How algorithms shape our world - Kevin Slavin

Summary

The video script discusses the profound impact of algorithms on modern society, particularly in finance and culture. It illustrates how mathematical models, once used to understand the world, now shape it, with examples like Michael Najjar's artwork that mirrors financial indices. The narrative delves into the world of high-frequency trading, where algorithms compete in microseconds, and extends to cultural algorithms influencing movie recommendations and architecture. It concludes with a vision of algorithms as a new force in nature, reshaping our world in ways both subtle and profound.

Takeaways

• 🖼️ Michael Najjar's artwork digitally alters the contours of mountains to mirror the Dow Jones index, symbolizing the intersection of art, finance, and technology.
• 📈 The speaker suggests a paradigm shift in viewing math as not just a tool for understanding the world but as a force that shapes it, particularly through algorithms.
• 🤖 Algorithms, used extensively in finance and other sectors, are becoming so complex and pervasive that they are acquiring a 'truth' of their own through repetition and automation.
• 🌐 The speaker recounts a conversation with a physicist about 'black box' technology used to detect stealth aircraft, drawing a parallel to 'black box' trading algorithms on Wall Street.
• 📉 The 'flash crash' of 2010, where 9% of the market value disappeared in minutes, is cited as an example of the potential risks and unpredictability of algorithmic trading.
• 📚 The transcript mentions the influence of algorithms on culture, such as how Netflix's recommendation algorithm, 'Pragmatic Chaos,' shapes viewers' choices.
• 🏢 The speaker describes how algorithms are changing physical spaces, like buildings being repurposed for server stacks to enhance trading algorithms' speed.
• 🌎 The concept of 'terraforming' the Earth for algorithmic efficiency is introduced, with the construction of a fiber-optic cable between New York and Chicago to expedite trading signals.
• 🌐 The potential future of algorithmic influence extends to placing servers in the ocean and even using quantum entanglement to gain milliseconds in trading advantages.
• 🔮 Najjar's photographs, initially seen as metaphors, are recontextualized by the speaker as prophecies of the profound, transformative effects of algorithms on the physical world.

Q & A

What is the significance of Michael Najjar's photograph mentioned in the script?

Michael Najjar's photograph is significant because it represents a fusion of reality and fiction. Najjar reshaped the contours of mountains in Argentina digitally to mirror the Dow Jones index, symbolizing the influence of financial algorithms on the physical world.

How does the script relate the concept of algorithms to the broader world?

The script suggests that algorithms, which are mathematical processes used by computers, are not just abstract concepts but are becoming tangible forces that shape our world, from financial markets to cultural products.

What is the 'flash crash of 2:45' mentioned in the script?

The 'flash crash of 2:45' refers to a sudden drop of 9% in the market within minutes, which occurred without any clear cause or control. It highlights the potential dangers of algorithmic trading when not properly understood or regulated.

What is 'black box trading' or 'algo trading' as mentioned in the script?

'Black box trading' or 'algo trading' refers to the use of algorithms to execute trades in financial markets. These algorithms break up large transactions into smaller ones to avoid market impact and can also be used to analyze market movements.

How does the script describe the role of algorithms in the stock market?

The script describes algorithms in the stock market as entities that are programmed to both hide and seek, creating a dynamic where some algorithms are designed to conceal trades while others are designed to detect these concealed activities.

What is the 'Boston shuffler' mentioned in the script?

The 'Boston shuffler' is an algorithm mentioned in the script that is used by a company called Nanex to identify and analyze unusual trading patterns or other algorithms in the market.

How does the script illustrate the impact of algorithms on culture?

The script illustrates the impact of algorithms on culture by discussing how algorithms are used to predict the success of movies, books, and other cultural products, potentially influencing what gets produced and consumed.

What is the 'destination control elevator' mentioned in the script?

A 'destination control elevator' is a type of elevator system where passengers input their desired floor before entering, and the system directs them to the most efficient car. This system uses algorithms to optimize travel times but can cause confusion and discomfort for users.

Why is speed so critical for Wall Street algorithms according to the script?

Speed is critical for Wall Street algorithms because even a slight delay of microseconds can result in missed trading opportunities. The script mentions that being just five microseconds behind can make an algorithm less effective.

