Summer reading for competitive intelligence professionals: “Noise”

The purpose of competitive intelligence is to support decision making by taking competitive forces into consideration when making decisions and judgements. Many working within competitive intelligence were intrigued when the book

“Noise – A Flaw in Human Judgement”

by Daniel Kahneman, Cass Sunstein and Olivier Sibony was published earlier this year.

As soon as humans take action on decisions there is always noise. Simply put, noise is all the surrounding factors that should not affect our decisions. The authors show that this is much more common than we think. Studies show that criminal sentencing for identical crimes varies greatly depending on the weather, the time of day or week, if the judge’s favorite team has won or lost the day before, if they had lunch before and a thousand other variables that affect their decisions. At the same time, we wish to uphold the illusion that this is not the case.

I was particularly fascinated by the chapter on ‘Noiseless Rules’ which discusses how you can overcome noise by using noise-free simple rules and advanced machine learning algorithms in decision making. The authors show how these outperform humans in predicting outcomes in many areas, but remind us that this kind of Artificial Intelligence (AI) cannot understand why these outcomes occur.

There is a great discussion on why we don’t use rules and algorithms more often if they can be proven to be significantly superior to human judgement. Many managers trust their gut feeling and insist that statistical analysis cannot replace good human judgement. The authors conclude that people expect machines to be near perfect and as soon as machines make one mistake, people discard them and keep using their judgment, even if they are inferior and produce many more mistakes.

“The algorithms make mistakes, of course. But if human judges make even more mistakes, whom should we trust?”

Some of the examples in Noise are mind-blowing and some will make you laugh. The book is both educational and entertaining and makes you think twice before you make an important decision next time.

I highly recommend reading this book if you want to understand how AI, rules and algorithms can help both yourself and others to make better decisions.

I wish you all a relaxing and energizing summer!