisation. L'enterprise industrielle’, in Braudel, F. and Labrousse, E. (eds), Histoire économique et seriale de la France, vol. III, 2 (Paris, 1976), p. 526Google Scholar; Kaufhold, K. H., ‘Deutschland 1650–1850’, in Fischer, W. et al. (eds), Handbuch der europäischen Wirtschafts- und Sozialgeschichte, vol. IV (Stuttgart, 1993), P. 571ff.Google Scholar; Mieck, I., ‘Wirtschaft und Gesellschaft Europas 1650 bis 1850’, in Fischer, Handbuch, p. 171ff.Google Scholar; Fischer, W., ‘Wirtschaft und Gesellschaft Europas 1850–1914’, in Fischer, Handbuch, p. 417ff.Google Scholar; Lévy-Leboyer, M., ‘Innovation and business strategies in nineteenth- and twentieth-century France’, in Carter, E. C. II, Forster, R. and Moody, J. N. (eds), Enterprise and Entrepreneurs in 19th and 20th Century France (Baltimore, 1976)Google Scholar; Pollard, S. and Ziegler, D., ‘Banking and industrialization: Rondo Cameron twenty years on’, in Cassis, Y. (ed.), Finance and Financiers in European History, 1880–1960 (Cambridge, 1992).Google Scholar

20 Bongaerts, ‘Financing railways’, where he argues that information is available, and therefore underlies investors’ decisions. Where this is not the case he draws the distinction between investors and speculators' See also Tilly, R., ‘Germany’, in Sylla and Toniolo, Patterns of European Industrialisation, p. 182.Google Scholar

21 Cameron, R., La France et le développement économique de l'Europe (1800–1914) (Paris, 1971), p. 400Google Scholar: les banques [in Paris] préfèrent satisfaire les demandes de crédit des gouvernements et des grandes entreprises, étrangères ou françaises, parce que c'était plus simple et moins risqué que d'étudier les dossiers d'entrepreneurs locaux, prometteurs mais peut-être hasardeux.' Borchardt, K., Die Industrielle Revolution in Deutschland (Munich, 1972), p. 62, on investment behaviour in the nineteenth century, says:Google Scholar

There can have been no lack of available financial capital, but it found its way into industry only to a slight extent, since yields there were not comparably satisfied, given a correct assessment of the risks. The violent short-term economic fluctuations and frequent liquidity bottlenecks simply stressed the uncertainty of such investments … Essentially, the point was to contribute towards mobilizing capital through improving the fit between the desires (as regards times and security) of capital investors and demanden of capital.

22 Lévy-Leboyer, M., ‘Le crédit et la monnaie: l'évolution institutionelle’, in Braudel and Labrousse, Histoire, III, 1, p. 444ff.Google Scholar

23 For a review of this tradition, based on Hilferding, Schumpeter and Gerschenkron, see Tilly, , ‘Germany’Google Scholar; Lévy-Leboyer, M. and Lescure, M., ‘France’Google Scholar, in Sylla, and Toniolo, , Patterns of European Industrialization.Google Scholar

24 Borchardt, , Industrielle Revolution.Google Scholar See also material cited in n. 21; and Lévy-Leboyer, and Lescure, , ‘France’, especially pp. 171–2Google Scholar; Gueslin, A., ‘Banks and state in France from the 1880s to the 1930s: the impossible advance of the banks’, in Cassis, Y. (ed.), Finance and Financiers, p. 72.Google Scholar

25 Tilly, R., ‘Banking institutions in historical and comparative perspective: Germany, Great Britain and the United States in the nineteenth and early twentieth century’, Journal of Institutional and Theoretical Economics, 145 (1989), p. 190Google Scholar; Hudson, P., ‘The role of banks in the finance of the West Yorkshire wool textile industry, c. 1780–1850’, Business History, 55 (1981).Google Scholar

26 Feldenkirchen, W., ‘Zur Kapitalbeschaffung und Kapitalverwendung bei Aktiengesellschaften des deutschen Maschinenbaus im 19. und 20. Jahrhundert’, Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte, 69 (1982).Google Scholar

27 Tilly, R., ‘German banking, 1850–1914: development assistance for the strong’, Journal of European Economic History, 15 (1986)Google Scholar; Kennedy, W. P. and Britton, R., ‘Portfolioverhalten und wirtschaftliche Entwicklung im späten 19. Jahrhundert. Ein Vergleich zwischen Großbritannien und Deutschland’, in Tilly, R. (ed.), Beiträge zur quantitativen vergleichenden Unternehmensgeschichte (Historischsozialwissenschaftliche Forschungen. Quantitative sozialwissenschaftliche Analysen von historischen und prozeß-produzierten Daten, 19) (Stuttgart, 1985).Google Scholar

28 Expressed with reservations in Tilly, ‘Banking institutions’; for this link within economics see Diamond, D., in Rasmusen, , Games, p. 289.Google Scholar

29 Lévy-Leboyer, , ‘Crédit’, pp. 444ffGoogle Scholar; Mieck, on the ‘mistakes’ of John Law's South Sea Company, ‘Wirtschaft’, pp. 175–6.Google Scholar

30 Backhouse, , History, pp. 294–5.Google Scholar

31 For the extension of the concept of uncertainty in rational choice theory by the concept of ‘procedural uncertainty’, especially as regards innovations, see Dosi and Egidi, ‘Uncertainty’.

