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Moore's Law vs. Murphy's Law in the financial system: who's winning?

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  • Andrew W Lo

Abstract

Breakthroughs in computing hardware, software, telecommunications and data analytics have transformed the financial industry, enabling a host of new products and services such as automated trading algorithms, crypto-currencies, mobile banking, crowdfunding and robo-advisors . However, the unintended consequences of technology-leveraged finance include firesales, flash crashes, botched initial public offerings, cybersecurity breaches, catastrophic algorithmic trading errors and a technological arms race that has created new winners, losers and systemic risk in the financial ecosystem. These challenges are an unavoidable aspect of the growing importance of finance in an increasingly digital society. Rather than fighting this trend or forswearing technology, the ultimate solution is to develop more robust technology capable of adapting to the foibles in human behaviour so users can employ these tools safely, effectively and effortlessly. Examples of such technology are provided.

Suggested Citation

  • Andrew W Lo, 2016. "Moore's Law vs. Murphy's Law in the financial system: who's winning?," BIS Working Papers 564, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:564
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    References listed on IDEAS

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    1. Amir Dembo & Jean-Dominique Deuschel & Darrell Duffie, 2004. "Large portfolio losses," Finance and Stochastics, Springer, vol. 8(1), pages 3-16, January.
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    Cited by:

    1. Claessens, Stijn, 2017. "Regulation and structural change in financial systems," CEPR Discussion Papers 11822, C.E.P.R. Discussion Papers.

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    Keywords

    Financial technology; systemic risk; macroprudential policy; risk management;

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