And how well that works in practice? How will candidate even know where to look at if he has no idea what he needs to find?
That happens all the time, not just for algorithms. I don't expect candidates to know every possible algorithm (as I surely don't), I expect candidates to identify and learn what's required for the task. A knowledge of the specific algorithm is not of much value. The ability to learn and possibly implement algorithms is.
And that comes for free in people who spent time on Algorithms and Data Structures.
For day jobs, I've done very little computer science relevant work. Instead, it's communication, coordination, code maintenance, infrastructure, verification, managing upwards, ad nauseum.
That includes greenfield development, when I invented entirely new solutions to old problems. Even during the bursts of hardest parts (creatively), the algorithms and such were maybe 5% of the effort.
All nested loops are harbingers of algorithmic doom, and should be treated as such, and they come up all the time in real code.