What does the script suggest about the future of algorithmic influence on our world?

The script suggests that algorithms will increasingly become a co-evolutionary force with nature and human society, potentially leading to significant changes in our physical environment and cultural landscapes.

Outlines

00:00

📈 The Fusion of Art and Finance

The speaker introduces a photograph by artist Michael Najjar, which is a digital manipulation of a mountain landscape to reflect the Dow Jones index. This artwork symbolizes the transformation of mathematics from a tool for understanding the world to a force that shapes it. The speaker suggests that algorithms, as the mathematical backbone of computer decision-making, are becoming increasingly influential in finance and other sectors, leading to a reevaluation of their impact on society.

05:01

💹 The Invisible Hand of Algorithms in Markets

The speaker discusses the 'flash crash' of 2010, where 9% of the market value disappeared in minutes, highlighting the lack of control and understanding over algorithm-driven trading. The narrative then shifts to Nanex, a Boston-based company that extracts and analyzes market data to identify algorithmic patterns, dubbing them with names like 'The Knife' and 'The Boston Shuffler.' The speaker extends this concept to other areas, such as the fluctuating prices of books on Amazon and the recommendation algorithms of Netflix, emphasizing the pervasive yet often unseen role of algorithms in shaping our economic and cultural landscapes.

10:02

🌐 The Race for Computational Supremacy

The speaker delves into the world of high-frequency trading and the extreme measures taken to gain milliseconds of advantage, such as the construction of a fiber-optic cable between New York and Chicago by Spread Networks. The narrative explores how the pursuit of speed and efficiency in algorithmic trading is reshaping physical infrastructure, from data centers in skyscrapers to the potential for underwater server platforms. The speaker concludes by likening the influence of algorithms to a natural force, suggesting that we are entering an era where the effects of mathematical algorithms are as significant as natural and human-made landscapes.

Keywords

💡Contemporary Math

Contemporary Math refers to the modern mathematical concepts and techniques that are being applied in various fields beyond traditional academic settings. In the video, it is discussed as a force that transitions from being something derived from the world to something that shapes it, indicating its growing influence on society and technology.

💡Algorithms

Algorithms are defined as a set of rules or steps used to solve a problem or perform a computation. The video emphasizes their role in decision-making processes, particularly in finance and technology, where they acquire a 'sensibility of truth' through repetition and become integral to how systems operate.

💡Black Box Trading

Black Box Trading, also known as algo trading or algorithmic trading, is a method used by financial institutions to execute trades using complex algorithms. The video uses this as an example to illustrate how the same mathematical principles can be used to both hide and uncover market movements, highlighting the dual nature of algorithms in finance.

💡Flash Crash

The term 'Flash Crash' refers to a sudden, significant decline in stock prices with little or no warning. The video mentions the 'flash crash of 2:45' to underscore the potential instability and unpredictability that can arise from heavy reliance on algorithms in financial markets.

💡Stealth Technology

Stealth Technology is used to make military aircraft less visible to radar detection. The video uses the concept of 'breaking stealth' to draw a parallel with how algorithms can dissect and reassemble complex data, such as market transactions, to reveal hidden patterns or intentions.

💡Metaphor with Teeth

The phrase 'metaphor with teeth' suggests that while something may be a metaphor, it has a tangible impact or consequence. In the context of the video, it implies that the mathematical metaphors used in art and finance are not just abstract ideas but have real-world effects and implications.

💡Terraforming

Terraforming is the process of modifying the environment of a planet or celestial body to make it habitable. The video uses this term to describe the impact of algorithms on the physical world, suggesting that our reliance on algorithmic efficiency is reshaping the Earth's landscape.

💡Cultural Physics

Cultural Physics refers to the application of mathematical and scientific principles to understand and predict cultural phenomena. The video discusses how algorithms are used to analyze and predict cultural trends, such as movie preferences, indicating a shift towards a more data-driven understanding of culture.

💡Destination Control Elevators

Destination Control Elevators are a type of elevator system that uses algorithms to optimize passenger distribution. The video mentions these to illustrate how algorithms can lead to efficiency but also remove human control elements, like buttons, which can cause discomfort or confusion.

