Noise: A Flaw in Human Judgment

by Daniel Kahneman

A few minutes of research would reveal that estimates of CEO turnover in US companies hover around 15% annually. This statistic suggests that the average incoming CEO has a roughly 72% probability of still being around after two years. Of course, this number is only a starting point, and the specifics of Gambardi’s case will affect your final estimate. But if you focused solely on what you were told about Gambardi, you neglected a key piece of information. (Full disclosure: We wrote the Gambardi case to illustrate noisy judgment; it took us weeks before we realized that it was also a prime example of the bias we describe here, which is called base-rate neglect. Thinking of base rates is no more automatic for the authors of this book than for anyone else.)