From the abstract: “The authors study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, the authors find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena—induced by the behavior of non-informed traders—or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles.”  [ HT: Paul Kedrosky ]

As I read this article, I ended up just inserting the phase “market for legal services” when the author said something like “the economy” or “the middle class.”  In other words, the legal services industry has a number of the properties present in the overall economy.  Indeed, there are two distinct trends at play – one is cyclical and the other is structural.  The cyclical downturn in the market for legal services is related to broader economic conditions.  Thus, the downturn in demand specifically associated with the broader business cycle will abate once broader economic conditions improve.  The structural portion of the downturn is permanent and those jobs will not return.

Markets are not pleasant places – particularly when a mismatch develops between the skills / products that purchasers demand and the products / skills offered by sellers.  Indeed, while there is an “equilibrium” solution – the question is on what time-scale it will be obtained. In the short to medium term, disruption is likely to be the name of the game. This market is in transition and as such this is a period that simultaneously offers both peril and possibility.  Those who adapt to the conditions, who are entrepreneurial will do quite well.  Others will have great difficulty.  < Transition = peril for some ; Transition = Arbitrage opportunity for others >

As law’s information revolution continues to unfold, place your respective bets on folks who can blend skills such as data science, informatics, computer science / artificial intelligence, engineering, etc. with more traditional law pursuits. There is already some serious income inequality in the legal services market.  There is good reason to believe this gap is likely to expand. Technology is going displace lawyers and the $$ for the displacing technologist will be directly proportionate the #’s of folks he/she displaces.  In this vein, our industry is (unfortunately) just like every other industry.

It is important not to be fatalistic and to emphasize how individuals and institutions can respond. Students with a background in science and technology (rather than say the humanities, etc.) are likely to have a significant advantage in law’s information revolution. Institutions can help level this playing field by offering their students the requisite skills training necessary to be competitive within this new ordering. For example, at my new home – Michigan State University – College of Law – I will be teaching Quantitative Methods for Lawyers – a Winter 2012 course that will help students develop a number of relevant skills ( beyond those in the traditional statistics and the law course ). Indeed, although similar in some respects, I am positive this course will prove to be quite different ( and hopefully better? ) than any quantitative methods course currently offered at an American law school.  Either way, my goal is help put the students who take the course on the path to becoming the skill blender that the market is likely looking to hire.

Here are the modules that I plan to offer in the Winter 2012 course:

• 1. Motivating the Need for Quantitative and Analytical Thinking
• 2. Research Design
• 3. Introduction to Probability & Basic Statistics
• 4. Introduction to Regression Analysis 
• 5. Analogical Reasoning, Collaborative Filtering and the Science of Similarity
• 6. Research Design Revisited: Science (and Pseudo-Science) in the Courtroom
  
• 7. Regression Analysis and its use in the Law
• 8. Quantitative Legal Prediction
• 9. Network Analysis, Computational Linguistics, Clustering Algorithms (and the other Nuts and Bolts of E-Discovery), etc.
• 10. Mathematical and Computational Modeling
• 11. Legal Automation, Computation and the Law Practice of the Present (and Not So Distant Future)

This week’s issue of Nature offers two brief but meaningful articles on the financial crisis. Here are the abstracts:

Financial Systems: Ecology and Economics (By Neil Johnson & Thomas Lux): “In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk.”

Systemic Risk in Banking Ecosystems (By Andrew G. Haldane & Robert M. May): “In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk.”