💡Spread Networks

Spread Networks is mentioned in the video as a company that built a fiber-optic cable between New York City and Chicago to facilitate faster data transfer for financial algorithms. This example highlights the extent to which infrastructure is being adapted to meet the speed demands of algorithmic trading.

💡Quantum Entanglement

Quantum Entanglement is a phenomenon in quantum physics where particles become interconnected and the state of one particle instantly influences the state of another, regardless of distance. The video hints at its potential use in optimizing algorithmic trading, showcasing the bleeding edge of technology's intersection with finance.

Highlights

Artist Michael Najjar digitally reshapes mountain contours to mirror the Dow Jones index, symbolizing the intersection of art and finance.

The 2008 financial crisis is visually represented as a high precipice and valley in Najjar's artwork.

Contemporary math, particularly algorithms, is transitioning from a descriptive to a shaping force in our world.

Algorithms in finance acquire a 'sensibility of truth' through repetition, becoming as real as the physical world.

The speaker's conversation with a Hungarian physicist reveals the Cold War's impact on scientific research.

Stealth technology is explained through the concept of breaking up large objects into smaller, harder-to-detect pieces.

Wall Street's 'black box' trading, or algorithmic trading, is compared to Cold War stealth detection methods.

The 'flash crash' of 2:45 illustrates the potential dangers of algorithmic trading and the lack of human oversight.

Nanak's, a Boston-based company, uses math to identify and 'pin' market algorithms like butterflies.

Algorithmic behavior is observed in the fluctuating prices of books on Amazon, indicating a lack of human control.

Netflix's 'pragmatic chaos' algorithm determines 60% of movie rentals, showcasing the impact of algorithms on culture.

Algorithms are used in Hollywood to predict the financial success of movies before they are made.

The speaker discusses the physical manifestation of algorithms in household devices like cleaning robots.

Elevators with 'destination control' use algorithms to optimize passenger distribution, sometimes causing user discomfort.

Wall Street algorithms are dependent on speed, with microseconds dictating success in trading.

The speaker describes the physical transformation of buildings to accommodate high-speed trading servers.

Spread Networks' 825-mile fiber-optic cable between New York and Chicago exemplifies the lengths taken for algorithmic speed.

The potential future of algorithmic efficiency involves placing servers in the ocean to maximize market gains.

The speaker concludes by likening Najjar's artwork to prophetic visions of the algorithmic reshaping of our world.

Transcripts

[Music]

[Music]

[Applause]

