I've been trying to break into bioinformatics (to no avail) for some time now, so I really appreciate this example. I really appreciate that the code you posted is written in Python, because that's what I'm heavily into these days. There are tons of applications for your idea especially for traffic management and rerouting.
Based on the problem you posited, my first thought for a solution was similar to how noise from images are removed. Since we're talking about coordinates on a 2d map, I feel that it could be used in conjunction with your sequencing algorithm. I've had more experience (and success) dealing with images that genetic sequencing, so my stand is a bit biased.
Here's another resource I found that discussed a different algorithm for the same problem: http://gis.stackexchange.com/questions/81551/matching-gps-tracks
When you told me that you weren't in the field of psychology, I didn't imagine that we belong in the same field. Though I bet you're miles ahead from where I'm currently at.
The book An Introduction to Bioinformatics Algorithms is a good place to start. The author also has a course on Coursera.
It's funny you mention image noise removal because Needleman-Wunsch is also used for that, particularly with stereoscopic 3D images, where one side can be considered a mutated form of the other.
There are lots of other possibilities as well. Needleman-Wunsch is a global alignment algorithm which finds the optimal solution. With two sequences/tracks this isn't a problem, but if you want to compare a track to a database, it would take too long. To solve this problem, a local alignment algorithm would be much more efficient but not optimal. A popular algorithm for this is BLAST (Basic Local Alignment Search Tool). I've been meaning to implement this for GPS tracks but haven't found the time.
The psychology articles are things I'm interested in, plus it helps that my girlfriend is a psychologist :)
I've actually enrolled in the Coursera specialization. I didn't get the verified course, but I passed all the courses. It's hard to break into the industry though. Having a terrible time finding (remote) employment in the field.
I've actually used BLAST in genetic sequencing, so I already have a brief notion of its capabilities for comparing GPS tracks.