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

Attempts to reduce noise are often seen as too expensive. This might just be an excuse. The point is that when you try to reduce noise you should also analyze costs and benefits. Your efforts may aggravate the problem they are intended to solve. They may not change things at all. They might even jeopardize important values. While rules may reduce noise, there will be times when they seem silly or get in the way. Algorithms can eliminate noise, but they can also introduce serious bias. The key idea is to not give up.

We all like to feel that our individual needs are being fairly considered when we are being judged. The people doing the judging also want discretion rather than rules that make them feel robotic. If you have rules, you need a process that allows people to challenge and rethink them. Rather than lots of rules look for noise-reduction strategies like aggregating judgments and structuring complex judgments. When you engage in noise reduction always look for unintended consequences.

Organizations use rules or standards or some of both. Rules eliminate noise if they are followed and are inexpensive as they require no judgment. Standards allow for discretion so they are more expensive and noisy. They are also easier to agree on. Smart organizations understand the disadvantages of both ways of regulating behavior and strive to control costs and maximize fairness. Sometimes the implementation of rules can drive discretion underground when people decide to ignore them.

This chapter lives up to its title. You could almost read it first as it’s a lot like reading this summary.

Daniel is an emeritus professor of psychology and public affairs at Princeton University and the winner of the 2002 Nobel Prize in Economic Sciences and the 2013 Presidential Medal of Freedom. He is the author of Thinking Fast and Slow. Follow him on Twitter @kahneman_daniel. Check out his website.
Oliver is a professor of strategy at HEC Paris, an associate fellow a Said Business School, Oxford University, and the author of You’re About to Make a Terrible Mistake!.
Cass is a professor at Harvard where he is founder and director of the Program on Behavioral Economics and Public Policy. He is the author of many articles and books, including Nudge with Richard Thaler. Follow him on Twitter @CassSunstein.