The Economist has an article about the essential role of [tag]algorithms[/tag] in modern business — in data compression and encryption; in real-time transaction analyses; in automated decision-making; in data mining and smart business data analysis. For the word itself, we can thank eponymous Islamic mathematician, Mu?ammad ibn M?s? al-Khw?rizm? (780 – 850 CE).
“What is more, lots of things have to fall into place for algorithms to work. They tend to be highly complex: it is not easy to find people with the right skills to develop and refine them. The systems within which the algorithms run—the user interface—need to be intuitive to non-boffins. “This is rocket science but you don’t have to be a rocket scientist to use it,” says Jack Noonan, boss of SPSS. The inputs have to be right. One UPS planning model routed all the packages in the system through Iowa, which perplexed everyone until they found an error in the data that made it appear to be free to send packages via Iowa. The algorithm was right, in other words, but the data were wrong. Mr Noonan says that SPSS’s “secret sauce” lies in its ability to deal with missing or unreliable data, rather than the algorithms themselves.
Above all, human judgment still has a role—a point perhaps reinforced by the recent performance of algorithmically driven quantitative funds in the financial markets. In fraud detection, for example, algorithms can eliminate the majority of transactions that are above suspicion but a human is still best placed to analyse the dodgy ones. Dunnhumby is trying to overlay attitudinal research on top of purchasing data to understand why people buy things as well as what they buy. Even so, Autonomy’s Mr Lynch is convinced that algorithms are on the march. Algorithms process data to arrive at an answer. The more data they can process the more accurate the answer. For that reason, he says, “they are bound to take over the world”. “