Even efficient-market theorists privately acknowledged mispricings existed.

Evidence

Ultimately, though, what divided Thorp from Black, Scholes, and Merton was not empirical. Black’s, Scholes’s, and Merton’s practical actions are evidence that they too accepted that mispricings that offered opportunities for profit did sometimes exist. While looking for ways of testing their model empirically, Black and Scholes identified apparently unduly cheap warrants issued by a corporation called National General. “Scholes, Merton, and I and others jumped right in and bought a bunch of these warrants” (Black, 1989, p. 7), just as Thorp might have done. — Donald MacKenzie, An Engine, Not a Camera, 1109

Categorization

• XREF: connects to: Even the efficient-market theory’s own authors doubted full strong-form efficiency. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 295; Market efficiency means prices fully reflect available information. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 291; Even prominent efficient-market theorists attributed Buffett’s returns to chance — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 343 (+7 more)

Broader Connections

• The efficient market hypothesis survived every empirical refutation and became finance orthodoxy #expands (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 758
• Efficient-markets theorists treated the 2008 crash as confirming their doctrine #contradicts (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 494
• Practitioners knew market anomalies before academics documented them #corroborates (0.78) — Donald MacKenzie, An Engine, Not a Camera, 425
• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #corroborates (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62
• The efficient-markets hypothesis erased discussion of bubbles and speculation #expands (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 749