Noise: A Flaw in Human Judgement by Daniel Kahneman, Oliver Sibony, & Cass Sunstein

Heuristics are simple rules of thumb that we often use to answer difficult questions. They can be useful and are part of our fast (system 1) thinking system. They also lead to biases. We tend to give recent events more weight. This is known as availability bias. Prejudgement is called conclusion biad. As we collect evidence, we look for data that confirms what we already believe. (confirmation bias) One’s current feelings or emotions also influence their decisions. Excessive Coherence is when you hold on to an initial impression even when new evidence contradicts it. Numbers or ideas mentioned first often have a strong impact on final decisions. First impressions known as the halo effect can be a serious problem in hiring decisions.

If you use a scale of any sort to rate something you are matching. A one to ten scale is an example. A matching operation is a versatile tool of fast, system 1 thinking and at the core of many intuitive judgments, but it is crude. This process has a limited resolution that can be overcome by comparing cases to each other. You might be able to rate seven categories plus or minus two. Once you sort cases into these categories you can compare cases within each category to improve the overall resolution of your judgment.

This chapter tells of a study the authors did to determine the extent of noise involved when juries award damages. They found that the use of scales can reduce noise. They give examples of outrage and punitive intent scales. The former goes from acceptable to objectionable to shocking to absolutely outrageous. The latter goes from no punishment to mild to severe to extremely severe. As for dollar scales, they are the noisiest as there are no clear points along the way. Again there is noise within the judgment of single jurors (pattern noise) and noise between jurors (level noise). Jurors are more likely to agree using the first set of scales than the dollar scale. Once a juror picked an arbitrary dollar amount for one case, it served as an anchor for subsequent cases.

The error in an individual’s judgement is called pattern error. It is the sum of stable pattern error, which is a function of your biases and personality, and transient (occasion) error, which is a function of the environmental factors surrounding you when you make the judgment. We don’t all respond to the same environmental factors in the same way. The dominant model of personality is known as The Big FIve. It combines traits from the five groupings of extraversion, agreeableness, conscientiousness, openness to experience, and neuroticism. Behavior and judgment may be driven by personality, but it is also affected by situations. While we celebrate the uniqueness of personality for its diversity, it can also result in more noise and error.

Pattern noise deals with the judgments of an individual and is composed of a stable part and a part depending on the environment. System noise equals pattern noise and level noise, which is the noise involving multiple judges. Error is equal to system noise plus bias. Pattern noise is usually the larger component of system noise, and the stable part of pattern noise tends to be dominant. When explaining bad judgments we usually focus on bias and ignore the noise. That is how we remain largely unaware of a large flaw in our judgment.