Academic finance theorists used models for insight, not profit-seeking.

Evidence

What divided Thorp from Black, Scholes, and Merton was a difference in goals. Thorp was not trying to pursue a career in academic financial economics. His aim was to find arbitrage opportunities, and his modeling work was mainly a means to that end. In contrast, Merton and (at least at that stage of their careers) Black and Scholes were oriented above all to their academic peers: seeking to make money from National General warrants was a sideline. Their model was designed to offer an elegant, economically insightful account of the processes determining option prices. They did not see modeling, as Thorp did, primarily as a tool for identifying opportunities for profitable trading. — Donald MacKenzie, An Engine, Not a Camera, 1110

Categorization

• XREF: connects to: Finance theory met smooth reception in academia but hostility from market practitioners. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 333; Finance theorists valued tractable, non-obvious models over practically useful ones. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1098; Patronage, not analysis, explains academic economists’ crisis positions. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 874 (+1 more)

Broader Connections

• Patronage, not analysis, explains academic economists’ crisis positions. #complicates (0.85) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 874
• An academic economist supplied the models that sank AIG with credit default swaps. #qualifies (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 567