Asset prices can embed subjective probabilities of events that never actually occur

Evidence

Financial economists refer to the possibility that prices may reflect the subjective probability of an event that does not in fact take place in the time period studied as a “peso problem.” The reference is to the influence on the prices of Mexican assets in the period of managed exchange rates of the possibility of a sudden, large devaluation of the peso. — Donald MacKenzie, An Engine, Not a Camera, 1587

Categorization

• DEFINE: Defines a technical term central to the performativity debate: prices reflect expectations, not just realized outcomes, which is why model calibration against history can fail.
• XREF: connects to: Financial assets are largely imaginary, yet imaginary does not mean unreal — Max Haiven, Cultures of Financialization, 29; Financial asset prices reflect speculative circulation, not underlying real value — Max Haiven, Cultures of Financialization, 80; Early warrant pricing theory grounded market price in marginal investors’ expectations and preferences — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 537 (+2 more)