Modigliani-Miller propositions resist empirical testing because risk classes cannot be fixed

Evidence

Merton Miller put it this way: “The M&M [Modigliani and Miller] model was much harder to implement empirically [than the Capital Asset Pricing Model]… It’s very difficult to prove `empirically’ the M&M propositions holding even as approximations. You … can’t hold everything else constant.” (Miller interview) In other words, you can’t empirically identify in an unequivocal way the “risk classes” described in appendix A. — Donald MacKenzie, An Engine, Not a Camera, 389

Categorization

• QUESTION: If the M&M propositions can’t be tested even approximately, what does it mean to call them true? Worth chasing how performativity handles untestable theory.
• XREF: connects to: Popper restricted scientific progress to the context of refutation — Rolf Wiggershaus, The Frankfurt School: Its History,…, 2417; Contradictory econometric results cannot be adjudicated a priori — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 108; Early critics rejected Modigliani-Miller for lacking any empirical grounding — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 195 (+8 more)

Broader Connections

• The Efficient Market Hypothesis resists empirical falsification through the protective shield of auxiliary hypotheses #expands (0.80) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 753
• Open-ended theories inviting unlimited added conditions become unfalsifiable and impractical #expands (0.75)
• Empirical testing can only fail to disconfirm, never confirm, models like the CAPM #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 408
• Virtue theory resists empirical testing and risks causal circularity #exemplifies (0.72) — Albert Bandura, Moral Disengagement, 205