Keep war games out of the dealing rooms

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The Independent Online
The Seven Military Classics of Ancient China has become a management bible in the US, a set of military writings that enthusiasts claim provides the seeds of success in business. Some managers even believe the techniques of Chinese warfare have been the secret ingredient behind the explosive growth of Taiwan, Japan and Korea. That sounds like a dose of backwoods paranoia about the Eastern peril. Nevertheless, quotes from Sun Tzu's The Art of War or The Three Strategies of Huang Shih-kung drop easily into the conversation of some American executives. In this country, thank heavens, they would be more likely to arouse gales of sceptical laughter.

So is BZW deploying the same management strategy in its new war games project with the Defence Research Agency? It sounds like it, with all the talk of dealing rooms as battlefields and the link with the Defence Evaluation and Research Agency of the Ministry of Defence. The idea of a City trader using the same electronic display screen as a fighter pilot to decide when to drop his stock on the market, rather than his bombs on the enemy, sounds as crazy as using Sun Tzu to plan a new factory extension.

However, there is a seed of commonsense within this madness. There is a large number of engineers working in the City, including a real rocket scientist at CSFP. They have brought the computing and mathematical skills essential to their own disciplines to bear on complex market movements and especially the pricing of derivatives. Since much of modern war is to do with rapid evaluation of risk, the disciplines do overlap and there probably is something the City can learn.

But there is also a danger. If all traders acted on the advice, if not the orders, of a computer display, it could bring a new form of instability into the markets. Remember programme trading, and the havoc that wreaked in 1987 when everybody moved the same way at once?