Trading floors could benefit from diversity

Researchers found that markets with ethnically diverse traders are much less likely to suffer bubbles than those with a narrower diversity of staff.

They suggested that financial bubbles can occur when people "mindlessly trust the behaviour of others", and that they do so much more often when they are surrounded by ethnic peers.

When surrounded by others who are ethnically the same, traders are more likely to accept things at face value and are less likely to scrutinise them.

Sociologist Professor David Stark from the University of Warwick, who led the research, said the findings suggested that workplaces with less ethnic diversity were in danger of fostering "lazy thinking".

He said: "Ethnic homogeneity promotes conformity. When we are surrounded by people who are 'like us' we tend to get lazy in our decision making."

The study, published in the journal Proceedings of the National Academy of Sciences and conducted by teams at the University of Warwick and Columbia University in the US, involved researchers creating experimental securities markets in south east Asia and America.

They then brought financially astute participants in to ethnically homogeneous markets and ethnically diverse markets to trade stocks to earn cash.

Despite no initial differences between the traders, when the trading began it was found that markets with workers from ethnically homogeneous backgrounds were much more likely to bubble.

In their markets, overpricing was found to be higher as traders were more likely to accept speculative prices. Pricing errors were more correlated than in diverse markets and when bubbles burst, homogeneous markets crashed more severely.

The study was initially carried out in Singapore and replicated in the US. The findings there were found to be similar, despite marked differences in culture and ethnic composition.

Professor Stark said the findings could be of importance for business leaders from both a diversity and financial perspective.

He said: "I would take these findings and if I was the chairman or chairwoman of a board or corporation, I would want my board to be ethnically diverse. I am going to get better information processed from them, they are going to be on their game and are not going to be lazy, and they are going to be better prepared.

"There are people in the business community who do understand that ethnic diversity is not only of value in itself, but also might be important to the bottom line."

Last week it was revealed that teenagers in London attain higher GCSE results than those in the rest of the country because the capital's schools have a higher proportion of pupils from ethnic minority backgrounds.

The study, by the Centre for Market and Public Organisation (CMPO) at Bristol University, found that there was nothing inherently different about the ability and performance of pupils from different ethnic backgrounds.

"But the children of immigrants typically have high aspirations and ambitions, and place greater hopes in the education system than the locals do," it said.