Efficient Prices at Any Cost: Does Algorithmic Trading Deter Information Acquisition?

I demonstrate a powerful tension between acquiring information and incorporating it into asset prices, the two core elements of price discovery. As a salient case, I focus on the transformative rise of algorithmic trading (AT) typically associated with improved price efficiency. Using a measure of the relative information content of prices and a comprehensive panel of 37,325 stock-quarters of SEC market data, I establish instead that algorithmic trading strongly decreases the net amount of information in prices. The increase in price distortions associated with the AT “information gap” is roughly $42.6 billion/year for U.S. common stocks around earnings announcement events alone. Information losses are concentrated among stocks with high shares of algorithmic liquidity takers relative to algorithmic liquidity makers, suggesting that aggressive AT powerfully deters fundamental information acquisition despite its importance for translating available information into prices.

Cost-effectiveness analysis of the diagnosis of meniscus tears.

BACKGROUND: Diagnostic imaging represents the fastest growing segment of costs in the US health system. This study investigated the cost-effectiveness of alternative diagnostic approaches to meniscus tears of the knee, a highly prevalent disease that traditionally relies on MRI as part of the diagnostic strategy. PURPOSE: To identify the most efficient strategy for the diagnosis of meniscus tears. STUDY DESIGN: Economic and decision analysis; Level of evidence, 1. METHODS: A simple-decision model run as a cost-utility analysis was constructed to assess the value added by MRI in various combinations with patient history and physical examination (H&P). The model examined traumatic and degenerative tears in 2 distinct settings: primary care and orthopaedic sports medicine clinic. Strategies were compared using the incremental cost-effectiveness ratio (ICER). RESULTS: In both practice settings, H&P alone was widely preferred for degenerative meniscus tears. Performing MRI to confirm a positive H&P was preferred for traumatic tears in both practice settings, with a willingness to pay of less than US$50,000 per quality-adjusted life-year. Performing an MRI for all patients was not preferred in any reasonable clinical scenario. The prevalence of a meniscus tear in a clinician's patient population was influential. For traumatic tears, MRI to confirm a positive H&P was preferred when prevalence was less than 46.7%, with H&P preferred above that. For degenerative tears, H&P was preferred until the prevalence reaches 74.2%, and then MRI to confirm a negative was the preferred strategy. In both settings, MRI to confirm positive physical examination led to more than a 10-fold lower rate of unnecessary surgeries than did any other strategy, while MRI to confirm negative physical examination led to a 2.08 and 2.26 higher rate than H&P alone in primary care and orthopaedic clinics, respectively. CONCLUSION: For all practitioners, H&P is the preferred strategy for the suspected degenerative meniscus tear. An MRI to confirm a positive H&P is preferred for traumatic tears for all practitioners. Consideration should be given to implementing alternative diagnostic strategies as well as enhancing provider education in physical examination skills to improve the reliability of H&P as a diagnostic test. CLINICAL RELEVANCE: Alternative diagnostic strategies that do not include the use of MRI may result in decreased health care costs without harm to the patient and could possibly reduce unnecessary procedures.

Young toddlers' word comprehension is flexible and efficient.

Much of what is known about word recognition in toddlers comes from eyetracking studies. Here we show that the speed and facility with which children recognize words, as revealed in such studies, cannot be attributed to a task-specific, closed-set strategy; rather, children's gaze to referents of spoken nouns reflects successful search of the lexicon. Toddlers' spoken word comprehension was examined in the context of pictures that had two possible names (such as a cup of juice which could be called "cup" or "juice") and pictures that had only one likely name for toddlers (such as "apple"), using a visual world eye-tracking task and a picture-labeling task (n = 77, mean age, 21 months). Toddlers were just as fast and accurate in fixating named pictures with two likely names as pictures with one. If toddlers do name pictures to themselves, the name provides no apparent benefit in word recognition, because there is no cost to understanding an alternative lexical construal of the picture. In toddlers, as in adults, spoken words rapidly evoke their referents.