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It looks like most of today's algorithm analysis is done in models with constant-time random access, such as the word RAM model. I don't know much about physics but from popular sources I've heard that there's supposed to be a limit on information storage per volume and on information travel speed, so RAMs don't seem to be physically realizable. Modern computers have all these cache levels which I'd say makes them not very RAM-like. So why should theoretical algorithms be set in RAM?
Let me give a different take on it than vonbrand. Everything you said is true: the RAM model is not realistic for a number of reasons, and whereas it is possible to defend different aspects of it, such a defense doesn't really get to the heart of the matter.