The systemic role of technology in financial instability

Demetis, Dionysios

Abstract

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.

Citation

Demetis, D. (2017). The systemic role of technology in financial instability. In N. Ryder, J. Tucker, & U. Turksen (Eds.), The financial crisis and white collar crime: legislative and policy responses (59-80). Abingdon, Oxon: Routledge. https://doi.org/10.4324/9781315652009

• Online Publication Date: Sep 19, 2017
• Publication Date: Feb 6, 2017
• Deposit Date: Apr 6, 2017
• Publicly Available Date: Aug 28, 2018
• Journal: The financial crisis and white collar crime
• Publisher: Routledge
• Peer Reviewed: Not Peer Reviewed
• Pages: 59-80
• Series Title: The law of financial crime
• Book Title: The financial crisis and white collar crime: legislative and policy responses
• Chapter Number: 5
• ISBN: 9780367030315; 9781138119970
• DOI: https://doi.org/10.4324/9781315652009
• Keywords: Information Systems
• Public URL: https://hull-repository.worktribe.com/output/450418
• Publisher URL: Full details of the book are available at https://www.routledge.com/The-Financial-Crisis-and-White-Collar-Crime---Legislative-and-Policy-Responses/Ryder-Turksen-Tucker/p/book/9781138119970