Financial models survive despite known false predictions when they remain useful.

Evidence

By the standards of a strict falsificationism, for example, virtually all the models discussed in this book should have been discarded immediately on the grounds that some of their predictions were empirically false. Yet financial economists did not discard them, and they were right not to. For instance, the Capital Asset Pricing Model (discussed in chapter 2) led to the conclusion that all investors’ portfolios of risky assets are identical in their relative composition. That was plainly not so, and it was known not to be so, but the model was still highly prized. — Donald MacKenzie, An Engine, Not a Camera, 60

Categorization

• DEFINE: Falsificationism as strict Popperian criterion would have killed the CAPM and most finance models, but the field kept them — defining what performativity actually requires vs. textbook falsification.
• XREF: Directly connects to the book’s overarching performativity thesis: models shape markets precisely because they are NOT treated as falsifiable descriptions. Core tension of the whole work. — connects to: A model’s false assumptions can still yield correct predictions through a different mechanism. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 244; The model’s assumptions became more realistic as markets restructured around it — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 741; Ideas survive by generating useful inferences, not by being true — Norenzayan, Ara, Big gods - how religion transformed…, 360 (+3 more)

Broader Connections

• Ideas survive by generating useful inferences, not by being true #corroborates (0.85) — Norenzayan, Ara, Big gods - how religion transformed…, 360
• Empirical testing can only fail to disconfirm, never confirm, models like the CAPM #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 408
• Unrealistic assumptions do not count as legitimate criticisms in financial economics #corroborates (0.78) — Donald MacKenzie, An Engine, Not a Camera, 63
• The model’s assumptions became more realistic as markets restructured around it #qualifies (0.72) — Donald MacKenzie, An Engine, Not a Camera, 741