I have to admit I wasn’t sure whether to read Michael Lewis’s latest offering, The Undoing Project. Don’t get me wrong, I’m a devotee of Lewis. He has had three films nominated for Best Picture at the Academy Awards for The Blind Side (2009), Moneyball (2011) and The Big Short (2015). He has knack for finding hidden treasure that other writers have missed. He often features mavericks or people who are not normally in the spotlight. His book Liar’s Poker (1989) described bond trader Lewis Ranieri, who revolutionised Wall Street in the 1980s with securitisation. This product was to play a massive role in the Global Financial Crisis of 2007 and onwards. Moneyball (2003) featured baseball manager Billy Beane, a pioneer in the use of sports analytics. But the book goes beyond sports; Lewis was foreshadowing the rise of the quants, the experts at analyzing and managing quantitative data, who would also be involved in the GFC. Another sporting book, The Blind Side, set in the NFL, featured not a glamorous quarterback, but an offensive left tackle. This may be an unsung position, but it is vital for the protection of the quarterback. The player Lewis chose was Michael Oher, who has won one Superbowl and appeared in another one in his eight seasons as a professional. The Big Short dealt with main players behind the creation of the credit default swap market that was a massive bet against the collateralized debt obligation (CDO) bubble. They would end up profiting from the crisis, but I would definitely not blame them for what went down – they had spotted flaws in the system. This is a common theme in Lewis’s work.
The Undoing Project looks at the work of Daniel Kahneman and Amos Tversky, who are also interested in human failings. The reason I had doubts about reading this book was that I was already familiar with their work. Indeed, I did a post about Kahneman and his book Thinking Fast and Slow: The irrational world of Daniel Kahneman. I should have had more faith in Lewis. The Undoing Project is a fascinating read. I thought I knew most of their story, but Lewis has found a way to produce an absorbing book about an arcane subject. Lewis has a real gift for explaining complex ideas, but what I liked about the book was the human element. The author provides the human story to the two men who revolutionised the way we think about how people think.
Born in Tel Aviv, British Palestine in 1934, where his mother was visiting relatives, Daniel Kahneman grew up in Paris, where his parents had emigrated from Lithuania in the early 1920s. He was a child of the Holocaust. Between the ages of seven and eleven he and his family were hiding out from the Nazis in southern France. He watched his father die because he couldn’t seek medical treatment for fear of being captured by the Germans. Lewis recounts how at the age of seven Kahneman had been playing with a Christian boy and was caught on the streets after curfew by an SS soldier. He had turned his brown sweater inside out so the man didn’t notice the yellow star. Instead he hugged little Danny and, full of emotion, showed him a photograph of another young boy. Then he gave the boy some money and sent him on his way. Kahneman recalled being fascinated by the complexity of humans.
Amos Tversky was born in Haifa, British Palestine in 1937 to parents who had emigrated from Poland and Russia. He had a happier childhood than Kahneman. His father, Yosef, was a veterinarian and his mother, Genia, was a member of the Knesset from its establishment in 1948 until her death in 1964. What is most striking from his life was his distinguished service in the Israel Defence Forces. Tversky was an officer in the paratroopers, an elite unit. He eventually rose to captain and served in three wars – 1956, 1967 and 1973. It was in 1956, in a border skirmish, that he was awarded Israel’s highest honour after saving the life of a young soldier who had frozen after having lit the fuse of an explosive charge. Tversky, who was a few metres behind him, rushed forward, dragged the young man a few yards away, and then dived to cover him, taking the shrapnel into his own body. The other soldier emerged without a scratch while Tversky had metal in him the rest of his life.
According to Lewis, the relationship between Kahneman and Tversky was as intense as any marriage. And like a marriage, their relationship could be fraught at times. They have been called the Lennon and McCartney of the academic world. Kahneman was the ideas guy, whereas Tversky was the analytic one, able to provide the academic rigour for Kahneman’s ideas. Tversky was once asked if their work had any bearing on artificial intelligence. His reply: “I’m much more interested in natural stupidity than I am in artificial intelligence.” The psychologist Richard Nisbett had a simple one-line intelligence test: “The longer it takes you to figure it out that Amos Tversky is smarter than you, the stupider you are.”
These days Kahneman and Tversky’s views of human psychology have found widespread acceptance. But when they began in the 1970s in the backwater of Israeli academia their theories were new and controversial. The academics would eventually find posts on American campuses. And it was the charismatic Tversky rather than the introspective Kahneman who got much of the fame. Their ideas about human biases are both illuminating and eminently practical. I explore them in detail in The irrational world of Daniel Kahneman.
There is no doubt that Lewis admires the two men and believes they are right about everything important. Someone who has written books like Liar’s Poker, Panic: The Story of Modern Financial Insanity., The Big Short and Flash Boys is not likely to be a cheerleader for rational economic man. But this is no hagiography.
The younger Kahneman is portrayed as a depressive. He is unsure of himself and rather needy. We also see him as envious of all the attention his partner was getting. Tversky, on the other hand is more of an intellectual bully contemptuous of many academics and not one to shy away from an academic spat. Despite their different personalities, they had a fruitful relationship. They would sit together in an intellectual back-and-forth, switching between English and Hebrew.
Like many marriages or Lennon and McCartney, they would endure a painful break-up. They did, however, make up after Tversky was diagnosed with a malignant melanoma. In the end, after many years spent complaining that Tversky was getting all the plaudits, it was Kahneman who won the Nobel Prize for Economics. The award cannot be given posthumously.
I too am a fan of their work. I am fascinated by human decision-making and how we can all go wrong. Perfection in choices is impossible, and uneconomical, just as, in a world of scarcity, developing a perfectly safe automobile is impossible—and uneconomical. We need to take short cuts. If we look at the world, we can see the fingerprints of irrationality everywhere. If I am sceptical, it is about psychology experiments. How accurate are laboratory settings at recreating the information and incentives of real market situation. The story of Kahneman and Tversky’s intellectual love affair is beautifully and vividly told by Lewis. However, I would be surprised if this were made into another film.