Daniel Kahneman: prediction

Transcript context

…So is the business world, in general, adjusting for noise right now? Or only some highly successful firms? I don’t know enough about that. All I do know is that, when we pointed out the results, the bewildering results of the experiment on underwriters, and there was another unit — people who assess the size of claims. Again, actually, it’s more than 50 percent. Like 58 percent. The thing that was the most striking was that nobody in the organization had any idea that this was going on. It took people completely by surprise. My guess now, that wherever people exercise judgment, there is noise. And, as a first rule, there is more noise than people expect, and there’s more noise than they can imagine because it’s very difficult to imagine that people have a very different opinion from yours when your opinion is right, which it is. [laughter] So that’s the way it works. If you’re called in by a CEO to give advice — and I think sometimes you are — how can I reduce the noise in my decisions, the decisions of the CEO, when there’s not a simple way to average? The firm doesn’t have a dozen CEOs. What’s your advice?…

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