Economists defended options by arguing they expand investors’ strategic repertoires

Evidence

In their contribution to the Nathan Report, Baumol, Malkiel, and Quandt argued that options “enrich the investor’s repertoire of strategies by allowing him to realize a different set of payoffs than he would have realized in their absence.” Just as the possibility of carrying an umbrella was an advantage to the pedestrian, “the more strategies are available to the investor, the better off he is likely to be” (Nathan Associates 1969, vol. — Donald MacKenzie, An Engine, Not a Camera, 665

Categorization

• SHARE: The umbrella analogy for options as a payoff-repertoire expansion is a charming, quotable formulation from three prominent Princeton economists — worth sending to anyone teaching options theory.
• DEFINE: Defines the ‘strategy enrichment’ framing that underpinned the early performative justification of exchange-traded options.
• XREF: connects to: 1960s economists reframed stock options as rational and desirable despite Wall Street’s dismissal — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 650; Black-Scholes rhetoric replaced ‘gambling’ with ‘efficient pricing’ in options discourse — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 705; Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1135 (+1 more)

Broader Connections

• Black-Scholes rhetoric replaced ‘gambling’ with ‘efficient pricing’ in options discourse #corroborates (0.82) — Donald MacKenzie, An Engine, Not a Camera, 705
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. #corroborates (0.82)
• Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1135