Use and Abuse Of Big Data Analytics

163679196_53519fed89_zAs a practitioner I always hope that the benefits of helping my clients to improve their use of analytical technologies will be somehow passed to their customers. Most of the applications of analytics are geared in that direction. The whole idea of analytics is to enable you to serve your customers better than your competitor, so that you get in return their purchasing loyalty, and a larger share of their wallets.

However, not all users of analytics think that way. Some are only interesting about what they can get out of it, and customers are there to be milked for all its worth.

And if readers want corporate example for this  - just look down the Wall street!

It has been known that investment banks have been using analytics and data mining heavily. And not necessarily just as a value add to the customer but primarily to support various trading strategies. Analytics are being used to the abundance of market information to figure transaction flows, trends, whether the market will turn bullish or bearish, and to figure out excess returns. In other words they are using powerful analytical capabilities coupled with super-computing power to game the system.

While it is illegal to trade on insider knowledge about company finances, some of the investment banks are trading on insider knowledge about market order flow. Economists have a term for that: “rent seeking” which extracts billions from the market without putting anything back. Good example for this term is if you have big land with large river that runs through it, and you put chain across demanding fee for any boat that passes through. Value has been extracted but no value has been given back!

According to US senate sub-committee, which produced 639-page report on the 2008  financial crisis and Wall Street role in it - which provided evidence that some of the Wall Street's darlings were selling securities to clients based on very shaky and volatile bonds, that they knew they will blow-up. So, they unloaded it as fast as they could on their clients, while at a same time there were betting on these bonds to fold. Scam!

Rolling Stone contributing editor Matt Taibbi says: Only reason this is controversial and we even asking if banking execs should be jailed, is because this is a financial service company, and things are not as obvious if this would be some other industry. If this was a car dealership – for instance – there would be no question”.

Taibbi continues: “Imagine if you are  Ford dealership and you get a full inventory of Ford Broncos that have brake defect and you decide not only to sell them, but also to give bonuses to your sales people who sell these defective products to encourage them to sell more. And then you go out and take life insurance policies on drivers of these cars you have sold to!”

That’s exactly what has happened here.

And as for analytics here – well, you can use a screwdriver to fix a lot of things around the house, but you can also use it to take someone’s wallet.  It is just a thing, and how will it be used depends of the user's intent.

Goran Dragosavac

No Comments Yet.

Leave a comment