The model’s assumptions became more realistic as markets restructured around it

Evidence

Gradually, though, many of the Black-Scholes-Merton model’s assumptions gained greater verisimilitude. Stock borrowing became easier, for example as the trust departments of U.S. banks began to be prepared to lend out stocks owned by their clients (Faulkner 2004, p. 47), and the balance of market power began to shift, with borrowers obtaining increasing proportions of the interest on the proceeds of short sales (Thorp interview). A protracted struggle over the New York Stock Exchange’s fixed commissions ended with their abolition in May 1975. The speed of transmission of stock prices from New York to Chicago was increased, and better communications and increasing automation made it quicker and easier to adjust the replicating portfolio. — Donald MacKenzie, An Engine, Not a Camera, 741

Categorization

• XREF: The counter-performativity/performative feedback loop — institutional changes (commission abolition, stock lending, faster transmission) making assumptions true — is the heart of MacKenzie’s thesis and connects to the broader financialization literature on market infrastructure. — connects to: Using a model can make markets conform less well to it. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 92; Judging whether markets conform to a model is itself a contested process. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 114; Economists’ modeling may bend economic reality toward theoretical assumptions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 116 (+12 more)

Broader Connections

• Market conditions moved toward the model’s assumptions partly because of the model itself #corroborates (0.98) — Donald MacKenzie, An Engine, Not a Camera, 1155
• Economic theory succeeded in derivatives markets partly by making markets conform to it #corroborates (0.92) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9
• The model’s use helped create the price patterns the model predicted #exemplifies (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1154
• Option pricing theory did not describe markets but remade them in its own image #exemplifies (0.90) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 182
• Models can become true by reshaping reality to fit them #expands (0.88) — Brian Christian, The Alignment Problem, 1426
• A market model can shape markets actively rather than merely describing them #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1165
• Traders’ arbitrage activity made the pricing model appear empirically true #corroborates (0.80) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 126
• Traders arbitraging model discrepancies directly improved the model’s econometric test results #exemplifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 146
• Financialization shifts markets from calculation to speculation, destroying predictability #contradicts (0.70) — Wendy Brown, Undoing the Demos, 742