Noise

“Was that a good decision or a bad decision?”

“Well, we either made a really good call or got really lucky…”

Wherever there is judgement, there is noise.

Noise is the stuff that gets in the way of the signal. Noise isn’t very useful.

Signal is useful. We can define it as either the answer we’re seeking or the feedback we need to continue our search for the answer.

To recap: noise = useless information, signal = useful information.

There are two types of environments that dictate the quality of noise we will encounter.

In “kind” environments, it’s fairly easy to find the signal from the noise. We get immediate and high quality feedback that is clearly good or bad. Think checkers or sports. You move and then I respond. Mistakes are made clear immediately. Kind environments have clear rules and strategies.

In “wicked” environments, it’s really hard to find the signal from the noise. We may not get any valuable feedback for long stretches of time. Think poker or investing. Feedback in these settings isn’t as trustworthy as it is in checkers. You can play a good hand and lose. You can buy a seemingly good company and get shellacked a day later, or I could buy a complete scam that surges higher. Which one of us is the smart one?

Wicked environments sometimes seem to have clear rules and strategies, but they don’t work as reliably as they do in kind environments. We call them wicked because of this frustration factor.

In wicked environments if we mistake the noise for signal, we can start to build a faulty knowledge base that wrongly considers luck as skill. Again, think of poker and investing – practically the worst thing that can happen to you is to be a winner at the beginning, fooling you into thinking “hey, this is easy!”

Think of the previous investing scenario. What if the success of the scam led me to try to repeat the results? See what’s happening to my knowledge base? It’s corrupted due to me not realizing the wickedness of my environment. I’ve tuned in to a wicked signal by mistake. Eek.

So beyond a basic awareness of the environmental qualities of signal and noise that we’re going to run into, how else can we consider our potential options and actions?

Lucky for all of us, this is the apparent subject of Daniel Kahneman’s next book. H/t to Annie Duke for pointing this out, as well as the HBR article, “Noise: How To Overcome the High, Hidden Cost of Inconsistent Decision Making.” This will at least give us something to ponder until 2020 when the book supposedly comes out.

In the meantime, asking questions about the environment in advance of making decisions can help attenuate our filters.

For kind environments, we can actively seek clear feedback. For wicked environments, we can focus on the process that gives us the best odds, step back to see what feedback is useful, and make sure to not exclusively be focused on feedback from outcomes.

Nothing is easy, but these labels can help us improve. I’m looking forward to adding this book to the reading list.

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