Mitigating noise that mars human decision-making

 

After taking a long flight from Australia to Pakistan, my mother-in-law was suffering from sharp otalgia, or ear ache. She consulted three doctors and each suggested a different treatment. One of them prescribed oral antibiotics, the other advised chewing gums to release ear pressure and using over-the-counter ear drops, and the third one explained in detail why a surgery was inevitable. My mother-in-law, petrified at the word ‘surgery’, decided to take antibiotics and ear-drops to alleviate her discomfort. It did work out, but the proposition of a surgery still disturbs her.

Doctors differing in diagnosis for the same disease is not something new. This unpleasing inconsistency in professional judgment is a case of noise; an often-overlooked shortcoming of the human behavior that is described in detail in the book “Noise: A Flaw in Human Judgement.” This book is authored by the celebrated Nobel laureate Daniel Kahneman (writer of “Thinking, Fast and Slow”), former McKinsey partner and Professor at HEC Paris Olivier Sibony, and esteemed legal scholar and co-author of “Nudge” Cass R. Sunstein.  The book discusses in length how to detect and measure the presence of ‘noise’ and the remedial ways to reduce it.

The book begins with a distinction between noise and bias. While bias is systematic error; presenting a regular deviation, noise refers to a random scatter. In simpler words, noise is attributed as the inconsistency in decisions, made by different people or even the same person repeatedly, in decisions or circumstances where uniformity is expected. With the help of scenarios, studies, and statistics, the authors stress the presence of noise that plagues many fields and situations, such as medicine, law, education, and performance reviews. An error in judgement in such fields may induce people to lose faith in their institutions.

With every moment of every day, the human mind makes judgements. When individuals make noisy decisions, they err randomly, but when they make biased judgements, their decisions show a similar pattern with every observation. Decisions made by different individuals vary, but that variation – or noise – is also present among groups of individuals. Kahneman, Sibony and Sunstein share their insights on why humans are vulnerable to noise when making decisions, how to identify noise, and how it could be avoided in order to make accurate judgments that will help shape a fairer world.

The authors proceed by explaining the different types of noise – pattern noise, and occasion noise. They assert that noise in systems is partly because different professionals follow different practices. In the field of medicine, for instance, there is startling evidence that different medical practitioners agree only two-thirds of the time to the same treatment of a disease. This is known as “pattern noise”: a case where professionals differ with each other on the same issue. An example of pattern noise in judicial system, as penned by the authors, notes, “Two men, neither of whom had a criminal record, were convicted for cashing counterfeit checks in the amounts of $58.40 and $35.20, respectively. The first man was sentenced to fifteen years, the second to 30 days.” Judges should be interchangeable, but if the verdicts for similar cases vary by such huge margins, the judicial system becomes flawed. Such variations add more error in the system than cancel each other out.

The authors suggest that systems are full of noise because specialists who work in the same field commit contradictory practices. They name it “occasion noise” – disparity in judgments caused by mood, time constraints, weariness, or weather conditions – factors that should not affect decisions but, in fact, do. For instance, teachers give better grades if they recently received a salary raise.

Noise is inherent whenever judgments are made. But what could be done to minimize this noise? Should these noisy systems be replaced with machines? Or, how about only considering a group’s average judgement and disregarding the individual one? The authors are extremely reluctant to agree on these proposed solutions. They are not willing to give up on human judgements, but rather recommend people to adopt better “decision hygiene”. Decision hygiene refers to procedures that help reduce noise. One such procedure could be to have multiple independent judgements, and taking an average of it. That is to say that if there are five members in a group, then the average of individual judgments should be preferred to a collective group judgement.

Since systems are distressed with noise, the authors suggest conducting a “noise audit” – a method to identify noise and improve the quality of decisions. If organizations perform regular noise audits of their team, it will allow them to find the causes of these variabilities and will enable them to implement processes to alleviate the level of noise in decision making structures. Just as organizations and policy-makers are employing “nudges”, if they employ “decision hygiene” and “noise audits”, they will be in a better position to make fairer decisions that would save lives, time, money, and resources. 

Noise: A Flaw in Human Judgement is a lengthy, but a well-written and captivating book. It shows us the many instances where we become prey to bad decisions. Every leader, academic and decision-maker must specifically read the parts where the effects of noise are emphasized and how to reduce them. Also, people who are interested in learning more about cognitive biases will find the book a value addition to their knowledge. Although the book is assembled with stories, experiments, and evidences, some of its chapters are too scholarly to be understood by many. Especially readers who are not well-versed in statistics will find the book a bit too technical and boring.

 Noise: A Flaw in Human Judgment

By Daniel Kahneman, Olivier Sibony, Cass R. Sunstein

Little, Brown Spark.

454 pp.

