Why business is like ... Phantom traffic jams

Feeling stuck but don't know why?

by
Last Updated: 31 Aug 2010

We've all done it: sat in traffic jams and then been doubly annoyed to find when the congestion finally clears that there's no apparent cause for the delay. 'Phantom' traffic jams like these are the subject of a new study by Bristol University, which showed that a single driver braking very slightly will prompt the drivers behind to err on the side of caution and press the pedal for longer. This knock-on effect grows and grows, until a few miles back, baffled drivers find themselves at a halt.

The same is true of City traders - often they're forced to slam on the brakes because the person in front did, even if they're not quite sure why. In today's high-tech world, trades are processed within milliseconds. So when one trader sells (or buys) a large amount of stock, other traders have little time to determine what is moving the market but slow down anyway, just in case, triggering an avalanche. Look no further than the so-called flash-crash that took place on 6 May, temporarily wiping a trillion dollars off the US stock market for no good reason.

A flash-crash may be a high-tech problem but the solution is simple: electronic circuit-breakers, forcing gaps between trades when things move too quickly and helping well-considered actions to prevail. A bit like those 'keep your distance' chevrons we see on the motorway.

Jennifer Harris is director of JRBH Strategy & Management, www.jrbh.co.uk

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