Pricing theory initially spread through a tiny minority of convinced disciples

Evidence

One manager, Michael Greenbaum, tried to teach option theory to market makers: “He’d stay late to give seminars and two people would show up, and it would be Joe Doherty [Sullivan’s deputy, who became an options trader] and somebody else, and they were already fully sold disciples… He’s trying to bring in some new technology [option-pricing theory] and nobody would use it or pay for it.” (Carusillo and Struve interview 1) However, a sudden surge in stock prices in April 1978 caused huge losses to market makers who had sold large numbers of insufficiently hedged calls, and some were forced out of the market: those who had sold the 280s lost their Mercedes, so to speak. — Donald MacKenzie, An Engine, Not a Camera, 744

Categorization

• XREF: Sparse early adoption of a technical innovation despite evident value is a classic diffusion-of-innovations pattern, linking to Rogers and to the frictions performativity must overcome. — connects to: Option pricing theory did not describe markets but remade them in its own image — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 182; Options pricing theory grew despite options being a minor financial instrument — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 530; Option pricing converged on economic models through traders copying other users. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 183 (+3 more)

Broader Connections

• Belief systems are creative inventions of a tiny minority diffused as unexamined packages #exemplifies (0.85) — John T. Jost and Jim Sidanius, Political Psychology, 1869
• Options pricing theory grew despite options being a minor financial instrument #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 530
• Option pricing theory did not describe markets but remade them in its own image #complicates (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 182
• Option pricing converged on economic models through traders copying other users. #expands (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 183
• Traders’ arbitrage activity made the pricing model appear empirically true #expands (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 126
• Spanning multiple options markets forced firms to adopt pricing models #expands (0.72) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 121