That wouldn't happen because they aren't networked together for google's car. You are probably imagining that each google self driving car sends it's driving data to the cars around it and that is how they avoid accidents. That's not how it works though (although it would probably be useful in the future). The way it works is that the car has a giant radar attached to the top and it maps out a real time 3d map of it's surroundings which is uploaded to google's servers to update the world map in real time.
edit: Also to add, the reason that flash crashes happen is because the algorithms are unaware of what the other are doing (although it can try to guess). Also, self driving cars are designed to follow laws not beat the competition.
Well I think I have it right, while the trading algorithms are networked, they essentially operate independently of one another. So just how a trading algorithm reacts to market movements, the radar on top of the car would react to road conditions and other drivers.
I couldn't even imagine them all networked, although it may actually be better, it seems like even more danger.
That actually isn't a problem for the radar because it has 360 degree awareness. So if a car veers into your lane and you are wedged between two cars, instead of veering to the right the self driving car would slow down. So basically your argument is actually an argument FOR self driving cars. I imagine that if a self driving car is put in a situation where it cannot avoid an accident at all costs it could even manipulate the car to minimize the amount of damage that is caused.
edit: Also to add, the reason that flash crashes happen is because the algorithms are unaware of what the other are doing (although it can try to guess). Also, self driving cars are designed to follow laws not beat the competition.