Hong Kong’s overly cautious coronavirus policymakers must seek to drown out the ‘noise’

taken by surprise, 1986 paper, Nate Silver, jail-like quarantine, lead a normal life

It is a truth, now universally accepted, that investment opinions and decisions are made both intuitively fast and analytically slow. Daniel Kahneman’s book Thinking Fast and Slow revolutionised how we think about how we think.

For those looking to wade through Kahneman’s small-print, 500-page life’s work, I recommend starting with Michael Lewis’ The Undoing Project, which explains the relationship between Kahneman and his friend and collaborator Amos Tversky, who sadly died before he could receive the Nobel Prize that he would have won with Kahneman in 2002.

Kahneman illustrates our natural human biases – that we dislike losing more than we like winning (the prospect theory), that our decisions are based on the information in front of our noses (availability), and that we match new situations to our experience of old ones (representativeness). The good news is that, despite our biases, most of our decisions are about right.

His latest book, published last month at the age of 87 together with eminent behavioural economist Cass Sunstein, and former McKinsey partner Olivier Sibony, is called Noise. It is subtitled A Flaw in Human Judgment and illustrates the striking variability of judgment by different seasoned professionals with the same information. 

The US judge Marvin Frankel was so disturbed by defendants getting wildly different sentences for the same offence that, in 1974, he asked 50 judges to pass sentence on a hypothetical extortion case. The jail sentences ranged from three years to 20. Similarly, I have worked in investment teams where individual experienced fund managers have delivered variable results in the same market conditions.

taken by surprise, 1986 paper, Nate Silver, jail-like quarantine, lead a normal life

Daniel Kahneman at a conference in Hong Kong in 2004. Photo: Handout

Variability of opinion is due to the different emphasis we place on parts of the same evidence. That difference is driven by our emotion, values and upbringing, which impart biases to our thinking. The truth lies within the information flow, but distracting noise hides it in plain sight.

The lack of warning about the Japanese attack on Pearl Harbour was due to the belief that domestic sabotage was more likely than a direct attack by an external foe. That noise meant the US was taken by surprise by the approach of the aircraft carrier fleet, so much so that some Americans came to believe a conspiracy theory that the US government was complicit in the attack. Noise is the enemy of the truth.

Although Kahneman, Sibony and Sunstein define noise as the variability of decision-making, it is perhaps more simply thought of as distracting information, which may be true but irrelevant, or misleading, or fake – or a combination.

In narrative finance, we study the information flow from stories in the market that combine the underlying truth and the noise in such a way that it makes the truth hard to spot. Asset prices are made within a non-linear, complex, adaptive system, which operates as a steady state. 

When the underlying truth finally becomes obvious, the steady state fails, the system reaches a critical point, and we get a market crash. The global financial crisis was precipitated when the noise clouds parted to expose the mountains of subprime debt. 

taken by surprise, 1986 paper, Nate Silver, jail-like quarantine, lead a normal life

Pedestrians stand in front of Victorian homes in San Francisco in 2015. The 2008 financial crisis was triggered by the collapse of a housing bubble, resulting in the devaluation of financial products linked to subprime mortgages. Photo: Bloomberg

“Noise is what makes our observations imperfect,” said Fisher Black in his 1986 paper “Noise”. Investors try to trade on the truth; speculators (and retail investors) trade the noise. Punters think they are trading on information but can’t or won’t confirm the market’s underlying true value. 

Noise affects the narrative we hear, that we understand and that we pass on to others. American statistician Nate Silver, in his 2012 book, The Signal and the Noise, wrote that “noise is what distracts us from the truth”. Truth and noise coexist like a Formula One racetrack alongside a commuter road; it’s usually fine but occasionally there is a mighty crash. Such a noisy but attractive analogy, perhaps repeated by a celebrity or officialdom, illustrates how credence can be attached to an otherwise worthless story. 

While the virus causing Covid-19, if left unchecked, causes widespread illness and death, its reproduction rate can be controlled with measures tailored to the population. However, in such a situation, noisy narratives can feed fears – even though the Pfizer vaccine is the safest and most effective in decades.

The poor ability of humans to judge the probability of catching and dying from Covid-19 led some parents to lock their children (and their parents) away for a year, perhaps with even more serious consequences. Public policies have shuttered economies following knee-jerk decisions based more on noise than the underlying science. 

The Hong Kong government’s overcaution in forcing up to 21 days of jail-like quarantine made people reluctant to report symptoms, while the length of time spent in quarantine may have increased the possibility of contacting Covid-19 within confinement itself.

Most people accept sensible health measures like banning smoking indoors or the use of seat belts. The need for vaccination is similar. The government will only increase vaccination levels by flipping their policy to allow the vaccinated to lead a normal life, while the unvaccinated remain restricted. Otherwise, the misleading (or deliberate) noise that the vaccine is dangerous will persist.

Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer and broadcaster and financial expert witness

News Related


Alibaba eyes ‘twin flywheels' of consumer and industrial internet for growth as new consumers shrink in China

Alibaba Group Holding is speeding up its transformation from an online shopping site into a tech platform underpinned by both consumer and industrial internet businesses after paying a record fine ... Read more »

Blackpink The Movie is a concert film celebration of the K-pop group's fifth anniversary

Happy anniversary, Blackpink! The superstar K-pop quartet celebrated five years in pop music with the release of Blackpink The Movie, which opened in cinemas around the world on August 4. ... Read more »

Ahold Delhaize receives Belgian tax bill of hundreds of millions

Ahold Delhaize has received a tax assessment in Belgium that can amount to 380 million euros. A passage about this in the supermarket conglomerate’s annual report, published early this year, ... Read more »

Google fails to act against bitcoin scams using fake newspaper adverts, campaigners say

Campaigners say they have reported fake cryptocurrency investment adverts to Google but no action has been taken (-) Google has been accused of failing to act for months against cryptocurrency ... Read more »

Numbers in Phuket tourism revival bid low but 'encouraging'

A couple walks in the sea as Phuket remains open to overseas tourists, allowing foreigners who are fully vaccinated against the coronavirus disease (Covid-19) to visit the resort island without ... Read more »

Smoke from Yakutia wildfires registered on Arctic scientific stations

The scientists reported that the visibility dropped to 500 meters, the sky was overcast and they could smell the smoke Read more »

Kanchanaburi closes 1 retailer, 1 factory over Covid fears

A checkpoint at Ban Phu Nam Ron in Muang district of Kanchanburi has closed until the end of this month to prevent the spread of the coronavirus. (Photo: Piyarat Chongcharoen) ... Read more »

Disclosures on climate, assurance of sustainability and board diversity needed for better corporate governance in S'pore

A review of listed companies’ sustainability reports found that climate-related information is still lacking. SINGAPORE – Listed firms improved corporate governance standards this year but investor expectations continue to evolve ... Read more »

AEX peaks led by IMCD; pain at Philips | Financial

The AEX index is up 0.8% at around a quarter past twelve at 766.2 points, a tightening of the record of the day before. The Midkap index is up 1% ... Read more »

Kuaishou pulls its video app from US after failing to make a dent in TikTok's market dominance

Zynn, a TikTok clone that once topped the iOS App Store in the US, has been taken down by its operator Kuaishou Technology, in what is seen as an admission ... Read more »

Eurasian Economic Commission projects EAEU GDP growth at 3.8% in 2021

Earlier projections said that the economic growth in the Union would reach 3.2% this year Read more »

FDA watchdog: Philips ventilator recalled dangerous | Financial

That warning follows an estimate by the US Food and Drug Administration (FDA). The regulator has classified the recall from Philips in the highest risk category, the so-called Class 1. ... Read more »

Luxury gift ideas for men: from Berluti x Bang & Olufsen headphones to Richard Mille's limited edition RM 60-01 Automatic Flyback Chronograph

For those whose idea of luxury involves being equipped with the latest hi-tech gadgets to make life easier, brighter and fuller, these new releases are just for you. Here, we’ve ... Read more »

Belgian tax claim of 380 million euros for Ahold Delhaize

Ahold Delhaize, the parent company of Albert Heijn and Etos, among others, has a tax claim from the Belgian Tax Authorities that can amount to 380 million euros. The company ... Read more »

Major takeover in the funeral world saves millions of insured | Economy

It is no coincidence that funeral company Dela is now finalizing the takeover of competitor Yarden. Yarden must have his finances in order by August 4. If not, De Nederlandsche ... Read more »

‘Clair de Lune' makes history as the first NFT song to travel to space

Photo by: NASA/Unsplash “Claire de Lune,” the popular classical music composed by French composer Claude Debussy, has a non-fungible token (NFT) version, and this digital file was flown to space. ... Read more »

Dolphin Entertainment, FTX to launch new NFT Marketplace

Photo by: NFT MCH+/Wikimedia Commons (CC0 1.0) Dolphin Entertainment and FTX Trading Ltd., a crypto exchange company, have teamed up to create a new non-fungible token (NFT) marketplace. It was ... Read more »

China stocks are bull traps as market regulators' pain threshold remains untested: BCA Research

Investors should avoid Chinese stocks for now because more losses are likely to unfold over the next six to 12 months, according to BCA Research. The fallout from its regulatory ... Read more »

Russian agriculture exports up 16% year-to-date, says report

The EU and China accounted for 12.4% of Russia’s agriculture exports each, Turkey — for 11.9%, South Korea — for 7.8% Read more »

Russian finance ministry expects GDP growth above 4% in 2021, says newspaper

The ministry expects inflation in Russia to substantially exceed 5% by the yearend Read more »

