Economic theory helped restore legitimacy to banned financial derivatives

Evidence

This analysis of the history of the Chicago Board Options Exchange explores the performativity of economics, a theme in economic sociology recently developed by Callon. Economics was crucial to the creation of financial derivatives exchanges: it helped remedy the drastic loss of legitimacy suffered by derivatives in the first half of the 20th century. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9

Categorization

• ADDENDUM: Parallels the legitimacy-struggle dynamics of moral panics over immodest dress in ‘Complaints About Immodesty Go Way Back’ — both trace how legitimacy is socially constructed and contested across time.
• SEED: Possible essay angle: how new ‘respectable’ theory launders the reputation of financially dubious instruments, analogous to how science legitimized other once-marginal practices.
• XREF: connects to: Markets gained legitimacy as experts lost it after 2008 — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 113; Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1135; Finance escaping crisis consequences legitimated the economics profession dodging blame — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 583 (+5 more)

Related

• Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling (similarity 0.89)
• Economic theory succeeded in derivatives markets partly by making markets conform to it (similarity 0.88)
• Efficient-markets theory helped legitimate options trading that regulators had long banned (similarity 0.84)
• Markets gained legitimacy as experts lost it after 2008 (similarity 0.82)
• The Black-Scholes model legitimized options trading by rebutting gambling stigma (similarity 0.81)
• Economic theory, not trader demand, forged the proposal for the stock-options exchange (similarity 0.81)
• The Black-Scholes methodology reshaped economists’ and regulators’ thinking beyond derivatives. (similarity 0.81)
• Consulting economists reframed options as legitimate investor strategy for regulatory approval (similarity 0.80)
• Academic theory directly motivated the creation of the organized options exchange (similarity 0.80)
• Economic theory and actual market practice cannot be radically separated in derivatives (similarity 0.80)
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. (similarity 0.79)
• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. (similarity 0.78)
• Black-Scholes theory erased the stigma of options as gambling (similarity 0.78)

Broader Connections

• Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling #corroborates (0.95) — Donald MacKenzie, An Engine, Not a Camera, 1135
• Economic theory, not trader demand, forged the proposal for the stock-options exchange #exemplifies (0.85) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 63
• Finance escaping crisis consequences legitimated the economics profession dodging blame #expands (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 583
• The economics profession and the Neoliberal Thought Collective symbiotically keep the financial system unaltered #expands (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 674