Normal accidents and the financial crisis

Brayden King of recaps a conference he attended this weekend on organizational dynamics in the financial crisis:

The papers were very diverse, but one idea came up in several papers. The idea was that the crisis was a kind of normal accident that was made possible by the organizational structure of the financial system. As Charles Perrow theorized, accidents can be thought of as the product of organizational systems that are highly complex and tightly coupled. Decision-makers have a hard time figuring out how the system works as a whole due to its complexity, but when one part of the system breaks down, for whatever reason, the entire system is vulnerable to collapse due to the interdependence of the different parts.

Normal accidents is a favorite theoretical foundation for explaining such debacles as space shuttle disasters and nuclear accidents.  Scott Sagan’s Limits of Safety is a particularly useful application of the theory, holding normal accidents against the idea of high reliability organizations to examine why there have been no catastrophic nuclear accidents (clearest indication that normal accidents might make sense:  there have been a hell of a lot of near misses).

I wish I had attended the conference.  Drawing on Sagan a little more, I suspect that normal accidents in a financial system might very well provoke even greater efforts toward high reliability organizations, which would in turn eventually suffer normal accidents.  I would also have enjoyed hearing King’s take on the topic–his work never fails to challenge and stimulate.

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