Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange1

By Donald MacKenzie, Yuval Millo. American Journal of Sociology, 2003

1,336 citations recorded by the source corpus.

This analysis of the history of the Chicago Board Options Exchange explores the performativity of economics, a theme in economic sociology recently developed by Callon. Economics was crucial to the creation of financial derivatives exchanges: it helped remedy the drastic loss of legitimacy suffered by derivatives in the first half of the 20th century. Option pricing theory—a “crown jewel” of neoclassical economics—succeeded empirically not because it discovered preexisting price patterns but because markets changed in ways that made its assumptions more accurate and because the theory was used in arbitrage. The performativity of economics, however, has limits, and an emphasis on it needs to be combined with classic themes in economic sociology, such as Granovetterian embedding and the way in which exchanges can be cultures and moral communities in which collective action problems can be solved.

Subfields: Economics and Econometrics, Organizational Behavior and Human Resource Management

View Paper: https://www.semanticscholar.org/paper/30a71c0a49fb9baf3b1987668c66fcc24e1ba97e

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Citations in the corpus

Financialised Capitalism: Crisis and Financial Expropriation (2009, methodology): “Penetrating sociological analysis of this process has been provided in a series of papers by MacKenzie 2003, 2004, for instance, and MacKenzie and Millo 2003.”
The democratization of finance? Promises, outcomes and conditions (2007, background): “Particularly interesting here is MacKenzie’s recent work on performativity and Black Scholes which argues that option prices first converge on the predictions of the model and then diverge after a stock market crash, as (reflexive) subjects learn what is not in the model (MacKenzie and Millo, 2003).”
Performing the economy, performing science: from neoclassical to supply chain models in the agrifood sector (2007, background): “2002) and others (Cochoy 2002a; MacKenzie and Millo 2003) have proposed a very different approach.”
Calculators, Lemmings or Frame-Makers? The Intermediary Role of Securities Analysts (2007, background): “Frame-making is thus consistent with the emerging performativity literature in economic sociology and its central claim that economic theories and artefacts format the economy by shaping the way in which value is calculated (Callon, 1998; Beunza and Stark, 2004; MacKenzie and Millo, 2003; Preda, 200”
Financialisation of Valuation (2015, background): “Financial modelling proposed to extract their value from the market price for the shares (or goods) concerned by the derivatives, and this valuation procedure made it possible to put them on the market by offering prices (MacKenzie 2006; MacKenzie and Millo 2003).”
The usefulness of inaccurate models: Towards an understanding of the emergence of financial risk management (2009, methodology): “This historical case was studied previously (MacKenzie & Millo, 2003; MacKenzie, 2006).”
Socio-Technical Agency in Financial Markets (2006, background): “Sociologists have recently argued that financial theory has a performative character: it changes the market processes it claims to describe (MacKenzie & Millo, 2003).”
CALCULATING ECONOMIC LIFE (2008, background): “Others such as Mackenzie and Millo (2003) argued in similar terms, though in this case with a focus on the ‘performativity’ of economics in the context of options trading.”
Accounting, Organizing, and Economizing: Connecting Accounting Research and Organization Theory (2013, neutral): “…within accounting is itself an epiphenomenon of the rise of financial economics as a body of practice and theory with a profoundly constitutive role for markets and organizations (Davis, 2009; Espeland & Hirsch, 1990; Mackenzie & Millo, 2003; Vollmer, Mennicken, & Preda, 2009; Whitley, 1986).”
Tracking the numbers: Across accounting and finance, organizations and markets (2009, background): “…may be re-directed towards microstudies of valuation, studies of audit systems towards studies of auditing struggles, as studies of market behaviour have been transformed into studies of aggregating microeffects of calculative practices spread across market participants (MacKenzie & Millo, 2003).”