Algorithms don’t sound like a topic for riveting reading, but these two articles are pretty good.
The first is from a marketing magazine, Adbusters. The claim it makes – that markets have never really worked before, but are starting to work now because of computer algorithms – is bit of a stretch, but entertaining. Here’s a quote:
The critical flaw in Hayek’s vision of the hand was that a “central body” could never gather enough information. We know this to be untrue, and with big data and the analysis and manipulation of that data through algorithmic equation, the missing link between money and the machine was discovered.
The searches we make, the news we read, the dates we go on, the advertisements we see, the products we buy and the music we listen to. The stock market … All informed by this marriage between mathematics and capital, all working together in perfect harmony to achieve a singular goal — equilibrium. But it’s a curious sort of equilibrium. Less to do with the relationship between supply and demand, and more about the man and the market.
All these algorithms we encounter throughout the day, they’re working toward a greater goal: solving problems and learning how to think. Like the advent and rise of high–frequency trading, they’re part of an optimization trend that leads to a strange brand of perfection: automated profit.
The second, from ESPN, is about how numbers are being crunched by big-time professional sports gamblers:
Eventually, he grew to understand one of Walters’ keys to success: Some of his bets were intentional losers, designed to manipulate the bookmakers’ odds. Walters might bet $50,000 on a team giving 3 points, then $75,000 more on the same team when the line reaches 3.5. The moment the line gets to 4, a runner is instructed to immediately place a larger bet — perhaps $250,000 — on the other team. The $125,000 on the initial lines will be lost, but if things go according to plan, the $250,000 on the other side will win enough to make up for it many times over. Walters uses the same method on multiple games, often risking millions each weekend.
Since the days of the Computer Group, analytically inclined professional gamblers have relied on technology as well as research to produce what is called a delta: the difference between the Vegas line and what the bettors conclude the point spread should be. The greater the delta, the more money a gambler like Walters will bet. There’s nothing illegal about manipulating lines, and many prominent gamblers have the ability to move a line with as little as $1,000. Walters’ strategy is simply more sophisticated and uses more people, better information and, of course, more dollars bet in far more places than anyone else’s, insiders say…
The vast Walters network also includes a guy on the East Coast known as The Reader, who scans local newspapers, websites, blogs and Twitter for revealing tidbits or injury updates. That information is weighed and plugged into the computer alongside other statistical data — from field conditions to intricate breakdowns of officiating crews. Armed with algorithms and probability theories, the objective is to find the mispriced team, then hammer the line to where Walters wants it.