Michael Lewis writes good books. They tend to be concise, highly readable, immensely lucid and concerned with fascinating matters of human confusion and how to find one’s way through it. He also tends to be highly interested in thinkers who operate outside the range or authority of both popular prejudice and conventional intellectual wisdom.
His first book, Liar’s Poker (1989), was about his strange experience in a Wall Street bank’s bond trading department. Since then, he has written a string of best sellers. Perhaps the most famous of them have been Moneyball (2003) and The Big Short (2010). His latest book, The Undoing Project: A Friendship That Changed the World (2016) is less exciting than any of these other three – not being about sport or the corruptions and stupidities of Wall St and the US government – but it is a wonderful story and Lewis is a first rate raconteur.
The story is that of the extraordinary intellectual friendship between Amos Tversky and Daniel Kahneman, which took cognitive psychology to new levels and ended up generating the new discipline of behavioural economics, with profound implications for public policy and the whole conversation about choice and human rationality. As with the heroes of Moneyball and The Big Short, the heroes of this story were highly intelligent, somewhat eccentric outsiders addicted to asking curly questions and digging relentlessly for the answers.
Lewis uses as the epigraph to his book a quip by Voltaire: ‘Doubt is not a pleasant condition, but certainty is an absurd one.’ One might add that a fog of confusion is the most common human experience and that bringing about tolerable clarity – to say nothing of certainty – is a very exacting task. Yet our economists argued for a long time that human beings were ‘utility-maximizing rationalists’ and that this was why market economies worked – and worked better than command economies. There is a lot to this, but…
Behavioural economics, based on the insights of Kahneman and Tversky, is based on a substantial correction of that assumption and, as Richard Thaler (one of the founders of that discipline and another of Lewis’s outsiders) and Cass Sunstein (a brilliant Chicago University professor of jurisprudence and political science) point out in Nudge: Improving Decisions About Health, Wealth and Happiness (2009), if we want our citizens to make rational choices, we need to give careful thought to how the choices are presented to them, lest they make predictably irrational choices.
Daniel Kahneman was awarded the Nobel Prize in Economic Sciences (2002) for decades of work on prospect theory, human biases and cognitive illusions. His 2011 book Thinking, Fast and Slow, helped to popularize many of his (and Tversky’s) most seminal insights. Like Lewis’s work, it is both highly readable and very lucid – the two by no means always go together. It’s key maxim is that the human brain is ‘a machine for jumping to conclusions’ – the ‘fast’ mode – and that it often jumps to strangely erroneous conclusions because of certain hard-wired biases that must be very consciously and deliberately corrected for if we want to avoid such errors – the ‘slow’ thinking part.
Tversky was widely regarded as the more brilliant of the two. It used to be said, as early as the late 1970s, that there was something called the Tversky Intelligence Test: ‘The faster you realized that Tversky was smarter than you, the smarter you were.’ But he and Kahneman developed their ideas like two master duelling banjo players, bouncing insights and hypotheses off one another and spending so much time in one another’s company that it was almost as if they were lovers. It was a classic intellectual friendship.
Both were Israeli Jews and their casts of mind and intellectual preoccupations were wonderfully representative of that Jewish intellectual culture that has generated so very many first class minds in the modern era. Neither was religious. Tversky was born in Haifa, in the British Mandate of Palestine, in 1937, but grew to adulthood in the besieged state of Israel. He received his undergraduate education at the Hebrew University of Jerusalem, but his doctorate from the University of Michigan, Ann Arbor, in 1964. He fought in Israel’s wars and was awarded for bravery. He died of a metastatic melanoma in 1996. He was fascinated by chance and the roots of misperception.
Kahneman was born in Tel Aviv, in the British Mandate of Palestine in 1934, where his mother was visiting relatives. He spent his childhood years in Paris, however, where his parents had emigrated from Lithuania in the early 1920s. They were in Paris when it was occupied by the Nazis in 1940. His father was picked up in the first major round-up of French Jews, but was released upon the intervention of his employer. The family, on the run for the remainder of the war, survived except for Kahneman’s father, who died from diabetes in 1944. The rest of the family moved to British Mandatory Palestine in 1948, just before the creation of the state of Israel. Kahneman’s fixation on randomness and error was psychologically rooted in his precarious childhood.
The origin of Lewis’s book about these two men lay in a review of Moneyball, by Richard Thaler and Cass Sunstein, in 2003. Lewis’s summary of what they wrote about his own work and the impression this made on him is beautifully characteristic of his trademark modesty and as good an introduction to why he wrote The Undoing Project and why the story it tells matters as one could hope to find. Thaler and Sunstein, he wrote:
Agreed that it was interesting that any market for professional athletes might be so screwed up that a poor team like the Oakland A’s could beat most rich teams simply by exploiting the inefficiencies. But – they went on to say – the author of Moneyball did not seem to realize the deeper reason for the inefficiencies in the market for baseball players: They sprang directly from the inner workings of the human mind. The ways in which some baseball expert might misjudge baseball players – the ways in which any expert’s judgements might be warped by the expert’s own mind – had been described years ago by a pair of Israeli psychologists, Daniel Kahneman and Amos Tversky. My book wasn’t original. It was simply an illustration of ideas that had been floating around for decades and had yet to be fully appreciated by, among others, me. That was an understatement.
He refers here to the flaws in the judgement of ‘experts’, but those flaws are human universals. They are just more interesting when they surface in the errors of experts.
If you are yourself a specialist in prospect theory or cognitive science more broadly, or almost any field of rigorous thinking, you may already be familiar with the findings of Tversky and Kahneman and those lesser known figures, such as Paul Slovic, who created this rich set of insights. But you may well not be acquainted with the personal and intellectual journey that led to these insights. Lewis has written the story of that journey in his distinctive manner. It is a beautiful piece of work. Read it and enjoy the journey of two brilliant human beings.
Paul Monk is Head of Customer Solutions at Dysrupt Labs (www.dysruptlabs.com) and the author of The West in a Nutshell (2009) and Credo and Twelve Poems: A Cosmological Manifesto (2016).