11 Oct 2016

The big danger of big data algorithms

I just listened to an Econtalk podcast with Cathy O'Neil on Weapons of Math Destruction, and I recommend her perspective on why biased algorithms are dangerous (e.g., putting people in prison or denying them a job). You'd have to listen to the podcast to get the exact context of my comment here, but perhaps you can see the gravity of the threat:
I'm surprised to see so many comments proclaiming that markets will solve the issues Cathy raises. In the podcast, I thought that Russ was not looking too deeply into what she was saying on the danger of asymmetric incentives being magnified by datamining.

Her example of payday loans or ripoff universities [using data to take advantage of the poor] was on the money. Russ's reply that "better lenders could set up a charity to solicit funds to compete for ad space" was about the longest struggle against reality that I've heard for awhile. OBVIOUSLY, as I learned from Russ's Econ 1 class in 1989, demand [for ads] depend on the profits to be made. Her objections against such a tilted playing field with respect to "vulnerable" consumers is about as controversial to me as advertising to children. Anyone who's been paying attention to the results in behavioral economics knows that advertising and deception work -- and work better (for the advertiser) when the target is vulnerable. I'll stop.

Anyway, this was a brilliant episode, as this problem is indeed way bigger than people imagine. I work with data and saw the dangers of the subprime crisis.* The dangers here are indeed of the same magnitude -- and far more devastating to our lives and welfare.

* David Zetland August 13, 2007 at 5:36 pm
The subprime thing IS big because it’s the canary for the HUGE raft of Collateralized debt obligations (CDOs) that are a web of unknowns (and unknowables). A lot of hedge funds are going to see their “equity” evaporate when CDOs are marked-to-market. (They are avoiding liquidation now to keep their fantasy prices intact.)

This may be a good post to save when you need humility in the future 🙂

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