Circuit breakers

A circuit breaker is a regulatory measure employed by stock indices to prevent people from panic trading. They function by automatically stopping trading when prices hit a certain level. For example, an index such as the S&P or the Sensex, may decide to suspend all trading after a 10% intra day change.

Panic is an epidemic. A handful of people panic selling in the market quickly leads others to sell their stocks as well, putting the stock index on a downward spiral. Circuit breakers are external measures needed to stop our internal tendency to get carried away by our emotional state.

Emotion often happens in runaway cascades. What starts off as somebody chuckling in a subway car has the entire car rolling in peals of laughter. Checking the phone for one notification can end up in half an hour of scrolling. Going online for watching one video can end up as 4 hours lost to a tunnel of pointlessness.

In the face of runaway emotional cascades, circuit breakers often help us pause and take stock of the situation – perhaps a notification that we have already unlocked our phone a hundred times or our internet disconnecting after streaming videos for an hour.

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