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Normal Accidents as Described by Richard Bookstaber - Essay Example

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Normal Accidents as Described by Richard Bookstaber

This is because wrong investments may lead to regrettable financial moments for the investors. The best that an investor may get out of a bad investment is cost aversion. In the absence of this, the investor may be very certain that he or she would be running at a lost. In some cases, the choice of investment is not necessarily what constitutes a bad investment for an investor. Rather, it is the approach used in investing. So an investor may be selecting the best form of investment but he or she may be approaching the investment wrongly. This is exactly the point outlined by Bookstaber in his book, A Demon of our own. The writer is very concerned about approaches that are taken by investors because in his opinion, a series of tightly coupled processes may only lead to normal accidents, which not as the name suggests, may be very disastrous. Normal Accidents Explained In his writing, Bookstaber describes normal accidents in relation to financial forces. The writer first uses scenarios of other forms of forces to explain his arguments of normal forces. The writer notes that “if you put in an extra warning light or sensor on a nuclear reactor or an airplane, that's one more thing that could fail, causing confusion and a disastrous cascade of cause and effect” (Fitch, 2009). ...
In the words of Fitch (2009), the situation causes “investors to bet on stocks, bonds and interest rates, often with a large degree of leverage.” The resulting consequence for such decisions is that there have been derivatives that have led to high levels of complexities in the financial system and this has led to normal accidents (Bookstaber, 2008, pg. 143). The concept of normal accidents as introduced by Bookstaber could therefore be related to the everyday concept of putting all of a person’s eggs in one basket. It is known that the resulting effect of such an action is that once the basket breaks the fellow losses all the eggs. In the financial sector, once investors become overconfident in their investment and channel all their funds to a single domain, the resulting effect is tight coupling and complexity Indeed, “the combination of tight coupling and complexity is a formula for normal accident” – especially when the structure of the financial system cannot handle the complexity. (Bookstaber, 2008, pg. 256). Tightly Coupled Processes in the Financial Sector In page 256, introduces a concept of structure of the system when he says that normal accidents are “accidents that are all but evitable as a result of the structure of the system.” The idea that this piece of information creates is that normal accidents are actually often influenced by the prevailing financial structures and system. Indeed, it is when the financial sector gets tightly coupled that investment decisions by investors may result in normal accidents. So what are some of the tightly coupled processes in the financial sector? According to the Best Currency Rate (2010), much of the determining factor in the creation of tightly coupled processes in ...Show more


“Normal Accidents” as described by Richard Bookstaber Introduction Financial investments are often done in relation to the prevailing global economic climate. Once there is a stable global economic climate, it can be expected that investors would invest more and the result of this is a booming global economic growth…
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