Over the past decade, computers have increasingly become more powerful and able to handle larger amounts of data at higher speeds. As Moore’s Law postulates, the ability of computers to handle data will roughly double every two years. This continuing advancement has allowed sophisticated algorithms to analyze the world and predict how people will behave. An algorithm is a set of rules written to be executed in a specific order, designed to solve a problem or carry out a task. As computer systems have become more sophisticated, algorithms are increasingly being used by companies to automate complex and repetitive tasks that were previously much more costly when done by humans.
As noted by the Organisation for Economic Co-operation and Development (OECD) in the background paper to its June 2017 panel on algorithms, computational algorithms can be used by businesses for predictive analysis—where the algorithms measure the likelihood of future outcomes based on analysis of historical data—and also can optimize business processes, reduce transaction and production costs, segment consumers or set optimal prices in response to market circumstances. Indeed, the growing usefulness of algorithms has led many companies around the world to employ them in order to improve business decisions and automate processes.
