Peter Levin’s Rethinking Markets

August 30, 2007

When Information Markets Should Work

Filed under: Daily — Peter @ 9:58 am

Information markets are all the rage. You can dip your feet in the waters with this article by James Surowiecki, whose Wisdom of Crowds has catapulted the idea into the public imagination. Robert Hanson has done lots of work here as well, and his fingerprints are on the FutureMAP project. Crookedtimber has had a number of posts over the last several years about them as well. In thinking through the relationship between information markets and other speculative markets, I have some thoughts on them too.

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August 28, 2007

Organizational chaos

Filed under: Daily — Peter @ 5:23 pm

Is there anything worse that today’s airline travel, from a customer service point of view? I realize that this is a form of transportation that has gotten incredibly cheap, logistics are complex, competition is cutthroat.
And yet. Our flight from New York to Chicago - which has to be one of the most common routes - was a paragon of organizational stupidity. At the check-in counter, a long line of passengers waited for 5 agents. In the next bay over, six machines were there to facilitate self-check-in. Of the six machines, 4 were broken, with no one servicing them. Get your self-service ticket, and go to the agent to get your tags? Instead of calling out names as they came out, another half-shambled line formed, and they took customers in half-random sequence.

Before we left, I checked the AA website and the flightchecker widget on my Mac. AA says the flight is on time, flightchecker says it’s delayed by 40 minutes. When we checked in at the pre-security gate, the flight was listed as ‘on time’. At the gate, the flight was listed as delayed by 45 minutes (assumedly for weather, we never really found out). Gate was changed, again for unknown and unannounced reason.

I won’t even touch on security, though there is a dissertation in there about the transformation of undirected, amorphous anxiety into specific fears. So instead of just being afraid of bad stuff happening, we’re told to be wary of particular kinds of things - whether or not these things are at all correlated to actual security. It’s not, as many suggest, an illusion of security. It is the channeling of fear into specific concern. These are different propositions.

The new proposition for American Airlines is to give you beverages and sell you food. $3 for a candy bar. Rock on, AA, this is clearly where your future profits will all be recouped.

Upon arrival, I noticed that the traditional norm of waiting for people in front of you to get off the plane before you take off down the aisle seems also to be gone.

And an hour late, with our bags in tow, this actually constitutes a good experience in air travel now.

If I was senior management for this airline, I would be embarrassed. I would be ashamed. I wonder if s/he is.

August 22, 2007

Why energy markets are a hotbed for black box trading

Filed under: Daily — Peter @ 4:55 pm

Is it because energy futures have unique risk-qualities? That there is something special about historical relationships of risk in these markets? That they attract a particular brand of quant. trader? Um, well, yes and no.

From Futures Industry Magazine:

Energy is one of the hottest areas for algorithmic futures trading right now. Especially for the high-frequency trading community. Over the past two years, the IntercontinentalExchange has invested heavily in its technology platform to make its energy futures market more attractive to algorithmic traders, improving both its speed and capacity. Once the New York Mercantile Exchange listed its crude oil contract for round-the-clock trading on Globex in August 2006, the race was on.

“As soon as Nymex moved to Globex, we started getting calls,” says Jesper Alfredsson, head of algorithmic trading at Orc Software. “The Globex platform is well known to algorithmic traders, and the arbitrage with ICE is suited very well for that kind of trading.”

Both exchanges offer a FIX-based application programming interface and both permit trading firms to locate their servers close to their matching engines. (See “Co- Location Catches On”.) This gives electronic traders rapid access to their markets, with order message round-trip times measured in milliseconds.

In June of this year, Nymex gave another push to the trend, listing options on its energy and metals futures on the Globex platform. Alfredsson sees this as especially interesting for options market makers active in other electronic options markets, who can now apply the same automated quoting technology in a class of options that up to now have traded either on the Nymex floor or in the over-the-counter markets, neither of which is suited for algorithmic trading.

