Leaver, Meghan P.
(2017)
Human factors in financial trading: an investigation of error, non-technical skills and culture.
PhD thesis, London School of Economics and Political Science.
Abstract
The financial crisis of 2008 was the most severe crisis since the great depression: millions of jobs and billions of pounds of household income were lost, resulting in pervasive unemployment, inequality and a rise in suicide rates (Barr et al., 2012). The failure exhibited complex organisational properties, such as tight coupling (e.g. the bankruptcy of Lehman Brothers triggered the collapse of other key organisations), the prioritisation of production over safety (e.g. profit over the wellbeing of clients) and a collective inaction to heed early warning signs (e.g. surrounding credit derivative swaps).
Yet, research in the financial sector has failed to capture critical information on how the behaviours and practises (e.g. systemic rate rigging) within the industry eroded risk management processes, and led to organisational failure (Power, Ashby, & Palermo, 2013; Ring, et al., 2014). This thesis draws on human factors theory and methodology that have successfully been applied in other high-risk domains (e.g. aviation) and applies them to a financial trading organisation to investigate whether human factors approaches help understand error in the financial trading domain.
To achieve this, four articles and three additional chapters have been developed for this thesis. Chapter 1 (introduction) conceptualises financial trading as a high-risk organisation and considers the implications of this for the domain, and the field of human factors. Chapter 2 (Article 1, published in Journal of Risk Research) conducts a systematic literature review of 19 studies in financial trading in order to establish the relevance of non-technical skills theory to the domain. Chapter 3 reports on the development of a methodology for capturing operational incidents within a financial trading firm: the Financial Incident Analysis System (FINANS). Chapter 4 (Article 2, published in Human Factors) uses FINANS to analyse 1,000 incidents and reveals the human factors issues that underlie operational incidents (e.g. 1% of trades are erroneous and the most common causes are slip/lapse and problems in situation awareness and teamwork). Chapter 5 (Article 3, under review at Human Factors) analyses a further 1,042 operational incidents and establishes the role of human skills for capturing error and indicates financial traders to be the ‘last-line of defence’ for preventing incidents. Chapter 6 (Article 4, published in the Journal of Business Ethics) analyses ten high-profile trading mishaps in the UK, and shows safety culture problems in each as underlying the failures. Chapter 7 reviews each study and discusses the findings, implications and limitations of each. Chapter 8 concludes that the application of human factors concepts in financial trading generates meaningful insight into how risk is managed in this domain, and extends human factors research into a previously unexplored environment
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