Reducing Noise and Improving Decision Making

 

Cover page image: https://www.littlebrownspark.com/

Noise: A Flaw in Human Judgment. By Daniel Kahneman, Olivier Sibony, and Cass R. Sunstein

Kahneman, Sibony, and Sunstein have written a book that is both valuable and frustrating.

This book presents multiple ideas related to human judgment and decision making: (1) a review of studies that have described the variability in judgments in many domains, (2) approaches for reducing that variability, (3) an approach for making decisions when there are multiple factors that should be considered, and (4) an appeal for better procedures in the legal system.  According to the authors, the book offers an understanding of the psychological foundations of disparities in judgments, which are here classified as noise and bias.

The book’s strengths include its review of the literature on the variability of judgments and its distinction between noise and bias.  It presents examples of judgments from many domains (including medicine, business, and the legal system).  It strongly supports systematic decision-making processes (a topic that is important to me) and emphasizes the importance of accurate judgments.  It acknowledges the difficulties of reducing noise.  Finally, its notes provide references to original studies that provide context and details to the book’s discussion.

The book describes a range of best practices for judgment and decision making: employing persons who are better at making judgments, aggregating multiple judgments, using judgment guidelines, using a shared scale grounded in an outside view, and structuring complex decisions.  The first three items are meant to reduce judgment errors due to noise and bias.  The last item is a practical multi-criteria decision-making process that (a) decomposes the decision into a set of assessments, (b) collects information about each assessment independently, and (c) presents this evidence to the decision-maker(s), who may use intuition to synthesize this information and select an alternative.  In an appendix, the authors use their recommendations, for the book provides a checklist (a guideline) for evaluating a decision-making process.

When discussing ratings, the book wisely recommends that “performance rating scales must be anchored on descriptors that are sufficiently specific to be interpreted consistently.”  Scales with undefined terms such as “poor” and “good” and “excellent” should be discarded unless they are well-understood in the group of persons who are using them as a common language.

Unfortunately, two weaknesses (one minor, one major) frustrated me.  The first is the fact that the text contains no superscripts, citations, or other marks that indicate the notes that are available in the Notes section at the end of the book.  In the Notes section, each note has only a page number and a brief quote that suggest the text to which the note applies.  This unreasonable scheme reduces the value of the notes' many citations and explanations by making them harder to find and use.

The second weakness is more significant.  The book does not distinguish between judgment and decision making.  It tends to treat them as the same thing.  Indeed, a note explains that the authors “regard decisions as a special case of judgment” (page 403). 

For example, the book discusses the judgments that an insurance company’s employees make.  One example is a claims adjuster’s estimate of the cost of a future claim, which is indeed a judgment.  The other example is the premium that an underwriter quotes, which is a decision, not a mere judgment.  It is based on numerous judgments, of course, but the underwriter chooses the premium amount.  The book states that making a judgment is similar to measuring something, which is appropriate, but then goes on to say that the premium in the underwriter’s quote is also a judgment, which is not appropriate, because it is the result of a decision, not a measurement.

Elsewhere, the book claims that “an evaluative judgment determines the choice of an acceptable safety margin” for an elevator design (page 67).  This is inappropriate, however, for choosing the safety margin is a decision, not a measurement.

The book states that the process of judgment involves considering the given information, engaging in computation, consulting one’s intuition, and generating a judgment; that is, judgment is “an operation that assigns a value on a scale to a subjective impression (or to an aspect of an impression)” (page 176).  This is not the same as decision making.  Decision making is a more comprehensive process that defines relevant objectives, identifies (or develops) alternatives, evaluates the alternatives, selects one, and implements it.  In this process, judgment is an activity that may be used to evaluate the alternatives.  The book provides a relevant example that shows the distinction: job candidates get ratings, but only one gets hired.  The ratings are judgments, but choosing and hiring someone is a decision.

Those seeking to improve decision making in their organizations will find many useful suggestions in this book, but they should keep in mind that decision making is a process, not a judgment.