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date: 23 August 2019

Abstract and Keywords

This article explores the crucial role of diversity in the context of a financial organization. The first part observes that locational proximity of diverse tools and instrumentation within the trading room allows traders to understand the limitations of their valuation practices. The second part shows that externally induced dissonance allows traders to recognize the limits of their models. All models are built on the basis of the past, and as a consequence they are all liable to miss a future contingency. Using specialized quantitative techniques that extend the cognitive ecology beyond the confines of the trading room, traders are able to use the price mechanism to gain a sense of what their competitor's models are. They use this information to check whether their models are missing something.

Keywords: diversity, financial organization, trading room, traders, valuation

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