The lesson? The content of the contract is pretty arbitrary compared to the institutional mechanism that determines the trading strategy.

Culture and markets

Filed under: Daily — Peter @ 12:24 am

I’m working on a paper on culture and economic sociology - a sort-of review article of how culture gets used in the field. My main argument is that the field has until most recently been effectively split in its use of culture. Some markets have culture, while other markets are culture. The former, particularly in the literature on embeddedness, treat culture as a kind of independent variable, which has important implications for performance outcomes for those markets. The latter, by contrast, treats the market itself as problematic, and culture becomes something to be transformed into market.

This may parallel a bit Ann Swidler’s argument about culture during ’settled’ and ‘unsettled’ times, though here it’s not entirely clear what a settled market really is - art markets have been around forever, are quite stable, it’s hard to think of them as settled. Contested vs. uncontested is closer, but I’m still trying to manage the distinctions.

The danger here, is the theoretical blindness vis-a-vis the opposite quadrants of the box. More recent work (Kieran, some of the STS) is moving towards trying to understand the way settled markets are also culture, and unsettled markets also have a culture. Shifting from continuum to a more orthgonal theoretical conception is where the innovation is at the moment.

My two examples are pollution and commodities markets, where I’ve done work. We’ll see how this turns out..

August 20, 2007

Some of my lessons from 2007 ASA

Filed under: Daily — Peter @ 7:40 pm

1) Talks where you spend 1/2 the time talking about the literature review almost never work, and often make people’s eyes glaze over. I am middling at speaking myself, but telling the audience something interesting is more important than reminding them that you’re well-read in your field.

2) I found the sessions less inspiring than I have in past years. I don’t know what this is about - it could be that when the conference is in the city in which you live, you have a different relationship to the conference. It could be that the sessions were less interesting. It could be that I’m at a moment where I’m finding it hard to be inspired by, and to learn from, other people’s work. I hope it’s one of the first two.

3) I really continue to enjoy connecting with friends and colleagues. It seems there are clusters of colleagues, but my favorite kind are the ones that contain people who I care about, and whose work I find interesting. They don’t give as much a crap about status, and they treat me and others not as potential antagonists, but as potential colleagues and collaborators. There continue to be these folks from my graduate school days, and I feel I’ve hopefully added some along the way.

4) Kieran Healy is smart and nice, and he calmed me down at a key technological juncture that could have been a lot more disastrous than it ended up being.

5) Substantively, there’s a lot of work to do. Networks are getting a bit short shrift as compared to years past, and while there is buzz about performativity and STS, the work isn’t there yet. I know what I mean by it, but I don’t think it’s the same thing that, say, Philip Mirowski means by it. I’m not sure this is such a bad thing, but there’s still a lot of slippery conceptualization of this area at this moment.

6) My own preference is to not worry about the economists-make-markets / economists-discover-markets distinction too much, as I think it’s a rabbit trail. Interesting, potentially radical, but ultimately less helpful than some of the more proximate insights. My own pet is something like price ontology and its contours, but whatever. The forms and processes of formatting markets is really interesting. What are mechanisms for transforming people into market actors, interest into rationality, etc. etc.? How does these processes interact with organizational structures, environments, cognitive schema, regulation? I want to really know more about these kinds of things.

7) More people should pay attention to Ryon Lancaster and Mike Sauder. They are both smart, interesting, have souls, and they’ll be in the top echelon of sociologists in a decade.
Organize roundtables once in your career, and then never do it again.

