Beyond Zero and One (Andrew Smart) / quote 74 of 171
Algorithms herd more than human investors
Today, the stock market is almost completely automated. Complex algorithms execute trades in milliseconds, making decisions involving billions of dollars without any human intervention. Each innovation to these algorithms makes them faster, so that one investment bank can complete a trade three milliseconds faster than the competition. The computer architecture and algorithms that run the stock market are far too complex for any individual person to understand, much less control. These algorithms, despite their incomprehensible speed, exhibit all the dangerous properties of human investors. In fact, the algorithms may be “more than human” in an unexpected way. Dr. Didier Sornette, professor and the chair of entrepreneurial risks at the Swiss Federal Institute of Technology Zurich (otherwise known as Einstein’s old school, ETH Zürich), contends they have a higher propensity for herding behavior than human investors.