The Model Office Blog

Fish cannot see water

[fa icon="calendar"] May 21, 2021 9:42:19 AM / by Chris Davies

With Daniel Kahneman’s co-authored latest book, ‘Noise’, we have another instalment for the case of behavioural science in decision making.

Kahneman, Cass Sunstein and Oliver Sibony provide the reader with plenty of examples for how subconscious bias (skewed thinking) and ‘noise’ (the variability of errors or inaccurate decision making) can cause real problems particularly when it comes to risk management. Two wrongs don’t make a right and when they collude bias and noise contribute to significant failures in accuracy due to unwanted variability in their decision making.

For example doctors tendency to subscribe more anti-biotics, painkillers or tests in the afternoon than they are in the morning. Judges come to very different sentences based on the same case details and are affected by the weather. Indeed 208 American federal judges were set the same 16 cases and you would expect them to agree as a whole, but the average different between two judges setting case judgement was 3.5 years, this is just based on noise not bias!

Corporate boards can be male dominant and led by dominant personalities, plus the science tells us, those that speak first and have the loudest voice tend to sway opinion. But what if they’re wrong in their judgement?

So, like fish swimming in a tank, human's don't actually realise they are surrounded by bias and inaccurate decision making. 

In our world, governance, risk and compliance with regulations means that we need to be very aware of the 'muddy water' such bias and noise can cause.

So what is the answer?

Algorithms and simple rules tend to be noise free, as long as they manage the bias element. For the foreseeable future we have human driven decision making and thus we need such simple rules, frameworks and algorithms to help us make more accurate decisions.

This doesn’t mean supplanting judgement by algorithms but using a ‘cyber’ approach with Artificial Intelligence and human decision making, this can make for more accurate outcomes and sound risk management.

Personality assessment can help, ensuring the right people, with the right skills are in the right job. We have seen a focus on emotional intelligence, empathy in particular, being a prized skill in corporate decision making.

With social skills comes the need to listen, not listen to speak but listening to understand first before replying.

So a blend of technology, teamwork, decision rules and being mindful when taking those big decisions, can certainly help us when we’re applying judgement to everyday compliance issues.

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Chris Davies

Written by Chris Davies

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