Black-Scholes rhetoric replaced ‘gambling’ with ‘efficient pricing’ in options discourse

Evidence

As the work of Black and Scholes became well known, it undermined the long-standing cultural association between options and gambling: … Black-Scholes was really what enabled the exchange to thrive… It gave a lot of legitimacy to the whole notions of hedging and efficient pricing, whereas we were faced in the late 60s-early 70s with the issue of gambling. That issue fell away, and I think BlackScholes made it fall away. It wasn’t speculation or gambling, it was efficient pricing. I think the SEC very quickly thought of options as a useful mechanism in the securities markets and it’s probably that’s my judgment the effects of Black-Scholes. I never heard the word “gambling” again in relation to stock options traded on the Chicago Board Options Exchange. (Rissman interview) That the theoretical work of Black and Scholes could effectively be deployed to defend options’ legitimacy did not, however, mean that the theory was adequate as an empirical description of prices. — Donald MacKenzie, An Engine, Not a Camera, 705

Categorization

• SHARE: Worth sending to anyone interested in how scientific/aesthetic framing launders moral status of financial instruments.
• XREF: connects to: Speculation’s moral triumph over gambling rested on discursive framing rather than underlying imagination — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 616; The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling.; The legitimate investor is distinguished from the gambler only by a socially constructed discourse — Max Haiven, Cultures of Financialization, 327 (+8 more)

Broader Connections

• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #expands (0.95) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62