Issue date: 9/8/08 Section: News

Media Credit: Chris Griffin [Click to enlarge]

"When Amazon sends you a nice desk ornament out of the blue, your first reaction should now be 'Yikes, I've been paying too much for my books.'" This is a quote from the bestselling book by Ian Ayres, "Super Crunchers." Ayres' book opens up a new world to us-the world of data-driven decision making, or simply data mining.

Ayres sets up a situation to help understand data mining in layman's terms. Imagine sitting in Harrah's casino in Las Vegas and having a really bad day. You have already lost $800, and are contemplating how you will never return to this dreaded place again. Just when you are about to leave, a man approaches and says, "I see you are having a rough day. We would like to take you and your girlfriend to dinner, on us, at our steak house." You enjoy a great dinner, partially forget about the losses and change your mind about not coming again to the casino.

How did they manage to achieve something so stealthily successful? The answer: data-driven decision making. When you swiped your electronic card at Harrah's, they automatically captured each game played at the casino. The technique combined this data with your average income, the area where you live and put it all together in a system of statistical equations that make predictions that enable them to extract the maximum amount of business while retaining a customer. They can predict when you will reach your pain point and are on the verge of giving up. Put simply, they can predict what you will do in a given scenario better than you can. Intimidating? It's meant to be.

This is exactly what data mining does. It takes vast amounts of data and, with the help of statistical equations, makes staggeringly accurate predictions about behavior and psychology in different situations. The age of intuition and traditional expertise on premonitions is over. These mathematical equations are incredibly accurate and are being used by numerous companies to better understand customers (and thus make more profit).

Amazon uses predictive marketing strategies to know exactly what to offer you that will be most enticing. Bill James predicted better than the scouts on the basis of a baseball hitter's data how good a hitter he will turn out (much to the consternation of the scouts, who are reputed to have an 'eye' for good baseball hitting).

With the help of one equation, eHarmony can forecast the best match, Monster.com can help get a job that's right for you. Capone, the nation's largest issuer of credit cards, is at the forefront of crunching data to the company's advantage. A diagnostic tool called Isabel allows a doctor to enter the patient's symptoms and get a list of the possible diseases. The applications are endless.

These statistical techniques are having an impact on many spheres of life, some bad and some good. They are used because they manage to produce results, in many cases better than human calculations, to get to human psychology. It is daunting what a few sets of numbers can do.

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