2016/12/09 09:15 Karin Knorr-Cetina, “The Technosphere of Finance: Three Transitions and then What?”, IFIP WG8.2

Plenary #ifipwg82 Karin Knorr-Cetina, Keynote IFIP WG 8.2 Working Conference, Dublin 2016

Seamus Kelly, IFIP WG8.2Introduction by Séamas Kelly, The Centre for Innovation, Technology & Organisation, University College Dublin

This digest was created in real-time during the meeting, based on the speaker’s presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, by David Ing.

Welcoming Karin Knorr-Cetina, U. Chicago, Otto Borchert Distinguished Service Professor, Departments of Sociology and Anthropology

  • Science and Technology Studies
  • Post-social relations, to broaden social inquiry, relations with objects as well as other human beings:  interobjectivity

Karin Knorr-Cetina, IFIP WG8.2[Karin Knorr-Cetina]

Title has changed from “What If the Screens Went Black? The Coming of Software Agents”, published in the proceedings at http://dx.doi.org/10.1007/978-3-319-49733-4_1

First time to Dublin

  • Home country of Austria

Will talk about work on finance

3 technological transitions in finance:  good this is a working conference, will discuss, they’re not finished

  • Developing a technosphere, looking a performance level, how is technology used
  • 1. A form of temporalization: A new ontology, fluid and liquid
  • 2. From technology to media
  • 3. Scaled up social form with meta-actors

Interest in exchange markets

Concentrations in market:  UK, U.S. Japan

Over the counter market:  huge, foreign exchange between banks

Not regulated much, done in exchanges

Technology is trading screens

  • 1. Streamers 1886-1980s
  • 2. Scopes 1980s
  • 3. Algorithms 2000s

Original stock ticker: cross between printer and telegraph

  • Connected exchanges
  • Not related to foreign exchange, but stock markets
  • Name of security, price change time, transaction time

People then had the market on tape

  • Before calling, wanted to know who was trading what at what price

Transcript from Knorr & Preda 2007, from the days in which ticker tape was still used

  • Saw price differentials

First transition to ticker tape had consequences over 10 to 15 years

  • Beginning regime of attention, so could know what was going on
  • Expanding information boundaries, could see not only what was happening in New York, then Boston, then London — a telegraph
  • Origin of a new community of practice related to ticker tape, today called technical analysts — looking at numbers from tape, and then ordering them differently, e.g. price differentials over time, volumes
  • New social stratification around ticket possession:  in-group tried to prevent out-group from getting ticker tape

Ticker tape created a sequential time

  • Taking manifested in trading in market, temporalization of market

Changed with computer screens, 100 years later

  • Face to screen
  • On screen, more than price
  • Market world on screen:  if it’s not on the screen, it doesn’t exist, e.g. 9/11 was on screen quickly

Scopic media:  screen-based technologies

  • First Reuters Monitor, 1973
  • 1981 action capability, could trade through the screen, didn’t need phone, went live to 145 institutions in 9 countries
  • At 2012:  400,000 Thomson-Reuters terminals; 315,000 Bloomberg terminals world
  • Had put big sheets on floors, with prices written manually

Scoping mechanism:

  • Instant visible making of the market that is reflexive
  • Watch the market on screen, but also trade, which changes what you watch
  • Augments:  offers analysis, information, news about what’s going on, referential whole in a Heideggerian sense, to the audience
  • Audience responds to projected reality on screen, rather the pre-reflected (e.g. phone calls)

Why “media”?

  • Always an audience
  • Can analyze as dramaturgical
  • Analytical staging of the market

Transition to scopes:  from piping to beaming

  • Piping:  social relation based (networks), maintain relationships over the telephone
  • Beaming:  tele-coordination
  • Despite underwater pipes (networking), performance isn’t a network anymore, as everyone sees the same screen
  • Tele-coordination: When you scan scope it, you don’t have to network it!
  • Market always has an audience
  • Neuro-market synchronization

Neuro-physiological level

  • Asked traders how they trade, not getting an answer:  seat of pants, know what to do (which doesn’t explain anything to a social scientists)
  • Social science says something about implicit knowledge, but it’s not science
  • Neuro-physiology not yet a science:  have pre-frontal (explicit, accessible to conscioius); implicit (is skill based, content not verbalizable, inaccessible to conscious awareness)
  • Two performance systems recruit and develop different cognitive circuits
  • Can develop pre-frontal explicit
  • But in market where have to respond in seconds to market changes, rely on implicit so no delays in sequence, but more traders are integrated into the scopic system
  • Implicit cognitive processes, can’t do by thinking, have to act
  • Results in a regime of attention, traders have to watch the market
  • System between trader and screen is false:  implicit processing to the neural level

Master skiers say “You can’t win a thing with thinking”

  • Based on implicit processing
  • Explicit system is capacity limited, processing 4 to 6 variables at the same time
  • Making a serve in tennis takes more than 4 to 6 things
  • Also, it’s sequential

