Suggested Friends, How are they determined?

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No one knows how Facebook does these calculations, I imagine it's very sophisticated and they don't want to reveal it as it'd be something of a "trade secret".
Facebook (like all major online sites) logs close to everything you do. If you search for something, it's logged. If you click on an ad, it's logged. View a profile? I'm sure they log that.

I'm sure the calculation would include the distance between where the two of you live (usually you put your location on your profile, and even then they have your IP address which can be traced usually to the nearest major city), similar interests, whether you go to the same school/work at the same place, similar ages, similar likes/if you're members of the same group or like the same page etc.