From “Flash Crashes” to “GameStop”: Paradigm Shift in Algorithm-Driven Market Crises

Abstract

This paper examines the paradigm shift in financial market crises during the era of algorithms and social media, using the 2010 “Flash Crash” and the 2021 “GameStop” incident as comparative case studies. The research reveals that the driving mechanisms of market crises have evolved from the old paradigm dominated by technical failures in institutional algorithms to a new paradigm fueled by retail algorithmic trading and emotional resonance amplified by social media. This paradigm shift is driven by three structural forces: technological democratization, the information dissemination revolution, and cultural paradigm shifts. It manifests in fundamental transformations: crisis agents shifting from institutions to retail investors; core drivers transitioning from mathematical logic to social psychology; communication channels evolving from specialized networks to public squares; and crisis forms changing from systemic shocks to targeted explosions. This paradigm shift poses profound challenges to financial stability: it leads to the “diffusion” of risk sources, the ‘malfunction’ of classical theories, and the “defocusing” of traditional regulation. To address these challenges, this paper constructs a multi-dimensional agile governance framework based on three pillars: technology empowerment, platform accountability, and mechanism reconstruction. This framework aims to tackle new market risks and provides theoretical insights and practical pathways for regulating financial markets in the digital age.