What is a Flash Crash? Financial Market Order Breakdowns and the Production of Culture

• In Event: Market Codes: Bureaucrats, Brokers, and Algorithms

Abstract

Economists see financial markets as mechanisms of price finding and asset allocation, but from an action-oriented sociological perspective, they are first and foremost interaction systems structured in terms of response presence and the coercive need for continuous attention. In this paper, I take the latter perspective to look at the kind of financial market crashes that developed in the last 20 years with the rise of algorithmic trading. The paper analyzes one of the earliest and best documented of these events in detail to show that a crash is not sudden blast or breakdown as when the Space shuttle Challenger exploded in 1986 and several Space X Starship prototypes did the same in 2023-25. It is rather a process of trading that bears a number of specific characteristics and was interrupted for minutes only when the technological infrastructure faltered; trading resumed quickly to the effect that nothing fatal or even interesting economically speaking happened. There was however a symbolic effectiveness of the flash crash. The paper details how financial action and the cultural production of an interaction order with algorithms are intertwined, and the particular value of such ritual-like crashes for the recognition algorithms find as traders in financial markets.

Author

• Karin Knorr Cetina, University of Chicago