Machine Learning and Social Action in Markets: From First- to Second-generation Automated Trading

Christian Borch*, Bo Hee Min

*Corresponding author for this work

    Research output: Contribution to journalJournal articleResearchpeer-review

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    Abstract

    Machine learning (ML) models are gaining traction in securities trading because of their ability to recognize and predict patterns. This study examines how ML is transforming automated trading. Drawing on 213 interviews with market participants (including 94 with people working at ML-employing firms) as well as ethnographic observations of a trading firm specializing in ML-based automated trading, we argue that ML-based (‘second-generation’) automated trading systems are different to previous (‘first-generation’) automated trading systems. Where first-generation systems are based on human-defined rules, second-generation systems develop their trading rules independently. We further argue that the use of such second-generation systems prompts a rethinking of established concepts in economic sociology. In particular, a Weberian notion of social action in markets is incompatible with such systems, but we also argue that second-generation automated trading calls for a reconsideration of the notion of the performativity of financial models.
    Original languageEnglish
    JournalEconomy and Society
    Volume52
    Issue number1
    Pages (from-to)37-61
    Number of pages25
    ISSN0308-5147
    DOIs
    Publication statusPublished - Feb 2023

    Keywords

    • Auromated trading
    • Economic sociology
    • Machine learning
    • Performativity
    • Social action

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