Skip to main content Accessibility help

Is Economics Performative? Option Theory and the Construction of Derivatives Markets

  • Donald Mackenzie (a1)


The thesis that economics is “performative” (Callon 1998) has provoked much interest but also some puzzlement and not a little confusion. The purpose of this article is to examine from the viewpoint of performativity one of the most successful areas of modern economics, the theory of options, and in so doing hopefully to clarify some of the issues at stake. To claim that economics is performative is to argue that it does things, rather than simply describing (with greater or lesser degrees of accuracy) an external reality that is not affected by economics. But what does economics do, and what are the effects of it doing what it does?

That the theory of options is an appropriate place around which to look for performativity is suggested by two roughly concurrent developments. Since the 1950s, the academic study of finance has been transformed from a low-status, primarily descriptive activity to a high-status, analytical, mathematical, Nobel-prize-winning enterprise. At the core of that enterprise is a theoretical account of options dating from the start of the 1970s. Around option theory there has developed a large array of sophisticated mathematical analyses of financial derivatives. (A “derivative” is a contract or security, such as an option, the value of which depends upon the price of another asset or upon the level of an index or interest rate.)



Hide All
Austin, J. L. (1962) How to Do Things With Words (Oxford: Clarendon).
Austin, J. L. (1970) Philosophical Papers, 2nd edition (Oxford: Clarendon).
Bachelier, Louis (1900) Théorie de la speculation, Annales Scientifiques de l'Ecole Normale Supérieure, third series, (17), pp. 2286.
Barnes, Barry (1983) Social Life as Bootstrapped Induction, Sociology, 17 (4), pp. 524–45.
Barnes, Barry (1988) The Nature of Power (Cambridge: Polity).
Bernstein, Peter L. (1992) Capital Ideas: The Improbable Origins of Modern Wall Street (New York: Free Press).
Black, Fischer (1975a) Fact and Fantasy in the Use of Options, Financial Analysts Journal, 31 (4), pp. 3641, 6172.
Black, Fischer (1975b) The Option Service: An Introduction, Personal papers of Mark Rubinstein.
Black, Fischer (1988) The Holes in Black-Scholes, Risk, 1/4 (03), pp. 3032.
Black, Fischer, and Scholes, Myron (1972) The Valuation of Option Contracts and a Test of Market Efficiency, Journal of Finance, 27 (2), pp. 399417.
Black, Fischer, and Scholes, Myron (1973) The Pricing of Options and Corporate Liabilities, Journal of Political Economy, 81 (3), pp. 637–54.
Bourdieu, Pierre (1991) Language and Symbolic Power (Cambridge: Polity).
Brady Commission (1988) Report of the Presidential Task Force on Market Mechanisms (Washington, D.C.: U.S. Government Printing Office).
Bronzin, Vinzenz (1908) Theorie der Prämiengeschäfte (Leipzig and Vienna: Franz Deuticke).
Callon, Michel (1986) Some Elements of a Sociology of Translation: Domestication of the Scallops and the Fishermen of St Brieuc Bay, in: Law, John (Ed) Power, Action and Belief: A New Sociology of Knowledge? (London: Routledge and Kegan Paul), pp. 196233.
Callon, Michel (1998) The Laws of the Markets (Oxford: Blackwell).
Callon, Michel (2004) Economies as Co-Performances: Economics's Contribution: How to Get Rid of Austin without Losing Him. Powerpoint presentation to workshop, The Performativities of Economics, Paris, August 29–30.
Callon, Michel, and Muniesa, Fabian (2003) Les marchés économiques comme dispositifs collectifs de calcul, Réseaux, 21 (122), pp. 189233.
Cox, John C., and Rubinstein, Mark (1985) Options Markets (Englewood Cliffs, N.J.: Prentice-Hall).
Didier, Emmanuel (2004) Les statistiques “performent” elles l'économie? Paper presented to workshop at The Performativities of Economics, Paris, August 29–30.
Faulhaber, Gerald L., and Baumöl, William J. (1988) Economists as Innovators: Practical Products of Theoretical Research, Journal of Economic Literature, 26 (2), pp. 577600.
Galai, Dan (1977) Tests of Market Efficiency of the Chicago Board Options Exchange, Journal of Business 50 (2), pp. 167–97.
Gastineau, Gary L. (1975) The Stock Options Manual (New York: McGraw-Hill).
Gastineau, Gary L. (1979) The Stock Options Manual, 2nd edition (New York: McGraw-Hill).
Gladstein, M. L. (1999) Interview conducted by author, New York, 15 11 1999.
Holm, Petter (2003) Which Way is Up on Callon? Sociologisk Årbok, 1, pp. 125–56.
Hull, John C. (2000) Options, Futures, & Other Derivatives (Upper Saddle River, NJ: Prentice-Hall).
Hutchins, Edwin (1995a) Cognition in the Wild (Cambridge, MA: MIT Press).
Hutchins, Edwin (1995b) How a Cockpit Remembers Its Speeds, Cognitive Science, 19 (3), pp. 265–88.
