Jeremy's Blog 21st August 2020: The Use of Algorithms

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 20th August 2020

Algorithm – a set of rules to be followed in calculations or other problem-solving operation.

While as simple as that, a word more used in computing than the pub has been thrust into daylight by the attempt to give examination grades without holding examinations. An algorithm is simply a tool, depending on how data are selected and assumptions about how they are handled. It can only be as good as those factors allow; it is not magic.

Algorithms are everywhere, especially with the growing reliance on digital systems and are increasingly met in professional work. Automated Valuation Mechanisms are one example, whether for mass valuations as for local taxation or conventional residential mortgage lending.

Such systems can seem a “black box”, risking giving weight to an answer when we might not know how the data are selected or handled to give an answer. The answer, whether property valuation or examination grade, is no more or less impressive than those issues – and not just to be given credit because it is a “black box”.

The problems with this year’s examination grades, hidden in complexity, seem to have included that they:

• were based on schools, not actual individuals
• did not take enough account of the detail of GCSE data
• gave more weight to teachers’ views for small groups with their greater statistical variation
• meant a really good pupil could not escape a school that had performed poorly.

As a statistical exercise, the arithmetic could perhaps even be right overall but not right for individuals and bedevilled by lack of transparency.

With property:

• automated property valuations might, with the right data, be fair overall for a portfolio but with wide variations at property level. A lender with a large book might feel supported; an individual borrower might feel at risk.
• the Scottish discussion of a budget-based approach to farm rent reviews has looked for a mechanical process of arithmetic when they require appraisal and judgement, not formulae imposing answers on varied situations.

Just because an answer comes from a computer does not make it right. Whether using such answers, commenting on them or advising clients about them, we will need the skills and confidence to be clear about how they are achieved and the common sense to see where they do not work. Possibly servants, they are neither magic nor masters. The same sense check is needed as for a valuation.