Finance in the land of make-believe
It is rare to encounter a fascinating book on epistemology masquerading as a description of modern finance, but here one is: hence its review in this venue. On the surface, it presents itself as an essay absolving mathematical financial models of any culpability in the late global financial crisis; but I regard this as an evasive bait-and-switch maneuver masking its real agenda, which is to raise the stakes in what is conventionally known as the ‘performativity debate’ within the philosophy of economics.
Put crudely, the notion of performativity boils down to an initial proposition that economists’ models do not ‘describe’ an independent reality, but instead create situations where their prescriptions and predictions come ‘true.’ Early statements of this notion were neither very deep nor much grounded in what economists actually did, but then it got picked up by the field of social studies of finance [SSF], and from there became a favorite of the Sociology of Scientific Knowledge (SSK)...
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