Finance theorists valued tractable, non-obvious models over practically useful ones.

Evidence

For a finance theorist, the key to achieving peer recognition was the development of good models. “Good” meant economically plausible, innovative, and analytically tractable. A model that neither its developer nor anyone else could solve was unlikely to be seen as good. The most influential models, notably the Capital Asset Pricing Model and the Black-Scholes-Merton model, yielded as their solutions relatively simple equations. However, a good model also could not be “obvious” and thus at risk of being seen by theorists’ peers as trivial (as Sharpe had feared would happen to the first equilibrium model he produced in his work on capital asset pricing). — Donald MacKenzie, An Engine, Not a Camera, 1098

Categorization

• DEFINE: Precisely defines what ‘good’ meant within finance theory’s reward structure — the criteria are economic plausibility, innovation, and analytic tractability, with simplicity and non-obviousness as constraints.
• XREF: connects to: Martingale theory’s prestige drew pure mathematicians into finance by 1990 — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 623; Academic finance theorists used models for insight, not profit-seeking. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1110

Broader Connections

• Academic finance theorists used models for insight, not profit-seeking. #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1110