Externality of a Pandemic - Pakistan's Scenario

Coronavirus, or COVID-19 – a word the world was unfamiliar with just 5 months ago. In Dec 2019 Coronavirus outbreak was first identified in Wuhan, China, and since then it has travelled to 210 countries, claiming lives of more than 180,000 people. On Mar 11, 2020, the World Health Organization declared Coronavirus as a Pandemic, stating that the only precaution to prevent the spread of this virus is physical distancing, washing hands for 20 seconds, and covering one’s mouth while sneezing and coughing. In Pakistan, the first case of Coronavirus surfaced on Feb 26, 2020. As of third week of April 2020, over 10,000 cases have been testified. Over 200 lives have been lost, while more than 2,000 have recuperated.

What is an Externality?

By definition, an externality is a cost or benefit that affects a third party who had no control over the creation of that cost or benefit. Also known as the ‘spillover effect’, an externality can be both negative and positive, and can stem from both production side and consumption side. Negative externalities arise when social costs exceed private costs. Similarly, positive externalities occur when social benefits exceed private benefits. Externalities –negative or positive –create market inefficiencies.

Negative Externalities

(1)    Macroeconomic consequences:

According to a research conducted by Pakistan Institute of Development Economics (PIDE), an affiliate of Planning Commission, Pakistan is expected to face 12.3m to 18.53m layoffs as the country is experiencing lockdown. As stated by the Labour Force Survey 2017-18, the informal sector, which caters to 72%  of non-agricultural employment is hit hard. The sectors heavily affected due to the countrywide lockdown include wholesale & retail trade, transportation, construction, and social and personal services.  

Coronavirus is set to further damage the already ailing economy. Pakistan’s economy is burdened with an external debt of more than $100 billion – an all-time high. During the year 2019, Pakistan paid $11.6 billion as debt repayment. The foreign exchange that comes through the workers’ remittances play a huge role in repayment of the debts. According to the data published by the State Bank of Pakistan overseas Pakistanis remitted $1,824.3 million in February 2020, which is a 15.3% increase on a year-on-year basis. In February 2019 this figure was $1,581.7 million. 80% of the total remittances are received from four countries - Saudi Arabia, UAE, US and the UK – all of which are heavily affected by COVID-19. Therefore, a drop in remittances is expected as the oil prices have plunged, putting the employment of expatriates in a jeopardy.

As the economy is seen struggling to fight the pandemic, Prime Minister Imran Khan took the lead and called for a moratorium on the interest payments. Following his initiative, several African debt-ridden countries also voiced for the same. But because the IMF and World Bank cannot restructure the debt plan unilaterally, a response from the leaders of the wealthy lender countries is still awaited.

(2)    Behavioural Concerns:

The behavioural aspect of coronavirus pandemic cannot be overlooked. The country-wide lockdown has led to panic-buying behaviour of consumers. They fear they will be confined in homes for an indefinite period. Therefore, in an attempt to reduce their outdoor movement, consumers prefer to stockpile items ranging from kitchen staples to sport equipment, from art supplies to cleaning equipment. The disrupted supply chain has added much to the woes of consumers as empty shelves make their supermarket visit futile. Just last year, Pakistan faced wheat and sugar crisis. A shortage of these staples compelled the consumers to pay exorbitant prices.  Although Pakistan is an agrarian country, and Prime Minister Imran Khan has repeatedly stressed on the adequate supply of wheat and sugar which can fulfil the country’s requirement, yet people fear shortages and end up hoarding these items, disturbing the markets and swelling more uncertainty.

Positive Externalities:

(1)    Reduction in Air Pollution:

Following the coronavirus lockdown in major cities, the world has witnessed a drastic drop in air pollution. With the factories shut and fewer cars on the roads, the level of nitrogen dioxide (NO2) is noticeably lower when compared to the same period of previous year. Karachi, the industrial hub of Pakistan, has also reported a significant improvement in Air Quality Index. During this lockdown period, the AQI in the city is at 73, or in the ‘Moderate’ range, as compared to 196, or in the ‘Unhealthy’ range, in February 2020; the pre-corona period.

(2)    Social Responsibility:

In Pakistan, where the fear of unemployment is magnifying as the virus grips the country, the role of social responsibility is proving pivotal. The Government of Pakistan has created Prime Minister’s Relief Fund for Covid-19.  The Premier has urged the nation to donate to this fund which will help in providing relief to people who have been on the breadline due to the lockdown. Individuals and organizations alike are donating generously towards the fund. The Central Bank has slashed the discount rate to a single digit in order to boost investment Unilever Pakistan has pledged Rs. 200 million towards the fund. Asim Jofa, a leading dress designer, has developed protective gear for medical staff and aims to distribute these free of cost. These are just a few of numerous initiatives taken by public and corporations to help the people affected most by the novel coronavirus.

(3)    Improved Family Relationships

While this pandemic has restricted families to the boundaries of their homes, it has given a great opportunity to all to ‘take a break’. Parents have found an opportunity to strengthen the bond with their children.  From playing indoor games to baking treats, the families have found joy in being together.

To sum up, the novel coronavirus is going to alter the way we perceive things. It has just begun and its grave repercussions are yet to be witnessed. For the time being, it is nature’s way of giving us a break, to have us reflect and contemplate as to how we have to lead the rest of our lives, how we should value people around us, and how we could nurture the nature even more.

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