Sudden Uncontrolled Acceleration And Stock Trading Algorithms

stock traders.jpgIn January, on the heels of the terrifying tale of a state trooper and his family killed in a crash caused by their out-of-control Lexus, more reports of sudden uncontrolled acceleration problems with Toyotas began pouring in. Of course, skeptics were quick to point out that reports of uncontrolled acceleration problems with Toyotas resembled past claims of acceleration problems with various makes and models that had come to naught, especially the Audi acceleration flap of the early 1980s.
Since no one could point to any mechanism in Toyota’s (computerized) accelerators that would cause uncontrolled acceleration, these skeptics insisted that the problem must be driver error. At the time, I cautioned that we should keep an open mind – that the block box computer programs that regulate Toyotas’ acceleration and braking could conceivably have a bug, the same sort of bug that caused the Great Northeast blackout of 2003.
This week, the acceleration skeptics got welcome news as the National Highway Traffic Safety Administration announced its preliminary findings: in all of the Toyota acceleration cases investigated thus far, driver error has been found to be the cause of the braking failures. Yes, pedal misapplication – hitting the accelerator instead of the brake – is the leading culprit at this point in time.
Meanwhile this week came another story, a story about malfunctioning black boxes. Wall Street traders and government regulators are still probing the May 6 “flash crash” in which the Dow Jones inexplicably plunged nearly 1,000 points within a couple hours. Of course the bulk of stock trading is done by computers running proprietary algorithms that Wall Street banks have invested many more billions in than Toyota has spent engineering the computer systems in its late model cars. Investigators probing these trades are finding the black box computer algorithms used by traders produced bizarre “crop circle” graphs over the course of the flash crash.
It seems one might draw some parallels between the 2010 “flash crash” and an older stock market mystery that occurred around the same time as the 1980s Audi debacle: the Black Monday 1987 stock market crash that some chalk up to computer trading.
My position on the Toyota uncontrolled acceleration phenomenon has always been the same: when people complain that their cars (increasingly controlled by complex computer systems) are going haywire, we should take them seriously and investigate thoroughly because even the best-engineered systems can behave unpredictably. If investigation reveals that root of the problem is not a defectively designed product, but rather human-fueled hysteria, then so much the better for society.
I just wish the same people who are so quick to point to human error in the driver’s seat would be as quick to recognize human error in some of Wall Street’s follies.