The Black-Scholes methodology reshaped economists’ and regulators’ thinking beyond derivatives.

Evidence

The methodology offers not just “theoretical” prices but also a clear and systematic account of the economic process determining those prices. This account altered how economists conceived of a broad range of issues: the pricing not just of derivatives but also of more “basic” securities, such as bonds, and even the analysis of decisions outside of the sphere of finance that can be seen as involving implicit options. It affected how market participants and regulators thought about options, and it still does so, even if the phase of the Barnesian performativity of the original Black-Scholes-Merton model has passed. — Donald MacKenzie, An Engine, Not a Camera, 99

Categorization

• XREF: The model as ‘an engine, not a camera’ — how a tool of analysis becomes a tool of intervention — grounds the whole financialization literature. — connects to: The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling.; Economic theory succeeded in derivatives markets partly by making markets conform to it — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9; Black-Scholes rhetoric replaced ‘gambling’ with ‘efficient pricing’ in options discourse — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 705 (+5 more)

Broader Connections

• Black-Scholes rhetoric replaced ‘gambling’ with ‘efficient pricing’ in options discourse #exemplifies (0.96) — Donald MacKenzie, An Engine, Not a Camera, 705
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. #expands (0.92)
• Economic theory succeeded in derivatives markets partly by making markets conform to it #qualifies (0.80) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9
• Black-Scholes-Merton theory shaped exchange fortunes before markets changed to match it. #expands (0.78) — Donald MacKenzie, An Engine, Not a Camera, 629
• Chicago economics directly inspired the financial derivatives and deregulation behind the crisis #corroborates (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 497
• Economic theory, not trader demand, forged the proposal for the stock-options exchange #exemplifies (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 63
• Finance theory altered its own empirical object of study #expands (0.72) — Donald MacKenzie, An Engine, Not a Camera, 388
• Post-crash repairs aimed to recreate the idealized Black-Scholes pricing world. #exemplifies (0.72) — Donald MacKenzie, An Engine, Not a Camera, 884