32 Archives Nationales, Paris (hereafter AN), 115 AQ 40, 34.

33 AN, 44 AQ 17, 33, 34.

34 AN, 132 AQ 128.

35 AN, 68 AQ 3, 59–61, 64, 65, 67, 72, 77, 82, 98, 114, 125–127, 132, 133, 141, 144, 146, 150, 151, 162, 134, 173.

36 Oppenheim Hausarchiv, Cologne (hereafter OH), vols. 24, 27, 28, 43, 89, 90, 94, 96, 194, 196, 216, 220, ‘Bilanz’, Sign. 02.

37 AN, 25 AQ.

38 Deutsche Bank Archiv, Frankfurt (hereafter DA), A 576–77, 735–39, 840, 1251, 1254, 1338, Or 5–8, 68, 1001, 1564, 1714, S 1279, 1511–12, ‘Ordner Gwinner’.

39 DA, NB 54, 56, 58.

40 Landesmuseum für Arbeit und Technik, Mannheim; Aluminium Industrie AG-Fürstenberg.

41 Mathias, P., ‘Capital, credit and enterprise in the industrial revolution’, Journal of European Economic History, 2 (1973), p. 142Google Scholar; for the unchanged validity of these principles see the article on banking in the European Community by Strivens, R., ‘The liberalization of banking services in the community’, Common Market Law Review, 29 (1992).Google Scholar

42 Schmitt, W., Internationale Projektfinanzierung bei deutschen Banken. Analyse einer neuen Bankmarktleistung unter besonderer Berücksichtigung risikopolitischer und implementierungsstrategischer Entscheidungsfelder (Frankfurt-a.-M., 1989).Google Scholar

43 Rothschild, writing against the Crédit Mobilier: AN, 132 AQ 128, ‘Note sur la Société du Crédit Mobiler’, 15 Nov. 1852.

44 Norris, J. D., R. G. Dun & Co., 1841–1900: The Development of Credit Reporting in the Nineteenth Century (Westport, Conn., 1978).Google Scholar

45 Otto, F., Dos Buch berühmter Kaufleute oder der Kaufmann zu allen Zeiten. Vorbilder, Charakter- & Zeitgemälde, vornehmlich Schilderungen interessanter Lebensgänge hervorragender Kaufleute, Industrieller, sowie Förderer des Handels sowie Erfinder und Meister auf dem Gebiete der Industrie, Technik und Gewerbethätigkeit, 2 vols (Gallerie hervorragender Kaufleute und Förderer des Handels sowie Erfinder und Meister auf dem Gebiete der Industrie) (Leipzig/Berlin, 1868 and 1869)Google Scholar; citations from vol. I, pp. xx and 667.

46 Glagau, O., Der Börsen- und Gründungsschwindel in Deutschland (Leipzig, 1877), p. xviii.Google Scholar

47 Schmitt, , Projektfinanzierung.Google Scholar

48 An argument repeatedly pointed to, particularly by Tilly, in connection with a banking system's capacity for response in relation to the needs of industrial financing, most recently in ‘An overview on the role of the large German banks up to 1914’, in Cassis, , Finance and Financiers.Google Scholar

49 StMarc, M. and Wallich, H. C., ‘Flashes sur l'histoire de la banque française et allemande avant 1914’, Révue Internationale d'Histoire de la Banque, 20–1 (1980).Google Scholar

50 Douglas, M., Risk Acceptability According to the Social Sciences (London, 1986)Google Scholar; Luhmann, N., Soziologie des Risikos (Berlin/New York, 1991)Google Scholar; Baecker, D., Womit handeln Banken? Eine Untersuchung zur Risikoverarbeitung in der Wirtschaft (Frankfurt-a.-M., 1991)Google Scholar; Bonß, W., ‘Unsicherheit und Gesellschaft – Argumente für eine soziologische Risikoanalyse’, Soziale Welt, 42 (1991)Google Scholar; Friedrichs, J., Stolle, M. and Engelbrecht, G., ‘Rational choice-Theorie: Probleme der Operarionalisierung’, Zeitschrift für Soziologie, 22 (1993).CrossRefGoogle Scholar

51 See n. 7 for the critics of rational choice and game theory, and Hirshleifer, J., ‘Private and social value of information and the reward to inventive activity’, American Economic Review, 61 (1971)Google Scholar; Bradford, D. F. and Kelejian, H. H., ‘The value of information for crop forecasting in a market system: some theoretical issues’, Review of Economic Studies, 44 (1977).CrossRefGoogle Scholar

52 See March, and Shapira, , ‘Perspectives’Google Scholar; Dosi, and Egidi, , ‘Uncertainty’Google Scholar; Baecker, , Womit handeln Banken?Google Scholar; Heath, and Tversky, , ‘Preference’Google Scholar; Munier, , ‘Market uncertainty’Google Scholar; Bradford, and Kelejian, , ‘Value’.Google Scholar

53 Coumet, E., ‘La théorie du hasard est-elle née par hasard?’, Annales ESC, 25 (1970)Google Scholar; Daston, L., ‘L'interprétation classique du calcul des probabilités?’, Annales ESC, 44 (1989)Google Scholar; Gigerenzer, G., Swijtink, Z., Porter, T., Daston, L., Beatty, J. and Krüger, L., The Empire of Chance: How Probability Changed Science and Everyday Life (Cambridge, 1989).CrossRefGoogle Scholar

54 Simon, , ‘Behavioral model’.Google Scholar

55 Bradford, and Kelejian, , ‘Value’Google Scholar; Grossman, et al. , ‘A Bayesian approach’.Google Scholar

56 Baecker, , Womit handeln Banken; p. 34.Google Scholar