Transparency in an opaque market: Evaluative frictions between “thick” valuation and “thin” price data in the art market

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Abstract

This paper highlights the paradoxical effects of increased price data in markets with difficult-to-value products where non-price factors are highly relevant. In the fine art market, the growth of market information providers facilitated access to auction price data, beneficial in a market noted for its clandestine dealings. Drawing from inductive ethnographic research, the paper notes complex outcomes from increased data availability, as auction prices can be seen as an indicator of an artwork’s value. The findings deconstruct factors of supply, demand and multiple prices in the art market, highlighting important non-price factors in valuation, which complicate provider claims of art market transparency. Unpacking the process through which expert “thick” valuation transforms raw price data into comparables and then valuations helps to explain continuing differences in valuation, with buyers prone to understand past prices as market or reference prices, rather than raw materials for valuation that are adjusted for complexity. This contributes to an understanding of both advantages and predictable problems from increased price data in markets that contain substantial qualitative and non-numerical data, as evaluative frictions can occur even in the absence of clearly defined alternative valuation methods. This develops productive linkages between critical transparency and the valuation and evaluation research.

Section snippets

Transparency and valuation

Transparency is defined as the ability to know market prices, supply and demand, and other features of a trade good (Law & Smullen, 2008), often with goals of market fairness and efficiency. Information asymmetry is a common explanation for benefits of transparency: if sellers know considerably more about the properties of their goods, buyers gain from more accessible market information, such as price data or “blue book” values. Though transparency is seen to have positive outcomes, it is also

Research context: the fine art market

These findings are one emergent theme from a larger project on the growth of art as a new financial investment category. Although investment is only one motivation for purchasing art, along with consumption, social value, and other factors (Belk, 1995, Hutter and Throsby, 2007), this development is understandably associated with concerns about market transparency and accountability, such as due diligence and other financial market expectations. We also find ongoing interest in increased market

Qualitative data, methods and analytical integration

This paper draws from a corpus of data developed during three years of ethnographic research (2007–2009) on the fine art market and use of art as a financial investment, including five months of fieldwork in London and eight months in New York, interviews and secondary sources (Table 1). The primary interviews were focused on actors in New York and London, selected because in addition to being centers of the global financial market, London and New York are hubs of the global art auction trade (

Auction prices and the quest for transparency

It is useful to question what transparency meant for participants in the art market. Given the opacity of the market, providers had a goal of shedding light into the area, for example, ArtPrice's Art Market Insight, featuring the “mechanisms and secrets of the art auction market revealed by our press agency” (ArtPrice, 2010b). This represented a considerable shift, as art buyers were previously highly reliant on trusted art dealers (interview with art market information provider representative,

Discussion

The findings highlight the complicated role of auction prices in valuation. Information providers with auction price databases and transparency goals made traditional valuation more efficient and provided a reference point for buyers. “Hard numbers” were essential for the accountability and transparency needs of investors, enlightening to uninformed newcomers, useful to gallerists and curators for appraisal, desired by collectors wanting to buy intelligently and helpful for museums facing

Contributions

The study illustrates productive connections between the critical transparency literature and social studies of valuation and evaluation research through a focus on expert valuation strategies and the frictions seen with non-expert use of more accessible price data. Studying valuation in the art market shows the importance of understanding the characteristics of a given object, relevant external “attachments” (Hennion, 2004, Hennion, 2015) and the context in which comparable prices were set, a

Acknowledgments

This research was funded by fieldwork grants from the American Philosophical Society, University of Chicago Overseas Dissertation Fund, and the University of Chicago Nicholson Center for British Studies. Revisions were supported by the University of Chicago Michael and Ling Markovitz Fellowship, University of Melbourne Department of Management and Marketing and University of Melbourne Faculty of Business and Economics. This paper benefitted significantly from the generous comments of the AOS

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