Remember when Wall Street swooned into a mini 5 minute crash in 2010? About 9% of the market disappeared in 5 minutes. The forensic guys never really figured out what happened although computerized trading was most commonly alluded as the culprit.
Yesterday, I ran across in LinkedIn Pulse a TED talk by Kevin Slavin on “How Algorithms Shape our World”. He talked about how math, more specifically algorithms, are re-shaping our world. Kevin Slavin brought up the 2010 crash as well as a host of other fascinating facts and hinted at the scary potential when algorithms go awry. A funny and harmless example was a case of a book about flies on Amazon. It’s an out of print book that at the time had a value of $1.7 million, an already unbelievable figure. But a couple of hours later it bumped up to $23.6 millions. No real people were bidding for the book – it was just a bunch of algorithms in conflict and affecting the price.
And these algorithms, or at least another variant, may be in your house.
As for algorithms terraforming the earth? At the end of the talk, he spoke about how “somebody” is hollowing out buildings in NY to make room for servers that can process trading information much faster. Speed is the game here. As an example of speed, he mentioned that 500,000 microsecond is the speed of a single click of the mouse. In the trading world, “if you are 5 microseconds behind, you are a loser”. So somebody is digging out land to lay conduits so they can close deals 3 microseconds faster.
Link to the talk: http://www.ted.com/talks/kevin_slavin_how_algorithms_shape_our_world
Please do see the TED talk – it’s fascinating.