Chasing Lemmings: Modeling IT-Induced Misperceptions About the Strategic Situation as a Reason for Flash Crashes

• 成果类型: Article
• 署名作者: Brandt, Tobias; Neumann, Dirk
• 署名单位: University of Freiburg; United States Department of Energy (DOE); Lawrence Berkeley National Laboratory; University of California System; University of California Berkeley; University of Freiburg
• 刊物名称: JOURNAL OF MANAGEMENT INFORMATION SYSTEMS
• ISSN/ISSBN: 0742-1222
• DOI: 10.1080/07421222.2014.1001258
• 发表日期: 2015
• 页码: 88-108
• 关键词: FLOW TOXICITY; INFORMATION; hypergames; liquidity; games

摘要

Flash crashes, perceived as sharp drops in market prices that rebound shortly after, have turned the public eye toward the vulnerability of information technology-based stock trading. In this paper, we explain flash crashes as the result of actions made by rational agents. We argue that the advancement of information technology (IT), which has long been associated with competitive advantages, may cause ambiguities with respect to the game form that give rise to a hypergame. We employ hypergame theory to demonstrate that a market crash constitutes an equilibrium state if players misperceive the true game. Once the ambiguity is resolved, prices readjust to the appropriate level, creating the characteristic flash-crash effect. By analyzing the interaction with herd behavior, we find that flash crashes may be an unavoidable systemic problem of modern financial markets.