A fascinating 15 minute presentation from Kevin Slavin at the TedConference.
TEDTalks is a daily video podcast of the best talks and performances from the TED Conference, where the world’s leading thinkers and doers give the talk of their lives in 18 minutes. TED stands for Technology, Entertainment, Design, and TEDTalks cover these topics as well as science, business, development and the arts. Closed captions and translated subtitles in a variety of languages are now available on TED.com
Kevin talks about algorithms and how it effects our entire world including the equity markets. There are 2,000 physicists on Wall Street now involved in quant/algo/black-box funds. 70% of trades are currently conducted by quants. It can go deadly wrong like the flash crash.
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Algos are also used to determine pricing, like the The Making of a Fly: The Genetics of Animal Design, which sold for ~$24million recently on Amazon.com (Seth Klarman’s Margin of Safety at $1,000 is a bargain in compassion). However no one was buying or selling just like on Wall Street. Now the book is selling for close to $300.
NetFlix has used algos to get a grasp on what movies people might want to watch next. 60% of the movies chosen are determined by algos. However this is scary because most of what you watch is determined by an algo which is hard to predict. We would not know when these algos crashed (like they did during the flash crash).
Algos on Wall Street focus most on super-speed. Kevin gets a little ridiculous when he thinks we are going to build in the middle of the ocean. But the video is a very interesting presentation overall.