Thinking Outside the Box to Get inside the Black Box: Alternative Epistemology for Dealing with Financial Innovation

This paper seeks to ignite debate surrounding the computerization and change in organizing financial markets and, due to the emergence of trading algorithms, investigates those as disruptive innovation and its side effects. First, we frame the computerization of financial markets as disruptive innovation. Second, we analyze how an extension of a disruptive innovation generates latent effects that contradict the original principles. Third, we argue the necessity to explicitly consider the epistemological nature of financial innovations. This leads to our conclusion that there is a necessity to extend the epistemological dimension of financial innovation, in order to think outside the box to get inside the black box of financial innovation.