“Predicting the Unpredictable”, Harvard Business Review, March 2002.

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Three years ago, Nasdaq faced a prickly problem. It wanted to reduce the tick size of its trading, which was then 1/8 of a dollar, to 1/16 and eventually down to 1/100. Among market professionals, the perceived wisdom was that the change would let buyers and sellers negotiate in more precise terms, thus driving down the market’s spread between bid and ask prices. But the organization was wary that the move toward decimalization might backfire, leading to inefficiencies or, worse, loopholes that people could abuse. In the past, Nasdaq executives had analyzed the financial marketplace through economic studies, financial models, and other research. But the move to a smaller tick size was unknown territory that defied traditional analyses. How could Nasdaq ensure that decimalization would not muck up the system?

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