There’s lots of what’s known as tail risk. Most of the time, it works great. Most of the time, computerized trading makes stock markets more efficient, and it’s easier and cheaper for investors, both large and small, to trade. And it’s a good thing for everybody. But every so often, things can go horribly wrong, and we don’t know when and we don’t know how and we don’t know what the consequences might be. And that huge uncertainty, I think, is the biggest danger in the markets right now.

Felix Salmon on the use of algorithms, the smell test, and high frequency trading: via NPR

Our financial markets have become a largely automated adaptive dynamical system, with feedback. There’s no science I’m aware of that’s up to the task of understanding its potential implications.

Michael Kearns, professor at the University of Pennsylvania: via Wired, quoted by Felix Salmon, who framed his observation, “That’s a tacit admission that the system has outgrown the humans that created it…Even if each individual algorithm makes perfect sense, collectively they obey an emergent logic”

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