TCV Book Review - Noise
Updated: Jan 24, 2022
Noise, A Flaw in Human Judgment is a worthwhile read, especially for those leading, managing, or participating in judgemental decision-making.
In the Financial Services space, areas of interest include:
Risk Management (Credit, Ops, Compliance, AML, TPRM, etc.)
Loan and securities underwriting
Mergers and Acquisitions
There are many other applications. I loved this book for many reasons. First, this fits like a glove with my background, related to financial services, risk management, behavioral economics, and the decision sciences. But formal training is not necessary to get a lot out of this book. I read Kahneman's best-selling and Nobel Prize-garnering book Thinking, Fast and Slow many years ago. Noise is like an implementation guide for his prior book.
I really appreciated the framework for how to think about the different kinds of noise. Frankly, high-impact and stubborn noise persists in Financial Services related decision processes. But it is almost impossible to quantify noise until you do an "outside-in" analysis. Noise does not really show as an “inside-out” story or narrative, much the way its close cousin, bias, often does. I LOVE the idea of a Noise Audit to help improve decision hygiene. It would not surprise me if Noise Audits become an industry standard.
A few colleagues and I are currently helping a global financial services company implement a new quantitative Compliance Risk Assessment (CRA) system. The parallels to this book are powerful. Via this implementation, our client will reduce CRA system noise, causing a vast improvement in CRA quality and reduce costs. Our client is at the beginning of a multi-year transformation journey. I am very proud of them for having the foresight to make this a priority!
Finally, a shout out to Danny Kahneman. It is so impressive, that a person that has already given so much to improve our understanding of the world, is still producing such high-quality work. As Dr. Kahneman approaches 90 years old, I can only stand back in awe. Thank you…. you are inspiring!