September 19, 2014
In this issue of the London Review of Books, Donald Mackenzie describes the communication technologies that help high frequency traders do their thing (Be Grateful for Drizzle, v. 36:17). After an extensive discussion of how fibre-optic cables, microwaves, millimetre waves, and laser transmission through the atmosphere move information between the exchanges, Mackenzie asks a relatively straightforward question:
The right question to ask about high-frequency trading is not just whether high-frequency traders are good or bad, or whether they add liquidity to the markets or increase volatility in them, but whether the entire financial system of which they are part is doing what we want it to do.
Compare and contrast to Vasant Dhar, former HFT trader and Head of Information Systems at Stern School who wrote in a commentary at CNBC:
Let’s not risk our markets to a populist-based reaction that asks whether HFTs do any “social good,” but rely instead on an objective analysis of the “big data” that emanates from the markets.
On the one hand science studies says that technologies can be designed to accommodate a variety social visions. On the other, once in place, material infrastructures do constrain the kinds of choices we can make.
I definitely think we have to treat big data analytics as a space where political battles can happen in data-saturated systems, but it can’t be the only one. And yet, the dominance of digital data must neutralize some of the tools that social scientists usually deploy to contribute to the conversation. Not all conversations about the social good are possible, but which ones are…?
Since exchanges are not my topic of research, I’m sort of off the hook on this one. But still, I’m left wondering how to go about taking a position.
September 11, 2014
A post written by Dane Pflueger and Tommaso Palermo
As a recent NY Times article has pointed out, the public rankings regime in higher
education is changing. From the elusive quest of determining quality or ‘who’s
the best’, public and private authorities in America have moved to the even more
daunting quest of determining best value, or, as the article explains it, ‘where you
can get the most bang for your buck’.
Although, as the article makes clear, there are innumerable different ways in which
this new notion of best value is being measured and expressed, it is made possible,
in principle, by placing a denominator, cost, below those sort of public measures that
might be summarised as quality.
Best Value = Quality/Cost
We might consider this movement to be simply another instantiation of the public
ranking phenomena, producing yet another set of dysfunctional effects through
mechanisms such as reactivity and commensuration to use Espeland and Sauder’s
However, one ranking is not necessarily the same as any other. As accountants are
well aware, fractions are very different from integers. Indeed, as we aim to quickly
show here, drawing from examples in management accounting, public rankings
that are conceptually-conceived fractions, might produce quite distinct sorts of
phenomena and effects.
The movement from an integer to a fraction reorients attention and action in two
directions. Faced with the fraction quality/cost, administrators confront two options
for increasing performance: increase quality or reduce cost.
This sounds initially like a more enlightened form of ranking than quality alone.
Indeed, it transforms inputs from a constraint on performance, into an asset, thus
injecting the notion of performance with a more relative and even democratic appeal.
No longer, it might be argued, is organizational performance constrained by one’s market
or business model. Instead, quality is reconstituted as something closer to ‘fit for purpose’.
However, much management accounting literature has drawn attention to the fact
that such options are heavily constrained by the organization’s existing place in the
league table, leading to ‘under-optimization’ from the standpoint of the system as a
whole is a common result.
In the case of the Return on Investment ration (Profit/Assets), which is conceptually
similar to Best Value, organizations that initially achieve high performance are
encouraged to under-invest in assets that will be productive from the system
perspective, but that will lower the ROI of the individual unit. At the same time, poorly
performing units are encouraged to invest to generate new returns, but at much less
efficient rate than the system as a whole. The net result is that overall performance
of the system declines at the inside of the edges: either through under-investment in
profitable assets or over-investment in unprofitable ones.
In the educational setting, using quality/value as a primary public measure of
performance might manifest itself as a constraint on overall educational market,
discouraging high performing universities from expanding its offerings into less
value products, while encouraging low performing universities to expand poor value
The movement from an integer to a fraction also highlights the distinctive relationship
between the numerator and denominator, which presumably interact in a quite
specific manner. In the ROI regime, there is seen to be an imperfect relation
between return and investment. Managers, it is sometimes thought, can increase
returns by increasing investment, but very good managers can increase return/
investment at a higher rate. This may be true in the long term, but in the short
term, ‘very good managers’ are made by exploiting the imperfect relationship
between the two terms, often in dysfunctional ways. Managers, for example, often
manipulate the timing of investment and booking of revenues so as to drive a
temporarily artificial wedge between the two and increase returns.