Get a neuro-market synchronization

  • Global
  • Everyone watching the same screen, at an implicit level
  • Traders give indications of that:  don’t know how to trade
  • Ethnography, staying at distance doesn’t work
  • More like a tiger watching a prey, ready to jump
  • Feels like a physical connectedness
  • When the market turns against them, they feel as if they’re sexually violated, e.g. I got shafted, I got hammered
  • Not a psychic level, it’s emotional

Given neuro connection, maximum implicitness has negative aspects:

  • Task subtractions:  doesn’t see the market
  • Implications are subtracted
  • Content subtracted
  • Social-moral subtraction
  • Inability of Wall Street to understand

Second transition:  unified global market, 1980s-2005

  • Interbank trading, complete
  • Streaming market in analytic time
  • Analytic and differential time:  time flow, have to get into this
  • Ontology of the real is slowing
  • Continuation of temporalization in speed:  schedules, regime of attention physiological

Moving from screens to servers watching algorithms

  • Subterranean action of algorithms

Now observe spiking, e.g. NYSE isn’t now dominant — from 2004 80%

Rise of algorithms that trade

  • A major disruption
  • Temporalization of social world, could be at its limits in terms of speed, as at speed of light
  • Vocabulary changes:  low latency, speed trading
  • Also thinking about infrastructure at speed of light
  • Fibre optical cable can go to 2/3 of speed of light, but microwave can get to 99%
  • Microwave connections (New York to L.A.) compared to fibre optic (to Japan) will gain 4 to 5 seconds
  • Described by Michael Lewis in Flash Boys, between Chicago and New York

Change in practice

  • Trading rooms use to be communications rooms (although they were through screen)
  • Constant talking, now not so much
  • Trading rooms are mostly silent
  • Competing on speed, rather than trading strategy
  • South Korea is creating barriers to increase speed further, goes back to trading strategy over speed
  • Humans disappear
  • Proprietary trading farms, as opposed to doing on public trading floor with big banks
  • Firms have become traders
  • Question on integration of non-human actions into the social world
  • Luckmann 20 years ago:  why does the social world always have to be near to human being?  It’s not necessary
  • Are we integrating algorithms into the social world?

Professional changes:

  • Desks become firms
  • Drastically reduced number of skilled traders, rest done by algorithms
  • Influx of quants (math, stats, physics)
  • New educational requirements on remaining human traders (who used to be apprentices in banks for 2 years before becoming assisting traders, now they need a university degree with sophisticated math)

Algorithms:

  • Instructions to accomplish a task
  • Also are programs to act:  e.g. learning algorithm might have models implemented in the algorithm
  • Algorithm can then be a trader:  assistant to human traders (in simple transactions)
  • Strategic counterpart into human beings, could become dominant market actor
  • There are firms where only algorithms change
  • May have to reconceptualize markets

Infrapersons:

  • From the technical literature on what algorithms do
  • Algorithm as unemotional as seen as one of best features
  • Algorithm may be scientific; global
  • Human actors have use discipline to rein in emotions
  • Algorithms are dumb, don’t need discipline
  • Human being self-regulation with moral judgement; software agents regulate via risk assessment
  • Algorithms are fast, unlike human beings

Develops algorithmic culture of time

  • Leads to flash crashes

First flash crash of May 10, 2010 (unresolved today), market crashed

  • Dow down 1000 points before recovering, $1 million value erase
  • All happened within 13 minutes, then recovering in 26 minutes to normal orderly
  • Stop of the market was due to a breakdown of technology:  correct market prices weren’t being displayed, even though trading could happen

Have had many flash crashes:

  • Nobody really loses
  • Rebounds as quick as failing (as the market speaks)
  • Liquidity refreshed
  • October 2016, GBP mysterious crash, no explanation
  • 2010 crash could be explained by aggregate data, done by SEC
  • Nothing economically intersting happens, just have to stick it out
  • If don’t panic, get excess turbulence, and then recovery

Is this an economic ritual?

  • Goffman says rituals are symbolic representations of social order
  • Symbolic representations of social order
  • Flash crash doesn’t cast a shadow
  • This is beyond interpretation

Economic ritualization

  • Market could create synthetic persons, at speed of light
  • Still holds up
  • Crashes don’t bring the market down, crashes increase solidarity with the market

Scaling the market?

  • Crashes could bring in a phenomenological others, encountered as an actor
  • Not like an automatic car (which is more a tool)

Economic ritualization have financial markets emerge from change

Conceptualization:  institutions versus markets, market isn’t a hierarchy, it’s flat social form, no CEO or governance structure

  • Trading use to have an interactional moral level

In addition to infrapersons, have metapersons (an in between category)

  • CEO level is not involved in trading
  • Trading floor not managed from above
  • Traders aren’t watching trades, they’re managing and changing algorithms (at least every 3 months)
  • Traders aren’t called traders any more, meta-person not doing the activity
  • Involved in advanced cognitive:  math skills, combined with engineering skills

