How to Make Better Decisions: Understanding Bias and Noise

You make many decisions every day. But how do you know you made the best decisions possible?  Did you have any blind spots or distracted by extraneous factors?

We live in a fast-moving world accompanied by information overload. So let's stop and think for a minute to consider the role of bias and "noise" in our decision-making process.

The word "bias" commonly appears in conversations about mistaken judgments and unfortunate decisions. We use it when there is discrimination, for instance against older individuals in the workplace.

But the meaning of the word is broader: A bias is any predictable error that inclines your judgment in a particular direction. For instance, we speak of bias when forecasts of sales are consistently optimistic or investment decisions overly cautious.

A lot of attention is devoted to the problem of bias. But when it comes to mistaken judgments and unfortunate decisions, there is another type of error that attracts far less attention: noise.

Noise Causes Flaws in Judgment

The Difference Between Bias and Noise

To see the difference between bias and noise, consider your bathroom scale. If on average the readings it gives are too high (or too low), the scale is biased. If it shows different readings when you step on it several times in quick succession, the scale is noisy. (Cheap scales are likely to be both biased and noisy.)

While bias is the average of errors, noise is their variability.

Although often ignored, noise is a large source of malfunction in our society. In a 1981 study, for example, 208 federal judges were asked to determine the appropriate sentences for the same 16 cases. The cases were described by the characteristics of the offense (robbery or fraud, violent or not) and of the defendant (young or old, repeat or first-time offender, accomplice or principal). You might have expected judges to agree closely about such vignettes, which were stripped of distracting details and contained only relevant information.

But the judges did not agree. The average difference between the sentences that two randomly chosen judges gave for the same crime was more than 3.5 years. Considering that the mean sentence was seven years, that was a disconcerting amount of noise.

Many other studies demonstrate noise in professional judgments. Radiologists disagree on their readings of images and cardiologists on their surgery decisions. Forecasts of economic outcomes are notoriously noisy. Sometimes fingerprint experts disagree about whether there is a "match." Wherever there is judgment, there is noise -- and more of it than you think.

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 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.

Reduce the Noise in Your Life

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. Guidelines, such as those often used in medicine, can help professionals reach better and more uniform decisions. And, imposing structure and discipline in your assessments tends to improve your judgment.

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 because it results in frequent errors.

Source: https://www.nytimes.com/2021/05/15/opinion/noise-bias-kahneman.html

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