SYNOPSIS
What book are we doing?
Noise: A Flaw in Human Judgement, by Daniel Kahneman, Olivier Sibonier, and Cass Sunstein
Why are we doing it?
In tribute to Daniel Kahneman, a trailblazer of behavioural economics, who died on March 27
How can we use it?
To be aware that noise is all around us, affecting our decisions.
To help us use bahavioural economics to affect our own decisions as much as we do to affect consumers’ decisions.
To help agencies and brands take a more systematic (System 2) approach to decision-making for more desirable and consistent results.
Most planners have read—or at least are familiar with the concepts presented in—Daniel Kahneman’s Thinking Fast and Slow. His work[1] shaped how we think about consumer decision making, and how we try to affect it. But behavioural economics (BE) isn’t just about consumer behaviour—it’s about human behaviour. While agencies, brands, and businesses have made progress in using behavioural science to affect consumer decisions, Noise is a good reminder of BE’s value in improving organizational decisions (which are made by people, on behalf of organizations).
Noise is, “undesirable variability in judgements of the same problem.” This variability may be:
- Within-person (or within-group): Faced with the same problem on different days, you may make a different choice because of unconscious variables like time of day or whether the sports team you cheer for won or lost the night before. For example, doctors are more likely to order cancer screenings early in the morning than late in the afternoon. “You are not the same person at all times.”
- Between-person (or between-group): Two different people (or groups) facing the same problem may arrive at a different judgement which, in theory, should lead to the same objective decision. For example, Jury A may award damages of $1 million to a victim while Jury B awards $50 million for the same case.
Kahneman and his co-authors emphasize that, “Where there is judgement, there is noise—and more of it than you think.” If noise is prevalent and has a significant negative impact on organizational decisions,[2] one may wonder how it survives. An insurance company described in Noise represents a common phenomenon that hints at an answer, “Noise was like a leak in the basement. It was tolerated not because it was acceptable but because it had remained unnoticed.”
This answer is incomplete. Why did noise remain unnoticed? In a business whose financial performance relies on premiums (for incoming cash) and claims (for outgoing cash), it seems obvious that executives would ask, “Are our underwriters quoting premiums well (and consistently) and are our claims adjusters settling claims well (and consistently)?” At the very least, surely this must have been asked when evaluating employees during their annual performance reviews. The noise was there to be heard; executives chose not to listen.
Noise is uncomfortable. It’s uncomfortable to look for it, to find it, and to fix it. Clinging to comfort allows noise to thrive. Long-term results of organizational decisions suffer in our perpetual pursuit of short-term comfort – both with ourselves and with our group:
Comfort with ourselves: Kahneman et al describe the “internal signal of judgement completion”—the feeling a person gets when they believe they’ve found the right solution. While your decision has not be proven successful through results or outcomes, the act of achieving a coherent solution (i.e., believing your solution looks and sounds reasonable and can be rationalized) leaves you with a feeling of resolution, success, and comfort. Problem solved! Time to move on.
Comfort with our group: Decisions within groups are loaded with pressures to conform and skewed heavily by influences like sociological drivers,[3] corporate culture, who speaks first, or a dictatorial boss’s presence in the room. The extent to which some organizations will go to avoid the discomfort of disagreement is counterproductive. For example, Noise describes a case where a school received recommendations to help remove noise to improve their admissions process. The school responded, “We used to do that, but it resulted in so many disagreements that we switched to the current (i.e., noisy) system.” They’d rather make wrong decisions than experience the short-term discomfort of disagreement and debate.
Last week, Curb Your Enthusiasm—a show about noise—came to an end. Its creator and protagonist Larry David is the embodiment of much of what Kahneman advocated. Larry points out repeatedly how, with the same information, he and others arrive at radically different conclusions. Rather than making snap decisions and just going along with intuition, he engages System 2 thinking and methodically evaluates the decisions being made, and how he and others judge the same situations so differently. He stands prepared to discuss and debate until a better answer is agreed to. Larry is so committed to reconciling noise through disagreement that in one episode, when someone suggests that they agree to disagree, Larry refuses, saying, “No, I disagree to disagree.”
Planners and agencies make judgements every day—for clients (we recommend this strategy, we recommend that creative approach), for our business (let’s pitch this potential new client, let’s not pitch that one), and for our staff (let’s hire Candidate A over Candidate B, let’s given Employee Y a good evaluation, Employee Z gets a mediocre one). Noise reminds us that we have a choice: we can use our default decision-making mode of intuition and the pursuit of short-term comfort, or we can leverage our knowledge of behavioural economics and make a conscious choice to slow down our thinking and use a more methodical process of evaluation rooted in the business outcomes we’re trying to achieve.
[1] and that of many other behavioural economics academics who followed him
[2] i.e., it’s bad for business
[3] The results from the Asch conformity experiments are a good illustration of this