If have meta-persons, market is no longer a flat transactional form

  • It has levels

Traders become an epistemic class

  • Beyond knowledge society, based on theoretical knowledge (Daniel Bell)
  • Epistemic class of sophisticated math with agency engineering and money making
  • Used to be acephalous social form without a master, but now masters have matured (and breed)
  • Knowledge society is pushing itself through, not just technical analysts, but watching and changing algorithms

Summary:

  • Talked about 3 disruptive stages
  • Looked a performative view of technology:  temporalization, mediatization, rescaling of social form
  • Rescaling of social form into two levels:  meso level on market; rise of hybrid epistemic class

Hugh Wilmott, IFIP WG8.2[Comments by Hugh Wilmott]

Screen went black an hour ago, because the talk changed

Conference theme:  shift from what technology means, to socio-technological appendices do

  • Examining in context of financial markets
  • Financial markets have been under-researched, except for people in financial economics
  • Few in organizational studies have researched
  • Some change, due to financial crisis
  • Important, we rely on those markets

Applications of technologies are at the cutting edge

  • Position with socio-technical systems to post-WWII period, could re-engage
  • Think of issues of power and class
  • Coal mining studies of early 1950s
  • Emerging hybrid epistemic class

Pre-reflexive interaction

  • Tends to be lost in second phase, step in scoping phase
  • Informal networks become less significant, relying more and more on data on screen
  • Characterization as network doesn’t work

Implicit processing system

  • Traders like skiing
  • Being a physical activity, like sexual assault when the market turns against the trader
  • Situated learning could be important
  • Embodied awareness present in the practice

Question about algorithms, which has become important to trading practice

  • Can we attribute agency to trading algorithms?
  • Caution against treating algorithms as agents
  • What kind of attributions do traders make about algorithms, and the fantasies they make, leading to performative effects?

Exploration of hybrid people:

  • People who have an understanding of algorithm, and of market
  • Speed was important, now it’s the hybridity, insight into the design of the algorithms
  • Competitive advantage in recruiting and developing people with the hybrid capabilities
  • People who develop and acquire hybrid capabilities can move away from banks, to independence
  • Changes structure of the market

Legal context:

  • Regulation of activities
  • Issues of corporate governance and public accountability
  • Future research agenda on regulatory effects, where regulators are not capable of catching up

[Questions]

Bad day for market analysts.  Philosophical changes.  Are we controlled by algorithms?

Spoke to a metaperson about how to debug algorithms?  They change them all of the time, they don’t have time to really debug them?

Choice of wording to catch phenomena?  What metapersons?

Do algorithms have emotions?  They have rituals?  Flash crashes

Collective agency?

Systems drift?

Flash crashes, no shadow?

[Responses by Karin]

Being controlled by algorithms

  • In some areas, could be worse than in financial markets
  • e.g. what will self-driving cars do to the male ego?
  • Maybe not control, but a shift that could have identity consequences
  • Economists admit it’s an open question
  • Automation could be different from the steam engine
  • If we don’t create new jobs, could create new social problems
  • Consequences are not discussed
  • In financial market, needs to be control of the algorithms
  • Flash crashes don’t give up control, they do suggest excess trading that human beings can’t handle, but the financial system does

Meta-persons

  • No time for debugging
  • Answer may be short
  • Firms using algorithms have an interest in debugging, because there could be immediate costs
  • Could be interested in constructing algorithms so that they don’t do too much damage in one go
  • Regulators:  sane, or cognitively captured?
  • Regulating from the outside:  could create more problems
  • Luhmann:  I touch it, but I touch it with a lot of care

10 years of changes in language:

  • Trying to stay with usual languages or professionalization doesn’t capture fantasies
  • After studying physicists and molecular biologists, thought financial markets should be simpler, but it’s not true
  • The epistemology of markets isn’t the same as epistemology of natural sciences
  • Rating agencies and analysts are paid by institutions, which creates contamination:  Chinese walls don’t really work
  • Economics and financial progress works
  • Different language for meta-persons
  • In native languages, spirits are part of the world
  • Polity in tribes that don’t have a governance system
  • A market is supposed to egalitarian, but now has a governance structure
  • Call it a metapersons, not CEOs
  • Can’t use hierarchies and markets
  • Trying to incorporate phenomenology

Do algorithms have emotions?

  • No
  • It’s not the algorithms that have rituals
  • A ritual has solidarity consequences, in the social sciences (Durkheim, Goffman, interaction-ritual-chains)
  • Not really changing, it’s a symbolic consequence
  • Increased solidarity, increased identification
  • Question as sociologist:  do we need to integrate algorithms into our sociological notions?
  • Algorithms bring markets down, but then don’t bring the market down
  • Governments have dignified the algorithms

Collective agency could be a topic of investigation (not done here)

  • They’re going to take our jobs, in professionals areas (law, teaching)
  • Will be a collective effect of algorithms that will affect the social world

Do algorithms shift?

  • There are learning algorithms
  • They learn not by what they’re supposed to learn, they respond to the data
  • A recent development

Flash crashes not financially relevant, but socially relevant

  • Not a real ritual, would be symbolic
  • Market is brought down, not just a symbol
  • Social effects of making algorithms more acceptable
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