How algorithms shape our world - Kevin Slavin
Summary
TLDRThe 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
📈 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.
💹 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.
🌐 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.
Mindmap
Keywords
💡Contemporary Math
💡Algorithms
💡Black Box Trading
💡Flash Crash
💡Stealth Technology
💡Metaphor with Teeth
💡Terraforming
💡Cultural Physics
💡Destination Control Elevators
💡Spread Networks
💡Quantum Entanglement
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]
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