Financial pricing formulas actively construct the markets they purport to measure

Evidence

Whether it is Callon’s investigations of financiers’ use of modelling technology or MacKenzie’s analysis of the production of financial instruments, these scholars are interested in what we might call the sociology of financial meaning-making. MacKenzie, for instance, has been at the forefront of identifying financial instruments as “performative”: according to MacKenzie, formulae like the famous Black–Scholes mechanism for derivative pricing do not simply reveal underlying market realities. Because they influence and shape subsequent financial decisions and the financial milieu more broadly, these formulae actively shape and build market realities. They are, in MacKenzie’s words, “an engine, not a camera”: they do not simply measure market realities; they help bring them into being. — Max Haiven, Cultures of Financialization, 84

Categorization

• DEFINE: Defines the performativity thesis in the sociology of finance — the claim that instruments like Black-Scholes shape rather than merely measure markets.
• XREF: Connects directly to deWaard’s cultural argument about finance colonizing imagination — this is the intellectual foundation for that claim. — connects to: Traders’ arbitrage activity made the pricing model appear empirically true — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 126; Markets carry explicit traces of the specific pricing models they use — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 899; Financial instruments shape markets rather than merely read them — Max Haiven, Cultures of Financialization, 401 (+10 more)
• ADDENDUM: Feeds the financialization-into-culture argument this chapter builds toward; supports the bridge to the reader’s stated goal.
• SEED: Angle: how the ‘engine not a camera’ insight extends beyond derivatives to everyday financial tools — credit scores, mortgage calculators, retirement planning apps all construct behavior they claim to measure.

Broader Connections

• Financial economics actively alters markets rather than merely describing them #corroborates (0.97) — Donald MacKenzie, An Engine, Not a Camera, 64
• Financial instruments shape markets rather than merely read them #corroborates (0.95) — Max Haiven, Cultures of Financialization, 401
• A market model can shape markets actively rather than merely describing them #corroborates (0.92) — Donald MacKenzie, An Engine, Not a Camera, 1165
• Economic theory succeeded in derivatives markets partly by making markets conform to it #corroborates (0.90) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9
• Markets carry explicit traces of the specific pricing models they use #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 899
• Financial theories can become true by guiding the practices they describe #corroborates (0.85) — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 38
• Option theory infrastructure allows derivatives markets to exist at current scale #corroborates (0.80) — Donald MacKenzie, An Engine, Not a Camera, 1138
• Modern financial markets are deliberately designed entities #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1235
• Market designers deliberately conflate actual markets with the abstract market #expands (0.72) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 2275