Even failed empirical tests boosted finance theory’s credibility through testability itself.
Evidence
Computers were needed to apply finance theory’s models to trading. They also were needed to test the models against market data. As will be discussed in chapter 4, the results of those tests were by no means always positive, but as in analogous cases in the natural sciences (Harvey 1981) the very fact of finance theory’s testability added to its credibility. It also helped the field to grow by creating roles in financial economics for those whose skills were primarily empirical rather than theoretical. Without computers, testing would have been very laborious if not impossible. — Donald MacKenzie, An Engine, Not a Camera, 43
Categorization
- DEFINE: This is a key part of how performativity works methodologically: not that models pass tests, but that being testable at all confers epistemic authority.
- DEEPTHINKING: The claim that failed tests still added credibility is genuinely counterintuitive — the reflexive structure (testability itself builds authority regardless of outcome) is a subtle point worth sitting with.
- XREF: connects to: The Institute kept theory loosely coupled to empirical results to protect its totality claims — Rolf Wiggershaus, The Frankfurt School: Its History,…, 722; Empirical failure to find an optimal capital structure helped birth the MM irrelevance theorem. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1425
Broader Connections
- Empirical failure to find an optimal capital structure helped birth the MM irrelevance theorem.
#exemplifies(0.85) — Donald MacKenzie, An Engine, Not a Camera, 1425