An Engine, Not a Camera: How Financial Models Shape Markets

Donald Mackenzie’s book An Engine, Not a Camera is an impressive but dense tour of general financial theory and the impact of models like Black-Sholes, CAPM, EMH, and Modigliani-Miller on real-world financial actors. In a variation on George Soros’s “reflexivity,” Mackenzie stresses what he calls “performativity,” which argues that the emergence and adoption of theories and models actually cause the world to behave closer to the (typically EMH) ideal assumed by economists. (Separately, here is a very good 2012 paper from Mackenzie on the financial crisis. Mackenzie has also contributed a number of must-read articles to the LRB.)