Herbert Simon, whose "behavioral" criticism of financial economics was discussed in chapter 2, would no doubt have felt that option theory in the 1960s was a perfect manifestation of his point. The theoretical formulas for the values of options and warrants always involved unobservable parameters, in particular the parameter on whose unobservability Simon had focused, a stock's expected rate of return. Furthermore, attempts to work backward from observed option prices to estimate expected stock returns and other underlying parameters had proved frustrating: no entirely convincing estimates had been generated.

Donald MacKenzie, An Engine, Not a Camera, loc. 541