The systemic role of technology in financial instability
In: The financial crisis and white collar crime
Legislative and policy responses
The law of financial crime
Demetis, Dionysios S.
This chapter examines the role of Information Systems (IS) in creating financial instability by automating critical decision-making processes. By following a systems theoretical approach after Lee and Demetis (2016) and based on a few fundamental systems principles, the chapter identifies theoretical propositions about the nature of technology in constructing financial markets, and by extension, financial crises. The chapter draws from a few instances of the Dow Jones Industrial Average crisis of 2010, also known as the Flash Crash of 2:45 where $1trillion was lost in market value within a few minutes. This is used as an example of technology out of control where algorithmic trading creates contingencies that affect how different stakeholders interact and re-act. Based on the entanglement of systems principles and technological interference, the main hypothesis that is developed in this chapter is that technology is largely set to lead in the creation of future instabilities and amplify the degree of uncertainty in markets. Ultimately, this aims to highlight the broader role of technology in the financial system, not as a tool that can be strictly harnessed to support transacting, but as a system in itself that has both emergent and unintended consequences, one of which escalates to the concept of a financial crisis.
- Demetis, D (2017) The systemic role of technology in financial instability, in The Financial Crisis and White Collar Crime - Legislative and Policy Responses, (Eds: Nicholas Ryder, Umut Turksen, Jon Tucker), Routledge
- Additional notes
- This is a description of a book chapter published in The Financial Crisis and White Collar Crime - Legislative and Policy Responses, (Eds: Nicholas Ryder, Umut Turksen, Jon Tucker), Routledge. The full text of the chapter will be available in this repository on 6 August 2018.
- Abingdon, Oxon