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Durham University

Institute of Advanced Study

Past Events

Professor Donald MacKenzie: $74,000 for Every Human Being on Earth - Models and the Growth of Financial Derivatives Markets

26th November 2007, 18:15, The Calman Learning Centre, room 202

In January 1970, there was no organized financial-derivatives exchange anywhere in the world. Derivatives were often regarded (including by market regulators) as little better than bets on price movements, and indeed many of today's derivatives contracts would have been regarded legally as wagers, and hence prohibited in the US and unenforceable in the UK.

At the end of December 2006, the total notional amount of financial derivatives outstanding worldwide was $486 trillion, the equivalent of $74,000 for every human being on Earth. While the figure exaggerates the economic significance of financial derivatives, they have become crucial to the functioning of modern financial markets.

This talk will discuss the role of economic models (especially the theory of options) in this transformation, and in particular will examine the extent to which the adoption of those models brought into being the 'world' (market conditions and price patterns) they posited.

Donald MacKenzie is a professor of sociology at Edinburgh University. His work, which has mostly been in the sociology of science and technology, has led to five books: Statistics in Britain, 1865-1930: The Social Construction of Scientific Knowledge (1981); Inventing Accuracy: A Historical Sociology of Nuclear Missile Guidance (1990); Knowing Machines: Essays on Technical Change (1996); Mechanizing Proof: Computing, Risk, and Trust (2001); An Engine, not a Camera: How Financial Models Shape Markets (2006). The last of these books reflects his current research interest in the sociology of markets.

This lecture is the third in the 'Models of the Future' public lecture series.