Tyson Foods joins major companies in requiring vaccinations for workers

Photo by: Tyson Foods/Facebook Tyson Foods Inc. is the latest company in the United States to announce the requirement for workers to be vaccinated. The American multinational company that operates ... Read more »

Jacqueline Poh appointed as new managing director of EDB

Ms Jacqueline Poh will succeed Mr Chng Kai Fong, who has been EDB’s managing director since October 2017. SINGAPORE – Ms Jacqueline Poh has been appointed the new managing director ... Read more »

O.K. Lim's daughter Lim Huey Ching charged with obstruction of justice

Lim Huey Ching is the second member of the Lim family to be charged. SINGAPORE – Lim Huey Ching, the daughter of former oil tycoon Lim Oon Kuin and an ... Read more »

Bank of Thailand holds rate, cuts GDP forecast on Covid spike

Monetary Policy Committee secretary and assistant governor of the Bank of Thailand Titanun Mallikamas (Photo: Bank of Thailand) The Bank of Thailand (BoT) held its key interest rate unchanged and ... Read more »

China supply chains: Hubei takes lead in appointing bank executives to boost financial support for key industries

There’s a plan in motion, orchestrated by China’s central bank, to tighten up and improve supply chains across key industries in response to Beijing’s call to maintain economic stability ahead ... Read more »

Unlock the power of payroll automation

(Getty Images/iStockphoto) Are you spending too much time on payroll? Discover how you can work smarter and faster with BrightPay Every business needs payroll. Whether you run a small café ... Read more »

Why rule breaking in advertising is the best way forward

(Getty Images/iStockphoto) ✕ Why rule breaking in advertising is the best way forward Advertising is everywhere, targeting us wherever we go. And yet, we notice less and less of it ... Read more »

The workplace of the future puts employees first

(Getty Images) As businesses return to the office, distinguishing between buzzwords and long-term trends means prioritising workforce experience Hybrid working. The new normal. Zoom fatigue. WFH. Among many changes, the ... Read more »

A world beyond the walls: how brands can sow success beyond the closed gardens of online advertising

(Getty Images) Digital advertising has often centred on walled gardens. However, greater focus on the open internet will benefit consumers and businesses If you were looking to flog some old ... Read more »

Whether you build or buy, IoT security is a must for us all

(Getty Images) ✕ Whether you build or buy, IoT security is a must for us all An ecosystem supporting integrated IoT security is a must-have strategy in the digital economy. ... Read more »

The internet's economic model is broken – here's how we can fix it

(Getty Images/iStockphoto) Ethical technology start-up Bubblr has been on a seven-year journey to fix a broken internet. After the US patent office approved its patent for a design for an ... Read more »

How insurance firms can come out of the pandemic stronger

(Getty Images/iStockphoto) ✕ How insurance firms can come out of the pandemic stronger James Harrison, Head of Insurance UK & Ireland, Dun & Bradstreet Insurance, like almost every industry, has ... Read more »

Building a culture of excellence

(Getty Images) Covid-19 has had a transformative effect on the world of work. Enterprises must now prepare to navigate a period of sustained unpredictability. Over the past year, a new ... Read more »

Future-proof your business now – put people first

(Getty Images/iStockphoto) ✕ “Business Reporter” – Talentsmoothie: “Future-proof your business now – put people first” Justine James, Founding Director, talentsmoothie The best-performing organisations are people-centric. They understand that happy, purposeful ... Read more »

Sustainable packaging – addressing consumer desire for green brands together

(Getty Images) ✕ Sustainable packaging – addressing consumer desire for green brands Survey after survey confirms that consumers want to be greener in their purchasing decisions. Across various industries, from ... Read more »

Supporting employee health and wellbeing during good times and bad

(Istockphoto.com-id1202048827 ) More than 85 per cent of employees around the world report a decline in their overall wellbeing since the start of the pandemic, according to a recent Harvard ... Read more »

How conversational commerce is redefining retail

(Getty Images/iStockphoto) Ecommerce can become an integrated experience for brands and customers through conversational AI assistants Over the past year, huge swathes of consumers have turned to online shopping. Ecommerce ... Read more »

From cost centre to strategic requirement: how consumer experience is driving business transformation

(IStock- id1208855997) The activities designed to enhance customer experience (CX) used to be seen as an overhead, or a tactical necessity. Do CX well and no one cares; do it ... Read more »

Leaving cervical cancer nowhere to hide in underserved countries

Recognising that cancer is a major challenge for sustainable development, the United Nations has committed to reduce mortality from cancer and other non-communicable diseases by one-third by 2030, as one ... Read more »

AI: enhancing the future of digital transformation

(Getty Images/iStockphoto) Digital transformation is no longer an inward tactic used to reform an organisation’s operations; it’s now a necessary undertaking sought out by CIOs and IT leaders. Recent developments ... Read more »