Jackwerth, Jens Garsten (2000) Recovering Risk Aversion from Option Prices and Realized Returns, Review of Financial Studies, 13 (2), pp. 433–51.
Jackwerth, Jens Garsten, and Mark, Rubinstein (1996) Recovering Probability Distributions from Option Prices, Journal of Finance, 51 (5), pp. 1611–31.
Kairys, Joseph P. Jr, and IIIValerio, Nicholas (1997) The Market for Equity Options in the 1870s, Journal of Finance, 52 (4), pp. 1707–23.
Kassouf, Sheen T. (1965) A Theory and an Econometric Model for Common Stock Purchase Warrants (Brooklyn, NY: Analytical Publishers).
Krishna, Daya (1971) “The Self-Fulfilling Prophecy” and the Nature of Society, American Sociological Review, 36 (6), pp. 1104–107.
Latour, Bruno (1987) Science in Action (Cambridge, MA: Harvard University Press).
Latour, Bruno (1999) Pandora's Hope: Essays on the Reality of Science Studies (Cambridge, MA: Harvard University Press).
MacKenzie, Donald (2001) Physics and Finance: S-terms and Modern Finance as a Topic for Science Studies, Science, Technology, and Human Values, 26 (2), pp. 115–44.
MacKenzie, Donald (2003) An Equation and its Worlds: Bricolage, Exemplars, Disunity and Performativity in Financial Economics, Social Studies of Science, 33 (6), pp. 831–68.
MacKenzie, Donald (2004) The Big, Bad Wolf and the Rational Market: Portfolio Insurance, the 1987 Crash and the Performativity of Economics, Economy and Society, 33 (3), pp. 303–34.
MacKenzie, Donald (2006) An Engine, Not a Camera: How Financial Models Shape Markets (Cambridge, MA: MIT Press).
MacKenzie, Donald and Millo, Yuval (2003) Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange, American Journal of Sociology, 109 (1), pp. 107–45.
Mehrling, Perry (2005) Fischer Black and the Revolutionary Idea of Finance (New York: Wiley).
Merton, Robert C. (1973) Theory of Rational Option Pricing, Bell Journal of Economics and Management Science, 4 (1), pp. 141–83.
Merton, Robert C. (1976) Option Pricing when Underlying Stock Returns are Discontinuous, Journal of Financial Economics, 3 (1–2), pp. 125–44.
Merton, Robert C., and Bodie, Zvi (2005) The Design of Financial Systems: Towards a Synthesis of Function and Structure, Journal of Investment Management, 3 (1), pp. 123.
Merton, Robert K. (1948) The Self-Fulfilling Prophecy, Antioch Review, 8 (Summer), pp. 193210.
Millo, Yuval (Forthcoming) Talking about Risk: Risk Assessment Methods as Communicative Media in Financial Markets, Science, Technology, and Human Values, (under consideration).
Mirowski, Philip (1995) Mandelbrot's Economics after a Quarter Century, Fractals, 3 (3), pp. 581600.
Mirowski, Philip and Nik-Khah, Edward (2004) Markets Made Flesh: Callòn, Performativity, and a Crisis in Science Studies, augmented with consideration of the FCC auctions, Paper presented to workshop, The Performativities of Economics, Paris, August 2930.
Parkinson, Michael (1977) Option Pricing: The American Put, Journal of Business, 50 (1), pp. 2136.
Passell, Peter (1997) 2 Get Nobel for a Formula at the Heart of Options Trading, New York Times 10 15: D1 and D4.
Rissman, Burton R. (1999) Interview conducted by Author, Chicago, IL, 11 9.
Ross, Stephen A. (1987) Finance, in: Eatwell, John, Milgate, Murray, and Newman, Peter (Eds) The New Palgrave Dictionary of Economics, vol. 2, (London: Macmillan), pp. 322–36.
Rubinstein, Mark (1994) Implied Binomial Trees, Journal of Finance, 49 (3), pp. 771818.
Rubinstein, Mark (2000) Interview conducted by Author, Berkeley, CA, 06 12.
Scholes, Myron S. (1998) Derivatives in a Dynamic Environment, in: Les Prix Nobel 1997 (Stockholm: Almquist), pp. 475502.
Searle, John R. (1996) The Construction of Social Reality (London: Penguin).
Seligman, Joel (1982) The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance (Boston: Houghton Mifflin).
Swensen, David F. (2000) Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment (New York: Free Press).
Taleb, Nassim (1998) How the Ought Became the Is: Futures and OTC World, Black-Scholes-Merton Supplement, pp. 3536.
Thorp, Edward O. and Kassouf, Sheen T. (1967) Beat the Market: A Scientific Stock Market System (New York: Random House).
Wellemeyer, Marilyn (1973) The Value in Options, Fortune 88/5 (11), pp. 8996.
Whitley, Richard (1986a) The Rise of Modern Finance Theory: Its Characteristics as a Scientific Field and Connections to the Changing Structure of Capital Markets, Research in the History of Economic Thought and Methodology, 4, pp. 147–78.
Whitley, Richard (1986b) The Transformation of Business Finance into Financial Economics: The Roles of Academic Expansion and Changes in U.S. Capital Markets, Accounting, Organizations and Society, 11 (2), pp. 171–92.
Zimmermann, Heinz and Hafner, Wolfgang (n.d.) Professor Bronzin's Option Pricing Models (1908), typescript.


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed