As the New York Times points out in Sunday’s Business section the recent collapse of the stock and bond markets has much to do with the automated black-box systems of hedge funds whose algorithms are seeing behavior that despite all their statistical modeling has no precedent. The automated systems have failed and it’s now people that need to come to the rescue.
From the article The Week When Risk Came Home to Roost by Gretchen Morgenson:
None of this would be a problem of course if fund managers were not relying so heavily on precedent to make their decisions. Computer models seem so perfect, so scientific, so flawless and they are advertised in precisely that fashion. Ingenious models lull investors into a dangerous complacency…
Just like in the investment markets black box algos in the marketing world will lull marketers into complacency and will never improve upon human results. This should be a reality check in our industry around the current buzz and euphoria for the automated behavioral targeting and “set-it and forget it” suggestion tools getting loads of hype and capital.
Why aren’t these automated systems always going to work?
Having done hundreds of tests I can tell you from personal experience that just like the investment markets so much of what is seen in consumer behavior is counterintuitive and could not have been predicted.
Financial markets do not always trade in a way that is typical or predictable. And when they deviate from the norm, all the wonderful and smart trades stop behaving according to plan.
C-level execs and other decision makers investing in these platforms should understand there will be risks risks associated with them. The risk will be magnified if they are depending on these automated technologies to replace other tools and technologies controlled by the human marketer.
Every marketer would love to just sit back and collect great results – but just like Wall Street – in the markets where we play risk is never gone because while behavior is measurable and quantifiable, it is never predictable.
That’s why they call it marketing.