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Bias and Noise: Daniel Kahneman on Errors in Decision-Making

Blog: Decision Management Community

Prof. Daniel Kahneman was awarded a Nobel Prize for his work on the psychology of judgment and decision-making. Read this interview with him about human/machine collaboration. Here is only one quote: At an insurance company, we measured what is technically called noise, and we did that in the following way: We constructed a series of six completely realistic cases that were given to 50 of their underwriters. We wanted to determine how much variability there was in their funding decisions. We expected differences between 10% and 15%, but in fact, they disagreed about 56% of the time. That’s a lot of noise… If you allow people to override algorithms, you lose validity because they override on the basis of their impressions, which are biased, inaccurate, and noisy. Decisions may depend on someone’s mood at the moment. For a job like underwriters, a simple algorithm can do just as well. Link1 Link2

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