Exploring Risk and Uncertainty: Metaphors from the Art Market

This research-based conference will investigate the nature of risk and uncertainty using metaphors from the art market with an aim to draw novel inferences and develop insights relevant to both the art world and other fields. In particular, the conference will investigate dominant models in the art world and the lessons which can be learned from them.

In recent years, art has become big business in way not seen since the Dutch golden age. Once the preserve of a small elite, the explosive growth of the art world has brought it to international attention and created opportunities for incumbents and new entrants. The market for art has increased in both size and scope with the expansion of emerging economies and the global widening of income distributions. The parallel growth of the financial markets has driven the evolution of art as an asset class and an investment option. As well as challenges, the growth of the art market has offered exciting opportunities for the creation of both economic wealth and symbolic and cultural capital. These changes have also introduced new forms of uncertainty, volatility and risk to the art world and its participants.

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Download the programme for this seminar (pdf, 38KB)



Anders Petterson

Using Sentiment Analysis in Assessing Risks in the Art Market
This presentation looks at the role of the ‘tastemaker’ in the contemporary art market, and shows how the ArtTactic Art Market Confidence Index can provide a better understanding and measure of risks in this market. A methodology of index construction employing expert sampling to assess market trends is argued to be particularly appropriate given the structure of the art world.

Anna Dempster

Risk Perception in the Visual Arts
This paper considers perceptions of risk in the visual arts. An analysis of surveys and interviews shows that attitudes to risk by art world participants is fundamentally different from those sciences, economics or finance. The relationship between business and creative risk is explored in detail investigating the tension between art and commerce.

Michael Jacobides

The Morphing Industry Architectures in the Art World
One of the most significant dynamics of change over the last few years has been the transformation of the structure, the architecture of entire sectors From financial services to computers and cars from healthcare to education, new players redefine the very boundaries of a sector, shaping who does what and who takes what. The art world appears to be an example. In this collaborative session, we will draw on examples from other sectors to probe how the art world’s “industry architecture” has changed or may change, and how this will affect the risk and uncertainty in our context.

Tom Flynn

Negotiating Authenticity: Contrasting Value Systems and Associated Risk in the Global Art Market
This paper explores the concept of authenticity in a rapidly globalising art market and assesses the risks associated with various forms of private and corporate art collecting within that expanding market. Using a recent case study involving the unauthorised wholesale copying in China of an original work of sculpture created by a US artist, the paper assesses the extent to which differing cultural attitudes towards originality and authorship reveal potential new vulnerabilities in the market. As the art market continues to atomise, with the traditionally dominant western centres of production and exchange giving way to emerging markets in Asia and the Middle East, so new forms of risk and uncertainty are beginning to appear.

Phanish Puranam

Organisation Theory and the Art World: A Bridge Worth Building?
A central concern of organisation theory is how organisations work to understand the processes through which division of labour and integration of effort arise in order to meet organisational goals. While the world of art clearly has already offered several insights into the functioning of markets, its relevance to the study of organisations has been less explored. I will reflect on some of the possible ways in which studying the art world may help shed light on issues in organisation theory.

Stephen Satchell

Bubbles in the Art Market
We investigate the presence of bubbles market. This in turn requires defining what the value of art might be. By using Blanchard’s model of bubbles, we show that it is possible to say something about the presence of bubbles even when a measure of fair value is not present.

Payal Arora & Filip Vermeylen

Battling Uncertainty: Old and New Experts in the Market for Visual Arts
This paper explores the position and purpose of experts in the art world over time. It has been long understood that art theorists, critics, historians, dealers, auctioneers, curators and so forth play a seminal role as intermediaries in a market that features significant information asymmetries and uncertainty. They facilitate exchanges and are instrumental in determining the artistic, social and financial value of a work of art. However, in this digital age, declarations surface on the death of the knowledge and quality. The intrinsic value of a work of art is not (or no longer) a given, and various new intermediaries, both social and technical, now appear to contribute to and compete in shaping the valuation process. In the context of the art world, questions therefore arise relative to the role of the amateur in the evaluation and validation of art in current times. Do social media level the playing field and can we assume that equity and vastly increased scale in participation results in better judgments? Does online participation on art valuation impact its actual market pricing? In this paper, we contend that the traditional art experts have not necessarily been replaced by these new players, but rather that new voices have been added to the chorus. This said, many issues – particularly those involving trust and art quality – remain unresolved in the contemporary art market.

