Doug Henwood wrote: > As I recall, there was initially some doubt about whether the classic > Black-Scholes option pricing model was "correct" or not. But it was widely > adopted, and became self-fulfilling. Prices gravitated towards their > warranted BS (ha) levels.
In _Do Economists Make Markets? On the Performativity [yuk! jargon!] of Markets_ (edited by MacKenzie _et al_), perhaps the best article is by Donald MacKenzie. He argues that the introduction of B-S "performed" options markets, i.e, shaped the actual behavior of options prices to fit the B-S theory. But then after the 1987 panic, B-S became "counterperformative." That is, the "practical use of an aspect of economics [i.e., B-S] makes economic processes less like their depiction by economics." Phil Mirowki & Edward Nik-Khan's article is also very good, but MacKenzie's is the best within the "Performativity" perspective. The article by the founder of that school (Michel Callon) seems total B-S. (My review of the book showed up in SCIENCE & SOCIETY, October 2008.) -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
