How Algorithms Interact: Goffman’s ‘Interaction Order’ in Automated Trading
Donald MacKenzie is one of the leading scholars in the social studies of finance field and holds a personal chair in sociology at the University of Edinburgh. He has published extensively on the performativity of economic theories and the financial market machinery. Among his books in this area are: An engine, not a Camera: How financial models shape markets (MIT Press, 2006); Do economists make markets? On the performativity of economics (Princeton University Press, 2007), co-edited with Fabian Muniesa and Lucia Siu; and Material markets: How economic agents are constructed (Oxford University Press, 2009).
In a talk in 2013, Karin Knorr Cetina referred to ‘the interaction order of algorithms’, a phrase that implicitly invokes Erving Goffman’s ‘interaction order’. This paper explores the application of the latter notion to the interaction of automated-trading algorithms, viewing algorithms as material entities (programs running on physical machines) and conceiving of the interaction order of algorithms as the ensemble of their effects on each other. The paper identifies the main way in which trading algorithms interact (via electronic ‘order books’, which algorithms both ‘observe’ and populate) and focuses on two particularly Goffmanesque aspects of algorithmic interaction: queuing and ‘spoofing’, or deliberate deception. Following Goffman’s injunction not to ignore the influence on interaction of matters external to it, the paper examines some prominent such matters. Empirically, the paper draws on documentary analysis and 185 interviews conducted by the author with high-frequency traders and others involved in automated trading.