The dangers of complexity

The dramatic financial market changes of the past 20 years have introduced daunting complexity into the system. Much of this complexity is the necessary consequence of valuable innovations. David Rowe argues, however, that complexity for its own sake is dangerous

Complaints about complexity are hardly new, nor are they without foundation in fact. Since the dawn of the Industrial Revolution, the world has become progressively more complicated. While such complexity causes a degree of discomfort and frustration for everyone, most of us believe these negatives are far outweighed by the associated comforts and conveniences that technological advance makes possible. This familiar phenomenon can be observed in the evolution of financial derivatives