Impersonal efficiency and the dangers of a fully automated securities exchange

Juan Pablo Pardo-Guerra, Daniel Beunza, Yuval Millo and Donald MacKenzie

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This report identifies impersonal efficiency as a driver of market automation during the past four decades, and speculates about the future problems it might pose. The ideology of impersonal efficiency is rooted in a mistrust of financial intermediaries such as floor brokers and specialists. Impersonal efficiency has guided the development of market automation towards transparency and impersonality, at the expense of human trading floors. The result has been an erosion of the informal norms and human judgment that characterize less anonymous markets. We call impersonal efficiency an ideology because we do not think that impersonal markets are always superior to markets built on social ties. This report traces the historical origins of this ideology, considers the problems it has already created in the recent Flash Crash of 2010, and asks what potential risks it might pose in the future.

JEL-codes: Z1 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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