Noise in Judgement

'Noise: A Flaw in Human Judgement' by Daniel Kahneman, Olivier Sibony, and Cass Sunstein is one of my top recommended readings. While I'm still very much a junior behavioural scientist, as I read I found myself connecting the insights to my experiences within my own domains of expertise.

The authors make use of Pythagorean theorem and triangles to explain the relationship between different components of error within human judgement. But what I liked most were the visualisations.

I've recreated the key diagram as an interactive infographic. Clicking on a component will render a description below the diagram:

Mean Squared Error (MSE) Mean Squared Error (MSE) Mean Squared Error (MSE) Bias² Bias² System Noise² System Noise² Level Noise² Level Noise² Pattern Noise² Pattern Noise² Occasion Noise² OccasionNoise² Stable Pattern Noise² StablePattern Noise²

System Noise²

System noise is unwanted variability in judgement across different judges, cases, and occasions. Specifically, system noise is distinct from variation in other areas, such as markets, because it works against achieving the desired outcomes of a system.

Due to my many years as a software engineer, I'm inclined to think of system noise as a bug causing problems within a system. I'm only able to minimise the issues caused by the bug, not eradicate it.

This is opposed to a market where variability is a feature; it is desirable. The differences in what people need or choose to buy and sell is what makes a market a place where traders can gamble money despite their lack of need for the goods being traded.

System noise is composed of Pattern Noise and Level Noise. The ratio of one to the other determines how we should approach noise reduction.

Sources

[book] Noise: A Flaw in Human Judgement. 2021. D Kahneman, O Sibony, C R Sunstein [Pub] Harper Collins [ISBN] 978-0-00-830903-9.

[book] Knowledge and decisions. 1996. T Sowell [Pub] Basic Books [ISBN] 978-0465037384.