A crash explanation’s formal model does not make it more testable
Evidence
Unlike many other discussions of the 1987 crash (for example, by the Brady Commission), Leland and Gennotte’s explanation of the role of portfolio insurance in the crash involves an explicit economic model. Ultimately, however, it is no more provable (or disprovable) than other explanations of the crash. It has, however, an important aspect: its explicit link to “sunshine trading,” a means of repairing the rational market. — Donald MacKenzie, An Engine, Not a Camera, 876
Categorization
- DEFINE: Introduces ‘sunshine trading’ as the repair mechanism connecting the 1987-crash narrative to deliberate market transparency.
- XREF: connects to: Open-ended theories inviting unlimited added conditions become unfalsifiable and impractical