In Act 1, Scene 4, we can say that Duncan is a poor judge of other characters for two main reasons. Firstly, Duncan himself confesses how he was deceived by the treacherous Thane of Cawdor, who was ordered to be executed because he most likely conspired with the King of Norway against King Duncan.
There's no art
To find the mind's construction in the face:
He was a gentleman on whom I built
An absolute trust.
These lines describe how appearance can be rather deceiving because Duncan trusted the Thane of Cawdor, yet, in the end, he was betrayed by him.
Secondly, we realize that King Duncan is utterly unaware of Macbeth's secret and treacherous plan which entails the usurpation of the throne. The king calls Macbeth "worthiest cousin" and plans to reward him for being brave and loyal to him. While conversing with Banquo, he praises Macbeth and calls him "valiant." What he does not know is that Macbeth plots to get rid of anyone who stands in his way to become a king. This is demonstrated when King Duncan states that his son, Malcolm, will inherit the throne from him. Macbeth, however, is resolved to stop this:
That is a step
On which I must fall down, or else o'erleap,
For in my way it lies. Stars, hide your fires;
Let not light see my black and deep desires...
Macbeth's "black and deep" desires clearly refer to his evil ambition to do anything to become the King of Scotland. King Duncan is unable to predict this just like he failed to predict the true intentions of the Thane of Cawdor.