Name of book: The Undoing Project: A Friendship That Changed the World
Author: Michael Lewis
Published by: Allen Lane UK
No. of pages: 362
It is not surprising that the book starts with a reference to Michael Lewis’s ‘Money Ball’; the new school data analysis technique, that brought long sought after success, to Oakland Athletics in major league baseball. It was the data analysis revolution which changed the way that teams went about selecting new players. Almost all the teams were able to deploy these methods for a while. However, after successive disappointing seasons, some teams announced that they were going back to rely on the judgment of baseball experts.
Michael Lewis discovers that the hunger in the human mind for an expert who knows things with certainty, even when certainty is not possible, lingers on. This prompted his interest in the inner workings of the human mind and led him to the work of Daniel Kahneman and Amos Tversky; the psychological aspect to data analysis, expert opinion and the questioning of bias.
So the focus is squarely on Kahneman and Tversky. For a long time before their influence became palpable in baseball candidate selection, it regularly happened that highly regarded players went bust while lesser obvious talent came good. This raised the question of why ‘so much conventional wisdom had been bullshit? And not just in sports but across the whole society.’ At the bottom of this transformation in decision making were ideas about the human mind and how it functioned when it faced uncertain situations.
This book makes a departure from his earlier works because it’s a biography of these two well established figures. These Israeli psychologists formed a partnership that produced the foundation of what is now known as Behavioral Economics. While Tversky died young in 1996, Kahneman won the Noble prize for Economics and is the author of the bestselling book ‘Thinking fast and slow’. He grew up in Nazi occupied, war torn Paris. One day he was caught in the street by an SS soldier. The man did not notice the yellow star under his sweater; instead he hugged little Danny and showed him a photograph of another young boy. Then he gave Danny some money and sent him on his way. “People were endlessly complicated and interesting” Kahneman recalled.
Tversky is also deftly portrayed. As a child he was so bullish that he was willing to leap off a high diving board despite being unable to swim – he simply arranged for a bigger boy to be on hand to drag him to safety. As a soldier, Tversky once saw a comrade pull the plug on a grenade and then faint. Even though his commanding officer yelled orders to stay put, Tversky dashed forward, dragged the fallen man away, and then dived to cover him, taking the shrapnel of the exploding grenade into his own body.
In an interesting moment with his men one of them says “if a bullet is going to kill me, it has my name on it anyway” Tversky reminded them that many bullets were addressed “to whom it may concern”. Tversky was long used to being the cleverest man in the room. Colleagues spoke of his ability to converse on equal terms with Noble Laureate physicists, with only a passing acquaintance with their fields.
Kahneman and Tversky published a number of papers that appeared to undermine ideas about human nature held by mainstream economics. In their works on prospect theory, they show that decisions are not always optimal. Our willingness to take risk is influenced by the way in which choices are framed i.e. it is context dependent. Take a look at the following classic decision problem: which of the following would you prefer: 1] A) a certain win of Rs.250/- v/s B) a 25% chance to win Rs.1000/- and a 75% chance to win nothing. 2] how about: C] a certain loss of Rs.750/- v/s D] a 75% chance to loose Rs.1000/- and a 25% chance to win nothing.
Tversky and Kahneman work shows that responses are different framed as a gain (1) or a loss (2). When faced with the first type of decision a greater proportion of people will opt for the riskless alternative A) while for the second problem people are likely to choose the risker D) this happens because we dislike losses more than we like an equivalent gain; giving something up is more painful than the pleasure we derive receiving it.
This in fact is a love story. There is no other way to describe the intensity of the relationship between Tversky and Kahneman, that first bloomed as both men began to work together at the Hebrew University of Jerusalem in 1968. Even as Lewis focused on the story of their collaboration, and its eventual undoing, it is not difficult not to be swept away by the power of these ideas and their manifestation in the thought experiment that Tversky and Kahneman carried out on graduate students and test subjects.
Michael Lewis is a remarkably talented writer, with the capacity to turn an instruction booklet for a microwave oven into a bestselling book. Therefore, the undoing project is a pleasure to read and endlessly informative in classic Lewis fashion. Indeed the book is an essential guide to anyone trying to make sense of contemporary like. In the end one cannot help but feel the ideas in Tversky and Kahneman’s mind are as interesting as the men who came with them.