August 18, 2007

Intermediaries and Ambiguity

Filed under: Daily — Peter @ 9:12 pm

Marc Ventresca and I wrote a quickie article for the London Times a few years back, a short what’s-what of economic sociology. In it, we wrote the following:

Intermediaries are vivid in these cultural and organizational studies of markets. They are, at the individual level: brokers, experts, consultants, analysts, and appraisers. They also work at the organizational level, as: mediating organizations, independent ratings agencies, standardized testing services. The role of intermediaries extend beyond the role of information broker, reducing uncertainty. Instead, they work to resolve ambiguity. Resolving ambiguity is necessary classificatory and commensuration work that allows markets to achieve settlement – of buyers and sellers, of rules and regulations, of the fungibility and legitimacy of commodities. The broader wisdom in this studies is a turn away from a comfortable and domesticated concern with uncertainty reduction. It is a core engagement with the myriad forms of ambiguity that stymie efficient “markets” in the standard economic sense and provide the challenges whose resolutions configure markets in particular ways. Traditional brokers address problems of information uncertainty. We emphasize the work of cultural intermediaries who manage core ambiguities in markets that make comparisons possible, such as the terms of valuation, metrics and categories.

This is what I want to take from the entanglement discussion. I’m not quite as interested in a doing to economics what STS has done to scientists, but I can certainly see it. I just don’t have as much a dog in that fight.

By contrast, I do think that this kind of category construction, valuation, metric-making, and the like are all less provocative but more productive. They are, as a number of us in this area have said, the sociology of the invisible, the infrastructure, the boring. Accounting systems, valuation, categorization, these are things which reduce ambiguity to a sufficient degree that we can have uncertainty. And then we can argue over price, efficiency, markets. This is where there is work to do. It’s not enough to say that the work of making categories, commensurating, disentanglement is all prior. You can’t set that in place and then look at how markets unfold from them. They are prior and ongoing, but relatively invisible. That’s important.

August 9, 2007

Performativity, yet again

Filed under: Daily — Peter @ 11:18 am

This critique, by Omar at OrgTheory, has the dual distinction of being snidely pissy and wrong. First the pissy. Omar suggests that the apparently “busy schedule of a Parisian anthropologist of science” doesn’t accommodate the study of “big” markets, where representational critique is much better than performativity. I also enjoyed the dig that fancy Parisians don’t like pizza, and so understanding markets that bring milk to your breakfast table are also quite outside the pale. Whatever, guy. Particularly because this snark is outside the problems discussed in the rest of the critique, it’s just gratuitous. Talk to one or two of the people you’re thinking about here - do they really seem stupid?

Second, the wrong. Substantively, I’m not a huge fan of performativity myself, but Omar’s problem is not its problem. Look at the historical agora and fairs - both of which encompass ‘big’ markets and put the food on the table - described by Richard Swedberg (in Chapter 6 of Principles of Economic Sociology): the Greek marketplace had physical boundaries, inspectors, stamped currency, and judges. What is all of this infrastructure, if not the dis-entanglement and re-fashioning of social arrangements into a rudimentary ‘market’-ish environment?

If you take Callon et al on its face, there were not economists, nor was there much economic theory. And if that’s the only takeaway from this strand of research (that economists make markets) then yes. I’ve made this critque myself, that there are markets that pre-date economists. But I have also come to be convinced that this is a too shallow reading of the possible research impulses of the social studies of finance group. Economics makes markets today because in today’s markets, they are the actors who theorize and make markets. Current finance is an extreme example of a phenomenon that has much wider applicability. I imagine that NAFTA and immigration laws that conceptualize immigrants as ‘workers’, or ‘citizens’ or some combination; anti-trust policy; environmentalism (carbon credits most recently); Carruthers and Babb wrote about how in S. Africa in the 19th century ‘labor’ had to be theorized and created rather than just discovered. The list, IMHO, goes on. I’d love to see, e.g., an analysis of the 1940s bracero program and the subsequent ‘operation wetback’ which conceptualized Mexican men as pure labor units, and its success and/or failure in transforming people into these categories.

Once one assumes settledness of the categories and actors, then we can do analyses of upstream/downstream market-making. But even this settledness falls apart, or at least requires continued maintenance.

In short, it’s more complicated than simply differences in choice of empirical object, and while performativity does have problems, the ones Lizardo identifies are not among them. STS would certainly do itself a service by analyzing some of these non-strawberry markets, but I think it wouldn’t kill the insight.