The Economics of Algorithmic Selection on the Internet

Algorithms have come to shape our daily lives and realities. They change the perception of the world, affect our behavior by influencing our choices, and are an important source of social order. Algorithms on the Internet have significant economic implications in newly emerging markets and for existing markets in various sectors. A wide range of our daily activities in general and our media consumption in particular are increasingly shaped by algorithms operating behind the scenes: the selection of online news via search engines and news aggregators, the consumption of music and video entertainment via recommender systems, the choice of services and products in online shops and the selection of status messages displayed on social online networks are the most prominent examples of this omnipresent trend. Algorithms suggest friends, news, songs and travel routes. Moreover, they automatically produce news articles and messages, they calculate scorings of content and people, and are employed to observe our behavior and interests as well as to predict our future needs and actions. By assigning relevance to certain pieces of information they keep consumers, companies and authorities from drowning in a growing flood of information and online data. At the same time, they mine and construct realities, guide our actions and thereby determine the economic success of products and services. Algorithms form the technofunctional basis of new services and business models that economically challenge traditional industries and business strategies. These economic changes and challenges are accompanied by and interact with significant social risks such as manipulation and bias, threats to privacy and violations of intellectual property rights that compromise the economic and social welfare effects of algorithmic selection applications