In the educational context, the relationship between cost and quality is under-
explored and undoubtedly complex. We might imagine that, like ROI, the best value
school, like the good manager subject to ROI calculations, will try to interact the
two terms opportunistically (shifting more costs from tuition to fees, for example, or
borrowing heavily to boost quality at one point, only to pay for it in increased fees
It is also unclear how quality and cost relate and interact. If cost and quality relate
in a perfectly elastic way, then the ratio merely presents different possibilities for
organizations to move along the ratio line, repositioning itself in a different ‘market’
but not affecting the overall value of the product delivered. This scenario might be
quite likely given the existing arguments about costs simply providing market proxies
If cost and quality are perfectly inelastic, then the ratio merely presents two variables
to optimise without considering them to have a tradeoff or mutual effect. Hence we
would have merely an extension of the ranking system on merely a number of new
One final point relates to those who produce or sponsor a ranking system for higher
education institutions. As a recent article shows, ranking systems themselves
‘compete’ with each other. A successful ranking is one that combines familiarity
(some universities have to be at the top!) and surprise (something unexpected that
attracts the attention of the media). On this basis, it is clear that the production of a
specific ranking system is far from being a neutral game.
Considering all the unintended consequences and behavioral problems that rankings
may trigger, the question is whether some sort of auditing or external certification
of the quality of rankings might help. The answer is probably not. As shown in
Free at al. (2009) on the FT ranking, the auditing of the data underlying
universities’ rankings is subject to several constraints leading to the auditing of the
relatively small portion of data that indeed is auditable.
In summary, rankings need to be handled with extreme caution by university
administrators and those responsible for allocating funds to the higher education
sector. The cursory discussion of changes in the public measure system suggests
some interesting questions to be pursued regarding the changing public measures
regime in education. Often a number is seen to be just the same as any other
number, but a closer attention to the type and form of the number might help
us better understand the many complex ways in which public measures and
organizational performance intertwine.
Tommaso Palermo is a Lecturer in Accounting at the London School of Economics.
Dane Pflueger is an Assistant Professor in Performance Management at at Copenhagen Business School.
September 8, 2014
Here’s some great news. Today the Wall Street Journal is running an article on the research that Yuval and I have been doing for ah… a number of of years, on the New York Stock Exchange.
You can find a link to the newspaper article here here.
September 2, 2014
Blog readers may be interested in “Capitalizing on Performativity: Performing on Capitalization”, a symposium to be held at the Ecole des Mines de Paris on 16-17 October 2014. Details on purpose, content and form here.
August 27, 2014
Christian Borch, professor at Copenhagen Business School, has been awarded a prize from the ASA’s theory section for his excellent work in The Politics of Crowds (Cambridge, 2013). The book traces the changing relationship between crowds and rationality within 19th Century sociology.
Christian reminds us that long before ‘ask the audience’ was a useful lifeline on Who Wants to be a Millionaire?, crowds were considered to be a destructive, contagious and irrational force that could threaten social order. To get a taste for the history, you can check out an early article where he argues that the “re-description of crowd behaviour in rational terms” obliterated “almost every distinguishing trait that the crowd possessed according to 19th-century semantics” (see European Journal of Social Theory, 2006).
Since completing the book, Christian has launched a research colloquium to explore ‘Crowd Dynamics and Financial Markets’. If you can’t make it to Copenhagen, the website for the initiative is an interesting resource where you can learn more about some of the work-in-progress on finance across Europe.
On November 24-25, the group will host a special workshop on ‘High-frequency trading sociality, crowd psychology and dynamic collectives‘. Abstracts no longer than 500 words should be submitted to Ann-Christina Lange (email@example.com) by September 30 2014.
August 7, 2014
In 1992, Stella Liebeck was badly burned when a cup of coffee from McDonalds spilled on her lap.
If you’re curious to know more about how and why a jury of her peers awarded her $2.9 million then have a look at this thoughtful review of the story on RetroReports, a documentary news initiative that revisits and reexplains big stories from decades past.
This is an excellent case study in valuation. Liebeck’s story shows that value doesn’t make sense without also understanding the process, the mechanism, by which value is assessed.
If you thought the case was frivolous have a good look at the photos of the physical damage Liebeck suffered. It’s hard to grasp how so much damage could have been caused by a little cup of coffee. The images featured in the report are truly gruesome.
July 17, 2014
CFP: Investigating High-Frequency Trading. Theoretical, social and anthropological perspectives.
For details click the following link: CFP – Investigating HFT
Ann-Christina Lange, Assistant Professor, Copenhagen Business School (firstname.lastname@example.org).
Marc Lenglet, Lecturer in Management, European Business School Paris (email@example.com).
Robert Seyfert, Postdoctoral Fellow, Cluster of Excellence, Konstanz University (firstname.lastname@example.org).
Deadline (for Workshop 1 in Copenhagen): September 30, 2014.