Kahneman, a Nobel Laureate and member of our Alliance Advisory Council, offered the Alliance an exclusive preview of his new book, due to hit the shelves May 18. Called Noise: A Flaw in Human Judgment, the book brings to life yet another challenge to good decision-making.
Kahneman first wrote about cognitive biases in his best-selling book, Thinking, Fast and Slow. In that work, he showed the world that our brains work in two systems, driving the way we think and decide. Today, it is one of the most widely cited, studied, and leveraged books on decision-making. It serves as a guide for leaders of all industries, financial advisors, professional sports leaders, and government officials.
Noise promises to be equally impactful.
Kahneman, along with co-authors Cass R. Sunstein and Olivier Sibony, introduces us to the concept of noise—and more specifically, how prevalent it is in areas where we assume and demand objectivity.
The opportunity to sit down with Kahneman and Alliance Co-Founder Annie Duke to discuss noise was its own gift. Annie is a decision expert, as well as a charming and funny force all her own. Kahneman is self-effacing, direct, and brimming with comical warmth. He makes his deep-science research both accessible and engaging for so many people. We are fortunate to have both as strong supporters of the Alliance and the need to bring Decision Education to students, teaching them about challenges to, and processes for, protecting good decision-making.
As Kahneman explained the notion of noise and its scope, I found myself both increasingly intrigued and alarmed.
“Wherever there is judgment, there is noise,” Kahneman told us. “And there is a lot more of it than you realize.”
Kahneman said noise is variability in judgments that should be identical. He focuses on professional organizations—doctors, judges, insurance underwriters, police investigators, hiring managers—where decisions are expected to be mostly standard, consistent, and objective. In reality, because human judgment is strongly affected by irrelevant factors, they are none of those.
“If you have different judges looking at the same case, and they would give two different sentences, that’s noise. When you have physicians looking at the same case and giving different diagnoses, that’s noise. When you have underwriters looking at the same risk and putting different premiums to that risk, that’s noise.
“There is variability within the individual—so that the same person looking at the same problem but in different states of mind and in different moods, is likely to make quite different judgments. But, the most important source of error is not what happens within the individual…It is that people looking at the same problem differ hugely from each other—and are largely unaware of it.”
Irrelevant factors should not affect our judgments, but they do, and take on many forms: the judge’s team losing Sunday’s big game, hot weather, a good meal, a flat tire, a suspect resembling the officer’s oldest daughter. Unrelated, chance events creep in, unseen and completely unnoticed, and impact the outcome of the decision.
The impact is startling. Given the exact same set of facts and circumstances, with the only variable being the decision maker outcomes vary by a medium of 55 percent! Kahneman said executives assumed a possible 10% variance between equally expert professionals within their organization. “When we saw it was more than 50 (percent), we knew we had something.” In judicial cases where the average sentence was seven years, Kahneman found a mean difference of an astonishing three years between judges.
“In effect, a customer of an insurance company, or the patient, or the defendant is facing a lottery…because the treatment and the diagnosis are going to depend on the individual they are going to encounter.”
The impact of noise is so pervasive because people believe they are being objective in their work. They truly are blind to the impact that unseen factors are having on their decisions. But in an exhaustive review of data, the variations are evident.
“Many organizations are factories that produce judgments. And individuals produce those judgments. And those individuals are noisier than the organizations realize.”
Kahneman sees noise as a partner in crime to cognitive biases, with both working in different ways to influence our decisions. But, he added, noise is much harder to counter because it is an invisible influencer.
Imagine an archer taking many shots at a target. A bias might lead to shots tending to be low and to the left of the bullseye, or high and to the right, etc. Once noticed, it is simply a matter of making a correcting change in the process. Noise is more like shots scattered randomly around the middle; it’s hard to know how to correct for that. Worse, most individuals only make one judgment—take one shot—at a time, so they don’t see a pattern, or that they are missing the mark.
Can noise be suppressed, or cancelled out, if we make decisions in groups? Only if, Kahneman said, the deciders work in isolation, and then the results are combined. Bringing together a group of people interested in debating and discussing the matter only creates more noise.
One solution would be to apply algorithms or artificial intelligence to a given situation or process. “We know that in many situations, algorithms do better than people in the quality of their judgments because they are noise free (meaning that given the same inputs, they will produce the same outputs.)
“But, a lot of judgments cannot be replaced by algorithms. So, for the near future, there is plenty of work to do to improve the quality of judgments.”
Is noise ever good? Thankfully yes. In areas where creativity and problem solving are required, we benefit from variation of thought, ideas, and opinions.
It is when we seek consistency and fairness, that noise is a problem.
Bleak? Alarming? Absolutely. So, how is any of this good news?
Kahneman’s work is indeed good news because understanding is always a first step to improvement. The more we can recognize how and why our decisions are influenced, the better equipped we are to make the kinds of decisions that can improve our lives and those around us.
This also underscored the need for us to work harder—and faster—to ensure that today’s students, who tomorrow will assume many of these key decision-making roles, are taught Decision Education and equipped with the skills to make good decisions and not have them shaped by other influencing factors.
As Kahneman said: “People’s lives depend on the decisions they make, so if you could teach people to make better decisions, you would improve their lives.”