The Performativity of Algorithmic Trading: The Epistemology of Flash Crashes

In Science and Technology Studies, performativity has been debated and used to question economic governance, the role of explicitness, the creation of signification and the enactment of theories, investigating the influence of language on social reality. Based on Wittgenstein’s concept of language game, we explain that even if algorithms were designed, induced and justified by a particular rational language (theoretical framework), their implementations (their particular use in a specific context) can potentially generate unthought (irrational) outcomes: flash crashes that were not conceptualised in the original framework, generating a new form of performativity of computerised effects – these unthought consequences of flash crashes are a new phenomenon and with new implications for financial practices and financial knowledge. Algorithms as languages illustrate what the first Wittgenstein describes as a linguistic framework structuring the world that could lead, as the second Wittgenstein explained, to a complexity and multiplicity of language games. Our contribution to the literature is twofold. First, we determine that the implementation of the performativity of theory provoke new unthought effects. Second, we demonstrate that these unthought effects can become a material reality, contradicting the theory that originated these effects, which we call ‘performability of effects.’