What if the algorithms are all wrong? Could that happen? Say, in a presidential election… could big data be wrong? Do we rely too much on computer data?
As Cathy O’Neil explains in her book “Weapons of Math Destruction” (available on Amazon) automated computer programs (algorithms) are making so many life changing decisions in our lives today.
“We live in the age of the algorithm. Algorithms decide who gets a loan, who gets a job interview, who gets insurance and much more — but they don’t automatically make things fair.” Mathematician and data scientist Cathy O’Neil coined a term for algorithms that are secret, important and harmful: “weapons of math destruction. In theory, this should lead to greater fairness: Everyone is judged according to the same rules, and bias is eliminated.”
But all too often the opposite is true. The models being used today are opaque, unregulated, and incontestable, even when they’re wrong.
What is an algorithm?
Cathy O’Neil says, “Algorithms are opinions embedded in computer code. It’s really different from what you think most people think of algorithms. They think algorithms are objective and true and scientific. That’s a marketing trick. It’s also a marketing trick to intimidate you with algorithms, to make you trust and fear algorithms because you trust and fear mathematics. A lot can go wrong when we put blind faith in big data…”
“You cannot appeal to a WMD. That’s part of their fearsome power. They do not listen. Nor do they bend. They’re deaf not only to charm, threats, and cajoling but also to logic – even when there is good reason to question the data that feeds their conclusions. Yes, if it becomes clear that automated systems are screwing up on an embarrassing and systematic basis, programmers will go back in and tweak the algorithms. But for the most part, the programs deliver unflinching verdicts, and the human beings employing them can only shrug, as if to say, “Hey, what can you do?”
Real Estate vs the Appraisal Algorithm
Over time, algorithms have greatly encroached into the world of real estate appraising. These two homes above are next door to each other! Which price is right? This is not an uncommon situation. Who is the expert? Who do you trust
Everyone has heard of Zillow. They are perhaps the king of appraisal algorithms. Most people have visited Zillow to peek into their neighborhoods and see what the prevailing prices are for their area. As an appraiser, I’ve done that myself from time to time, just to see how close Zillow is to my well-researched appraisal analysis. That is a topic unto itself, so I won’t go into detailed analysis of the pros and cons in this post.
Remember the Mortgage Crash The Data Did Not Predict?
Why? They did not include data from the Great Depression, the last time real estate markets crashed all over the country.
Enter the old time appraiser (me). I do things the old fashioned way; one step at a time. The vast majority of homes that I’ve appraised (since 2001) have not been average. In fact, I analyze at least six homes to compare to the subject that I am appraising, in every appraisal report, and usually all six of these analyzed homes have significant market adjustments for the differences between all of them. If they were all average, there would be no need for adjustments. But that’s not the case. Each home is distinct in very many ways.
much swing in value is too much?
If your home is average, then you probably don’t need a highly experienced appraiser. However, if a possible “swing” in the value of $20,000 to $80,000 concerns you, then you definitely need a highly experienced appraiser that fully understands the many different techniques and methods to create a high-quality appraisal. Unfortunately, appraisers that do work for lenders (purchases and refinances) are under constant pressure to do more, for a greatly cheaper fee, and to do their work faster. This has driven many experienced appraisers away from the business. I have stopped appraising for most of the lenders that I worked with in the past for those very reasons. I refuse to rush something as important as a real estate appraisal.
Now that you have some insight as to how big data can manipulate your own life, you can formulate a strategy to manage this situation. You no longer have to be silent and defenseless when facing a system that could be stacked against you. If you’re fighting an appraisal algorithm, feel free to contact me for free facts and consultation.