this is a photograph by the artist

Michael Najjar and it's real in the

sense that he went there to Argentina to

take the photo but it's also a fiction

there's a lot of work that went into it

after that and what he's done is he's

actually reshaped digitally all of the

contours of the mountains to follow the

vicissitudes of the Dow Jones index so

what you see that precipice that high

precipice with the valley is the 2008

financial crisis the photo was made when

we were deep in the valley over there I

don't know where we are now this is the

Hang Seng Index or Hong Kong and similar

topography I wonder why and this is art

right this is metaphor but I think the

point is is that this is metaphor with

teeth and it's with those teeth that I

want to propose today that we rethink a

little bit about the role of

contemporary math not just financial

math but math in general that it's

transition from being something that we

sort of extract and derive from the

world to something that actually starts

to shape it the world around us in the

world inside us and it specifically

algorithms which are basically the math

that computers used to decide stuff they

acquire the sensibility of truth because

they repeat over and over again and they

kind of ossify and calcify and they kind

of become real and I was thinking about

this of all places on a transatlantic

flight a couple years ago because I

happen to be seated next to a Hungarian

physicist about my age and we were

talking about what life was like during

the Cold War for physicists in Hungary

and I said so what were you doing and he

said well we were mostly breaking

stealth and I said that's a good job

that's interesting how does that work

and so to understand that you have to

understand a little bit about how

stealth works and so this is a

oversimplification but basically it's

not like you can just pass a radar

signal right through

156 tons of steel in the sky it's not

just going to disappear

but if you can take this big massive

thing and you could turn it into a

million little things something like a

flock of birds well then the radar

that's looking for that has to be able

to see every flock of birds in the sky

and if you're a radar that's a really

bad job

and he said yeah he said but that's if

you're a radar he said so we didn't use

a radar we built a black box that was

looking for electrical signals

electronic communication and whenever we

saw a flock of birds that had electronic

communication we thought probably has

something to do with the Americans and I

said yeah that's that's good that's good

so you've effectively negated 60 years

of aeronautical research what's your act

to you know like what do you do when you

grow up and he said he said well you

know financial services and I said oh

because those have been in the news

lately and I said I said how does that

work and I said well there's 2,000

physicists on Wall Street now and I'm

one of them and I said well so what's

the black box for Wall Street and he

said well it's funny that you asked that

because it's actually called black box

trading and it's also sometimes called

algo trading algorithmic trading and

algorithmic trading involved in part

because institutional traders have the

same problems that the United States

airforce had which is that they're

moving these positions whether it's

Procter and Gamble or etc or whatever

they're moving like a million shares of

something through the market and if they

do that all at once it's like playing

poker and just going all-in right away

right you just tip your hand and so they

have to find a way and they use

algorithms to do this to break up that

big thing into a million little

transactions and the magic and the

horror of that is is that the same math

that you use to break up the big thing

into a million little things can be used

to find a million little things and sew

them back together and figure out what's

actually happening in the market so if

you need to have some image of what's

happening in the stock market right now

what you can picture is a bunch of

algorithms that are basically programmed

to hide

and a bunch of algorithms that are

programmed to go find them and act and

all of that's great and it's fine and

that's 70% of the United States stock

where 70% of the operating system

formerly known as your pension

your your mortgage and what could go

wrong right what could go wrong is is

that a year ago

9% of the entire market just disappears

in five minutes and they called it the

flash crash of 2:45 right all of a

sudden 9% just goes away and nobody to

this day can even agree on what happened

because nobody ordered it nobody asked

for it nobody had any control over what

was actually happening all they had was

just a monitor in front of them that had

the numbers on it and just a red button

that said stop and that's the thing

right is is that we're writing things

we're writing these things that we can

no longer read and it's we've we've

rendered something kind of illegible and

we've lost the sense of what's actually

happening in this world that we've made

and we're starting to make our way

there's a company in Boston called

Nanak's and they use math and magic and

I don't know what and they reach in to

all the market data and they find

actually sometimes some of these

algorithms and they when they find them

they they pull them out and they pin

them to the wall like butterflies and

they do what we've always done when

confronted with huge amounts of data

that we don't understand which is that

they give them a name and a story so

this is one that they found they called

the knife

the carnival

the Boston shuffler

Twilight and the

gag is that of course these aren't just

running through the market right you can

find these kinds of things wherever you

look once you learn how to look for them

right you can find it here this book

about flies that you may have been

looking at on Amazon you may have

noticed it when its price started at 1.7

million dollars it's out-of-print still

if you had bought it at 1.7 it would

have been a bargain a few hours later it

had gone up to twenty three point six

million dollars plus shipping and

handling and the question is nobody was

buying or selling anything what was

happening and you see this behavior on

Amazon as surely as you see it on Wall

Street and when you see this kind of

behavior what you see is the evidence of

algorithms in conflict algorithms locked

in loops with each other without any

human oversight without any adult

supervision to say actually 1.7 million

is plenty you stick with it and as with

Amazon so it is with Netflix and so

Netflix has gone through several

different algorithms over the years they

