Noise causes error, as does bias, but the two kinds of error are separate and independent. A company’s hiring decisions could be unbiased overall if some of its recruiters favor men and others favor women. However, its hiring decisions would be noisy, and the company would make many bad choices. Likewise, if one insurance policy is overpriced and another is underpriced by the same amount, the company is making two mistakes, even though there is no overall bias.
Where does noise come from? There is much evidence that irrelevant circumstances can affect judgments. In the case of criminal sentencing, for instance, a judge’s mood, fatigue and even the weather can all have modest but detectable effects on judicial decisions.
Another source of noise is that people can have different general tendencies. Judges often vary in the severity of the sentences they mete out: There are “hanging” judges and lenient ones.
A third source of noise is less intuitive, although it is usually the largest: People can have not only different general tendencies (say, whether they are harsh or lenient) but also different patterns of assessment (say, which types of cases they believe merit being harsh or lenient about). Underwriters differ in their views of what is risky, and doctors in their views of which ailments require treatment. We celebrate the uniqueness of individuals, but we tend to forget that, when we expect consistency, uniqueness becomes a liability.
Once you become aware of noise, you can look for ways to reduce it. For instance, independent judgments from a number of people can be averaged (a frequent practice in forecasting). Guidelines, such as those often used in medicine, can help professionals reach better and more uniform decisions. As studies of hiring practices have consistently shown, imposing structure and discipline in interviews and other forms of assessment tends to improve judgments of job candidates.
No noise-reduction techniques will be deployed, however, if we do not first recognize the existence of noise. Noise is too often neglected. But it is a serious issue that results in frequent error and rampant injustice. Organizations and institutions, public and private, will make better decisions if they take noise seriously.
Daniel Kahneman is an emeritus professor of psychology at Princeton and a recipient of the 2002 Nobel Memorial Prize in Economic Sciences. Olivier Sibony is a professor of strategy at the HEC Paris business school. Cass R. Sunstein is a law professor at Harvard. They are the authors of the forthcoming book “Noise: A Flaw in Human Judgment,” on which this essay is based.
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