Featured Research

from universities, journals, and other organizations

Robots take over economy: Sudden rise of global ecology of interacting robots trade at speeds too fast for humans

Date:
September 11, 2013
Source:
University of Miami
Summary:
Recently, the global financial market experienced a series of computer glitches that abruptly brought operations to a halt. One reason for these "flash freezes" may be the sudden emergence of mobs of ultrafast robots, which trade on the global markets and operate at speeds beyond human capability, thus overwhelming the system.

Typical ultrafast extreme events caused by mobs of computer algorithms operating faster than humans can react.
Credit: Neil Johnson, University of Miami

Recently, the global financial market experienced a series of computer glitches that abruptly brought operations to a halt. One reason for these "flash freezes" may be the sudden emergence of mobs of ultrafast robots, which trade on the global markets and operate at speeds beyond human capability, thus overwhelming the system. The appearance of this "ultrafast machine ecology" is documented in a new study published on September 11 in Nature Scientific Reports.

The findings suggest that for time scales less than one second, the financial world makes a sudden transition into a cyber jungle inhabited by packs of aggressive trading algorithms. "These algorithms can operate so fast that humans are unable to participate in real time, and instead, an ultrafast ecology of robots rises up to take control," explains Neil Johnson, professor of physics in the College of Arts and Sciences at the University of Miami (UM), and corresponding author of the study.

"Our findings show that, in this new world of ultrafast robot algorithms, the behavior of the market undergoes a fundamental and abrupt transition to another world where conventional market theories no longer apply," Johnson says.

Society's push for faster systems that outpace competitors has led to the development of algorithms capable of operating faster than the response time for humans. For instance, the quickest a person can react to potential danger is approximately one second. Even a chess grandmaster takes around 650 milliseconds to realize that he is in trouble -- yet microchips for trading can operate in a fraction of a millisecond (1 millisecond is 0.001 second).

In the study, the researchers assembled and analyzed a high-throughput millisecond-resolution price stream of multiple stocks and exchanges. From January, 2006, through February, 2011, they found 18,520 extreme events lasting less than 1.5 seconds, including both crashes and spikes.

The team realized that as the duration of these ultrafast extreme events fell below human response times, the number of crashes and spikes increased dramatically. They created a model to understand the behavior and concluded that the events were the product of ultrafast computer trading and not attributable to other factors, such as regulations or mistaken trades. Johnson, who is head of the inter-disciplinary research group on complexity at UM, compares the situation to an ecological environment.

"As long as you have the normal combination of prey and predators, everything is in balance, but if you introduce predators that are too fast, they create extreme events," Johnson says. "What we see with the new ultrafast computer algorithms is predatory trading. In this case, the predator acts before the prey even knows it's there."

Johnson explains that in order to regulate these ultrafast computer algorithms, we need to understand their collective behavior. This is a daunting task, but is made easier by the fact that the algorithms that operate below human response times are relatively simple, because simplicity allows faster processing.

"There are relatively few things that an ultrafast algorithm will do," Johnson says. "This means that they are more likely to start adopting the same behavior, and hence form a cyber crowd or cyber mob which attacks a certain part of the market. This is what gives rise to the extreme events that we observe," he says. "Our math model is able to capture this collective behavior by modeling how these cyber mobs behave."

In fact, Johnson believes this new understanding of cyber-mobs may have other important applications outside of finance, such as dealing with cyber-attacks and cyber-warfare.


Story Source:

The above story is based on materials provided by University of Miami. Note: Materials may be edited for content and length.


Journal Reference:

  1. Neil Johnson, Guannan Zhao, Eric Hunsader, Hong Qi, Nicholas Johnson, Jing Meng, Brian Tivnan. Abrupt rise of new machine ecology beyond human response time. Scientific Reports, 2013; 3 DOI: 10.1038/srep02627

Cite This Page:

University of Miami. "Robots take over economy: Sudden rise of global ecology of interacting robots trade at speeds too fast for humans." ScienceDaily. ScienceDaily, 11 September 2013. <www.sciencedaily.com/releases/2013/09/130911093147.htm>.
University of Miami. (2013, September 11). Robots take over economy: Sudden rise of global ecology of interacting robots trade at speeds too fast for humans. ScienceDaily. Retrieved September 19, 2014 from www.sciencedaily.com/releases/2013/09/130911093147.htm
University of Miami. "Robots take over economy: Sudden rise of global ecology of interacting robots trade at speeds too fast for humans." ScienceDaily. www.sciencedaily.com/releases/2013/09/130911093147.htm (accessed September 19, 2014).

Share This



More Computers & Math News

Friday, September 19, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Virtual Reality Headsets Unveiled at Tokyo Game Show

Virtual Reality Headsets Unveiled at Tokyo Game Show

AFP (Sep. 18, 2014) Several companies unveiled virtual reality headsets at the Tokyo Game Show, Asia's largest digital entertainment exhibition. Duration: 00:48 Video provided by AFP
Powered by NewsLook.com
What HealthKit Bug Means For Your iOS Fitness Apps

What HealthKit Bug Means For Your iOS Fitness Apps

Newsy (Sep. 18, 2014) Apple has delayed the launch of the HealthKit app platform, citing a bug. Video provided by Newsy
Powered by NewsLook.com
Apple's iOS8 Includes New 'Killswitch' To Curb Theft

Apple's iOS8 Includes New 'Killswitch' To Curb Theft

Newsy (Sep. 18, 2014) Apple's new operating system, iOS 8, comes with Apple's killswitch feature already activated, unlike all the models before it. Video provided by Newsy
Powered by NewsLook.com
Let's Review Apple's Latest iPhone Reviews

Let's Review Apple's Latest iPhone Reviews

Newsy (Sep. 17, 2014) The tech press has shared its thoughts on the latest iterations of Apple's iPhone. We summarize the reactions to help you decide: iPhone 6 or 6 Plus? Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins