Idea: markets for ideas?

I've been thinking recently about what-I-call "idea markets". Many organizations and systems tend to think of themselves as that: organizations, hierarchies and systems. But what happens if we think of these organizations and systems differently, as a marketplace where the products are ideas? Here's what I think might happen:

1. The best ideas will come regardless of hierarchy: command-and-control might not work as well. There is a certain democratization that happens from a marketplace approach (assuming that your organizational culture isn't hierarchical), as anyone could have an idea that could work. Does the best idea necessarily come from your boss? No, as the marketplace might already have a solution. Often the best ideas come from one's clients or co-workers. 
2. Crowdsourcing will be more commonplace. Crowdsourcing tends to work best when there is enough depth to demand. Hence, the most commonplace tasks/requirements will likely have the biggest drivers for crowdsourcing (i.e. getting inputs directly from the market) and also for collaborative efforts (especially if the idea-market in question is within the same organization).
3. Career progressions might become different due to different impact of different ideas. For an idea market to work, it must have the main characteristics of a market: strong economic incentives for "effective products", similarly disincentives for "faulty products". However, this type of market incentive is quite different from the traditional pay and incentives of a traditional organization and hierarchy; indeed, it is much more like the incentives for an entrepreneur, and better fits an entrepreneurial mindset than a traditional hierarchy-man/woman. The flipside to this is that an idea market is likely to drive greater income inequality between the top and bottom earners in an organization. 

I'm sure what I'm writing about isn't new and has already been thought of or invented by someone else. Will be happy to hear more comments/feedback from people about it.

Should capital markets slow down?

I've been following the recent Knight Capital algorithm debacle for some time, and am a bit puzzled: what's the advantage of allowing all these algorithms to run amok in the capital markets? In particular, those algorithms that make hundreds of trades per second.

Brokerages and exchanges will want these algorithms in the market, since algos will allow them to earn commissions. With a global trend of declining commissions, most brokerages and exchanges need to increase the volumes to make up for the declining commission rates. Prop firms (including hedge funds and proprietary desks of investment banks) will want these "algos", since the algos supposedly give an "edge" (i.e. competitive advantage over the rest of the market). As my previous trading boss used to say, "no edge, no profit". 

However, if you look at the capital markets on the whole, it's hard to see how the advantages outweigh the risks involved. A rogue algorithm running amok in the market can react much more quickly than any human, causing markets to crash without any underlying economic basis: besides this Knight Capital incident, the Flash Crash of 2010 also comes to mind. This can spread fear through a market faster than you can swear "F----"... and fear (as an emotion) is a dangerous emotion to have spreading throughout a market. Worse, once a "situation" occurs, it's next to impossible to stop it without disrupting the entire market's function. High frequency trading basically raises the possibility of more negative black swans, without any real economic benefit.

It's also arguable if allowing milli- and micro-second trades helps in the price discovery process: is it really meaningful price discovery between a willing buyer and seller who can cognize the price and economic benefit/cost, or is it just "noise" between one algo and another? Can it really be meaningful price discovery if a human watching the exchange (even an experienced floor trader) won't be able to cognize the price, as it just happens far too quickly?

Perhaps as a policy, exchanges globally should consider limiting the speed of transactions, s.t. an algorithm cannot be faster than, say, the typical human reaction time on an electronic trading desk. Otherwise, we run a real risk that the Machines will overtake the markets, and leave us wondering what happened in the aftermath. 

It's been a while...

I haven't blogged on this since I started working in my current organisation. This had to do with lack of time, but also lack of familiarity with the environment: what can I write about? What can't I write about (especially since I'm under the Official Secrets Act)? Rather than risk it all with commentary, I thought it safer to wait a while, understand the "new" landscape, before taking any risks. (The Polish saying "only a fool tests unknown waters with both feet" comes to mind...)

Hence, after a three year absence, I've decided to dip a tiny portion of my little toe into these once-familiar waters. Why? The answer is similar to George Mallory's reply, when he was asked why he climbed mountains: because it's there. If you were to try a six-year-old's interrogation technique (of repeatedly asking "why" to every reply), Mr. Mallory would probably have replied "because I like climbing" and ultimately "because it's fun".

And so, in my case, I'm writing again in this blog, because (a) this blog is here, and some previous blog entries were pretty good, in my not-so-humble opinion, (b) because I like writing, and (c) because I find writing fun.

It's also the case that a blog serves as a great way to capture ideas and thoughts. Reading some of my older blog entries, it's unthinkable for me to be replicate them, largely because the moment is lost. Reading a blog entry, for me, is a bit like re-acquainting myself with my past-self. It's like meeting an old friend (i.e. my self from the past), or more accurately, like a ghost or a memory.

To be sure, there are a few things that this blog won't capture:

1. Nothing mundane ("I ate breakfast today. I had an egg omelette that was fan-TASTIC and black coffee blah blah blah".... FTS). You don't need to know when I take a crap, as it's my own business (literally). 
2. Nothing official or official-related. Everything here is my own personal view and take, and shouldn't be viewed as representative of my affiliates, employers, etc. 

This blog is really an intellectual playground for myself, since I tend to think aloud (but not so quickly that I can verbally improvise). So, really, this blog is a mirror for myself, for me to talk to myself like a narcissistic schizophrenic with split personality disorder. 

But you're welcome to listen in the dialogue. And to comment, too. 

:)