Margaret Iversen

What is the meaning of chance in art since around 1900? Why should artists deliberately set up a gap between intention and outcome in their practice? And why should the viewer find the result so engaging? Chance has been used to characterise a very broad spectrum of practices including the readymade, collage, expressionist painting, performance, participation and more. While I will touch on some of these, I intend to restrict my focus mainly to those chance procedures that involve setting up some quite formal procedure or mechanical apparatus for capturing chance occurrences. Once the apparatus or instruction is determined the artist then adopts a posture of waiting to see what will happen.

Christophe Spaenjers

Price and Volume in the Art Market
Previous research has shown that, in many asset markets, a drop in the aggregate price level is associated with a drop in trading activity. For example, Clayton et al. (2010) discuss the positive pricevolume correlation in housing markets, which can be mainly explained by exogenous shocks that affect both home prices and trading volume. This paper shows how a positive correlation between relative performance and volume on a disaggregate level may affect the estimation of returns (on the aggregate level) if the asset category is only infrequently traded. More specifically, we document timeseries variation in the composition of observed art sales at auction – more popular types of art are overrepresented at each point in time – and we present evidence that this leads to biased art return estimates.

Laurent Noel

How to Define the Quality of Artistic Goods?
This study shows that the art market is an information market. Information focuses primarily on the quality of the goods. Quality is a complex concept which covers different aspects. If one of the key aspects is lacking, the market may disappear, demonstrating the applicability of Akerlof’s “Lemons” theory (1970) to the art market.

Arjo Klamer

Without Uncertainty No Art Market
Uncertainty rather than risk is a crucial element of the art market. Using the distinction that Frank Knight made between risk and uncertainty and drawing on the work of Mary Douglas, this paper explores the role uncertainty plays in the art market. It accounts for the conversations that constitute art in general and the market for art in particular. The conversation is about the generation of meanings, a process that is inherently uncertain. This feature has far reaching consequences for the way the art market performs, including the pricing of art.

Clare McAndrew

The Collateral Value of Fine Art
In this paper, we examine the effect of implicit seller reserves on the estimation of value-at-risk based on historical asset sales data. We direct our examination toward how and whether fine art might prove an appropriate form of loan collateral for banks and other financial institutions. Using a data set of French Impressionist paintings, we control for the effect of works that are bought in-house to construct a distribution of potential sale values that corrects for sample selection bias. It turns out that the downside risk surrounding deviations of auction prices from expert presale estimates depends critically on how buy-ins are incorporated. If downside risk is assessed solely on historical experience with successful auction sales, the data appear to support loan-to-value ratios between 50% and a 100% larger than loan-to-value ratios that countenance the existence of seller reserves. The auction process, however, is quantifiable and can reveal the necessary risk information required for loan consideration.

Joseph Lampel

Art Fairs as Resource Valuation and Trading Events
Art fairs are “field configuring events” (Lampel and Meyer, 2008) and are contexts where all resources relevant to the art field’s strategies are valued in relationship to each other. They are also contexts where actors use resources entrepreneurially to create and obtain other resources that further these strategies. This paper deals with the macro and micro dynamics of art fairs. At the macro level I explore the interaction between the art field and art fairs, with particular emphasis on how actors employ field resources in fairs. At the micro level, I examine the tactics that actors employ to improve their position and capture value from during art fairs. After establishing the basic resource valuation framework, I move to an examination of art fairs as investment opportunities, analyse the spatial and temporal structures of valuation in art fairs, explore art fairs as regions of ‘predictable unpredictability’, and close with art fairs as entrepreneurial arenas for actors in the art field.

Rachel A J Campbell Pownall

Does the Sun ‘Shine’ on Art Prices?
This paper examines the role of private values in art auction prices in London during the period 1990-2007. The private value is closely related to taste and mood, whereas the common value of a painting is linked to the future resale value. By proxying for exogenous variation in both components, we show that the lower part of the price distribution is populated with paintings with a relative high private value, whereas in the upper part, transaction prices are driven primarily by the common value characteristics. Our finding has important implications for collectors and investors in the art market.

Meeting convenors

  • Dr Anna M. Dempster, Senior Lecturer, Sotheby’s Institute of Art
  • Michelle Tuveson, Executive Director, Cambridge Centre for Risk Studies