Noise: A Flaw in Human Judgment

by Daniel Kahneman

Another source of random variability in judgment is the order in which cases are examined. When a person is considering a case, the decisions that immediately preceded it serve as an implicit frame of reference. Professionals who make a series of decisions in sequence, including judges, loan officers, and baseball umpires, lean toward restoring a form of balance: after a streak, or a series of decisions that go in the same direction, they are more likely to decide in the opposite direction than would be strictly justified. As a result, errors (and unfairness) are inevitable. Asylum judges in the United States, for instance, are 19% less likely to grant asylum to an applicant when the previous two cases were approved. A person might be approved for a loan if the previous two applications were denied, but the same person might have been rejected if the previous two applications had been granted. This behavior reflects a cognitive bias known as the gambler’s fallacy: we tend to underestimate the likelihood that streaks will occur by chance.