Normalisation of Deviance

July 5, 2012 § 1 Comment

Algorithmic Trading or High Frequency Trading or Black Box Trading according to a new report by the British Government’s Office for Science, Foresight, is set to replace Human Trading in the global stock markets. This form of trading is undertaken through decisions made by computers, primarily based upon large volumes of information/data related to previous market behaviour. In 2007, 50% of all equity trading in the United States was undertaken via algorithms and at present, this is 75%. In Europe, it is presently 40%.

The Future of Computer Trading in Financial Markets (Foresight, Goverment Office for Science, UK 2012)(cover)

In the working paper, titled, The Future of Computer Trading in Financial Markets (the full report is due at the end of 2012), the research project outlines the benefits and costs of such processes. The authors describes how in a decade, algorithms will be able to essentially self evolve through their ability to ‘experience’ i.e. building upon their previous market experiences and therefore requiring no human intervention. However, they do warn, that within such a framework, there exists the potential for what they describe as ‘instability’ through the Normalisation of Deviance which they identify as when ‘unexpected and risky events come to be seen as ever more normal (eg. extremely rapid crashes), until a disaster occurs’

We’re running through the United States with dynamite and rock saws so that an algorithm can close the deal three microseconds faster, all for a communications framework that no human will ever know; that’s a kind of manifest destiny.

The above words by Kevin Slavin were made in relation to the present construction of a high-speed fibre-optic cable between Chicago and New York to facilitate black box trading and comes from his TED talk titled, How Algorithms Shape Our World. Addressing some of the thematics outlined in the Foresight working paper. Slavin, a designer and consultant in the field of technology, argues, ‘that we’re living in a world designed for, and increasingly controlled by, algorithms’, and through the course of his presentation shows ‘how these complex computer programs determine espionage tactics, stock prices, movie scripts, and architecture’. Critically, Slavin warns how ‘we are writing code we can’t understand, with implications we can’t control’.

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