Source: Michel Callon, “What does it mean to say that economics is performative?”, Chapter 11 in Donald MacKenzie, Fabian Muniesa & Lucia Siu (eds.), Do Economists Make Markets? On the performativity of economics, Princeton University Press 2007 (includes Google Book Search), p. 322
In context:
To predict economic agents’ behaviors an economic theory does not have to be true; it simply needs to be believed by everyone. Since the model acts as a convention, it can be perfectly arbitrary. Even if the belief has no relationship with the world, the world ends up corresponding with it.We can thus consider that the famous Black and Scholes formula has no truth value, that it says nothing of real markets, and that it is simply a coordination tool that allows mutual expectations. It constitutes a false but effective representation, and can be seen as pure convention. This is what Faulhauber [sic] and Baumol suggest in their article.