started with cinema and they've they've

tried a bunch of others there's dinosaur

planet there's gravity they're using

pragmatic chaos now pragmatic chaos is

like all of Netflix algorithms trying to

do the same thing it's trying to get a

grasp on you on the firmware inside the

human skull so that it can recommend

what movie you might want to watch next

which is a very very difficult problem

but the difficulty of the problem and

the fact that we don't really quite have

it down it doesn't take away from the

effects the pragmatic chaos has bring

out a chaos like all Netflix algorithms

determines in the end 60% of what movies

end up being rented right so one piece

of code with one idea about you is

responsible for 60% of those movies but

what if you could rate those movies

before they get made right wouldn't that

be handy well so a few data scientists

from the UK or in Hollywood and they

have story algorithms and company called

epic oh jokes and you can run your

script through there and they can tell

you quantifiably that that's a 30

million dollar movie or a 200 million

dollar movie and the thing is is that

this isn't Google right this isn't

information these aren't financial stats

this is culture and what you see here or

what you don't really see normally is is

that these are the physics of culture

and

if these algorithms like the algorithms

on Wall Street just crashed one day and

went awry how would we know what would

it look like and

they're in your house right there in

your house right these are two

algorithms competing for your living

room these are two different cleaning

robots that have very different ideas

about what clean means and you can see

it if you slow it down and attach lights

to them and there's sort of like secret

architects in your bedroom yeah and the

idea that architecture itself is somehow

subject to algorithmic optimization is

not far-fetched it's super real and it's

happening around you you feel it most

when you're in a sealed metal box a new

style elevator they're called

destination control elevators these are

the ones where if to press what floor

you're going to go to before you get in

the elevator and it uses what's called a

bin packing algorithm so none of this

mishegoss of just letting everybody go

into whatever car they want everybody

wants to go the tenth floor goes into

car two and everybody wants to go the

third floor goes into car five and the

problem with that is is that people

freak out people panic and you see why

right you see why it's because the

elevator is missing some important

instrumentation like the buttons right

like the things that people use all it

has is just the number that moves up or

down and that red button that says stop

and this is what we're designing for

we're designing for this kind of machine

dialect all right and how far can you

take that how far can you take it you

can take it really really far and so let

me take it back to Wall Street okay

because the algorithms of Wall Street

are dependent on one quality above all

else which is speed and they operate on

milliseconds and microseconds and just

to give you a sense of what microseconds

are it takes you five hundred thousand

microseconds just to click a mouse but

if you're a Wall Street algorithm and

you're five microseconds behind you're a

loser

so if you were an algorithm you'd look

for an architect like the one that I met

in Frankfurt who was hollowing out a

skyscraper throwing out all the

furniture all the infrastructure for

human use and just running steel on the

floors to get ready for the stacks of

servers to go in all so that an

algorithm could get close to the

internet and

you think of the Internet as this kind

of distributed system and of course it

is but it's distributed from places

right in New York this is where it's

distributed from its carrier hotel

located on Hudson Street and this is

really where the wires come right up

into the city and the reality is is that

the further away you are from that

you're a few microseconds behind every

time these guys down a Wall Street Marco

Polo and Cherokee Nation they're eight

microseconds behind all these guys going

in to the empty buildings being hollowed

out up around the carrier hotel right

and that's going to keep happening we're

going to keep hollowing them out because

you inch for inch and pound for pound

and dollar for dollar none of you could

squeeze revenue out of that space like

the Boston shuffler could

but if you zoom out if you zoom out you

would see an 825 mile trench between New

York City and Chicago's been built over

the last few years by a company called

spread networks this is a fiber-optic

cable that was laid between those two

cities to just be able to traffic one

signal 37 times faster than you can

click a mouse just for these algorithms

just for the carnival and the knife and

when you think about this that we're

running through the United States with

dynamite and rock saws so that an

algorithm can close the deal three

microseconds faster all for a

communications framework that no human

will ever know

that's a kind of manifest destiny and

we'll always look for a new frontier and

fortunately we have our work cut out for

us this is just theoretical this is some

mathematicians at MIT and the truth is I

don't really understand a lot of what

they're talking about it involves light

cones and quantum entanglement and I

don't really understand any of that but

I can this map and what this map says is

is that if you're trying to make money

on the markets where the red dots are

that's where people are where the cities

are your going to have to put the

servers where the blue dots are to do

that most effectively and the thing that

you might have noticed about those blue

dots is that a lot of them are in the

middle of the ocean

so that's what we'll do we'll build

bubbles or something or or platforms

will actually part the water right to

pull money out of the air because it's a

bright future if you're an algorithm and

it's not the money that's so interesting

actually it's what the money motivates

right that we're actually terraforming

the earth itself with this kind of

algorithmic efficiency and in that light

you go back and you look at Michael no

jars photographs and you realize that

they're not metaphor they're prophecy

right they're prophecy for the kind of

seismic

terrestrial effects of the math that

we're making and the the landscape was

always made by this sort of weird uneasy

collaboration between nature and man but

now there's this kind of third

co-evolutionary force algorithms the

Boston shuffler the carnival and we will

have to understand those as nature and

in a way they are thank

[Applause]

[Music]