Performativity and efficiency both potentially explain the formula’s growing accuracy.

Evidence

By the late 1970s, then, Black-Scholes was widely used by CBOE traders, and in the 1980s it began to be incorporated into the CBOE’s informational infrastructure. Gradually, “reality” (in this case, empirical prices) was performatively reshaped in conformance with the theory. However, perhaps the Black-Scholes formula came to be adopted, and came to describe prices accurately, simply because it was “right,” because it gave the correct way to price options? Perhaps the poor early fit of the formula was just a passing consequence of an inefficient market, fated to diminish as the CBOE reached efficiency? If that were so, a claim of performativity would be an empty gloss on a process better understood in conventional economic terms. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 131

Categorization

• DEEPTHINKING: The passage frames the core methodological challenge of the performativity thesis: how to distinguish theory-constructing-reality from theory-merely-discovering-pre-existing-reality — a genuinely hard interpretive problem worth sitting with.
• XREF: connects to: Efficiency is treated as uncontestable truth rather than a contestable value — David Theo Goldberg, The Racial State, 121; Barnesian performativity means models create the price patterns they describe — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 148; Performativity shifts analysis from model accuracy to model use effects — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1239 (+1 more)

Related

• Performativity claims must be distinguished from the market merely converging on a correct theory. (similarity 0.91)
• Not every authoritative formula can make itself true; only viable ones become performative. (similarity 0.85)
• Gradual market learning is the rival explanation to performativity (similarity 0.84)
• Financial theories can become true by guiding the practices they describe (similarity 0.83)
• The market changed to fit Black-Scholes rather than the reverse (similarity 0.82)
• Barnesian performativity means models create the price patterns they describe (similarity 0.82)
• Performativity shifts analysis from model accuracy to model use effects (similarity 0.82)
• Option pricing theory serves as the test case for performativity. (similarity 0.82)
• The Black-Scholes model gained market traction slowly, not through instant self-fulfilling prophecy. (similarity 0.82)
• Black-Scholes-Merton theory shaped exchange fortunes before markets changed to match it. (similarity 0.81)
• Using a model can make markets conform less well to it. (similarity 0.81)
• Black-Scholes price deviations fell from 2 percent to under 1 percent by 1986 (similarity 0.81)
• Studying performativity forces attention to the very market objects economics analyzes. (similarity 0.80)
• Black-Scholes legitimized options despite fitting prices only approximately (similarity 0.80)
• The model’s use helped create the price patterns the model predicted (similarity 0.79)

Broader Connections

• Performativity shifts analysis from model accuracy to model use effects #corroborates (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1239
• Not every authoritative formula can make itself true; only viable ones become performative. #qualifies (0.82) — Donald MacKenzie, An Engine, Not a Camera, 96
• Barnesian performativity means models create the price patterns they describe #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 148
• Efficiency is treated as uncontestable truth rather than a contestable value #expands (0.78) — David Theo Goldberg, The Racial State, 121