How can we make sense of our world? How should we make the best decisions? Why do we make certain mistakes over and over again? And what implications do these questions have, not just for our own lives but for large organisations and for society as a whole?
Such matters have traditionally been the preserve of political and economic thinkers and philosophers. Over the past few decades, though, psychology has offered some of the most profound insights into human fallibility in an uncertain world.
Two Israeli academics who did a huge amount to make that happen are the subject of the latest book from Michael Lewis. At first sight it's an unlikely subject for Lewis, a successful writer of nonfiction books that mostly tell tales of contrarian outsiders who turn the tables on the establishment. But in The Undoing Project: A Friendship That Changed the World he charts the intense, decades-long working relationship between Daniel Kahneman and Amos Tversky and the impact it has had on us all.
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Lewis, a genial 56-year-old, recalls how he first heard about Kahneman and Tversky through a review of his book Moneyball, from 2003. In it he had looked at how the baseball manager Billy Beane transformed the Oakland Athletics team from underdogs into championship contenders by relying on statistics and hard data instead of intuition and expert analysis. The review, by the economist Richard Thaler and the legal scholar Cass Sunstein, pointed out the debt Beane owed the two psychologists' research in the 1970s.
In a series of papers Kahneman and Tversky had identified and named recurring patterns of thinking – availability bias, anchoring bias, hindsight bias, the endowment effect, framing and many others – that have now been incorporated into our understanding of a broad range of disciplines. "Their work was the precursor to Moneyball," Lewis says. "If people don't have these systematic biases you don't get dramatically overvalued baseball players or, for that matter, securities or anything else."
The way most of us think about how we make decisions rests on the broad assumption that human beings, once they have been presented with accurate enough information, will act rationally. Economic and political theory, from Marxism to neoliberalism, is founded on the idea that we are rational. But Kahneman and Tversky showed that the mind errs in predictable ways.
Their insights into decisionmaking and judgment revolutionised the way we think about those processes. The influence of their work has been immense – not only in psychology and economics but also in every other field of social science, as well as in medicine, law, business and public policy.
Lewis first met Kahneman in 2007, five years after the psychologist won the Nobel Prize in Economic Sciences. (Tversky died in 1996, and the awards are not made posthumously.) The author acted as an adviser when Kahneman, who is now 82, was writing his own bestselling book, Thinking, Fast and Slow.
In the interim Lewis wrote The Big Short, his riveting 2010 book about a small group of traders who saw that the entire US housing market was built on sand, and made fortunes by betting on its collapse. Boomerang, his book about the worldwide economic crash, included some of the best and most acerbic writing on the Irish experience.
Like Moneyball, The Big Short was adapted into a film. But it again raised that broader question: why do so many apparently intelligent, well-informed people, in various walks of life, ignore the evidence in front of them?
"You can see the story of The Big Short through the lens of these guys," Lewis says. "People have a picture in their heads of randomness, and I think that has a lot to do with the financial crisis. Property prices went up 10 per cent one year, then 10 per cent the next year, and the next, and everybody behaved as if those escalating prices were an inevitable trend."
In Lewis's hands the relationship between Kahneman and Tversky becomes a sort of tender intellectual love story (with an estrangement in later life). The two men were profoundly unalike, but both were products of a particular time and place: the first few years of the new state of Israel, immediately after the Holocaust.
“It’s hard to find a more likely place than Israel, just after World War Two, where people are going to be interested in misjudgment and how we make mistakes,” Lewis says. “They’re living in a place that is at existential risk if there are bad decisions. A whole people has been almost exterminated, and many of those people could have lived if they’d made the judgment to leave – Danny’s father being one of them.”
Fighting wars, training soldiers
The precarious position of the new state also meant that academic life in Israel was less rarefied than it would have been in Europe and the
United States
. “The fact that these guys had to go fight wars and train soldiers is important,” Lewis says. He believes that this is one reason why practical applications of their work were often at the forefront of their minds. (When he was in his early 20s Kahneman devised an aptitude test for officers that the Israeli army still uses, 60 years later.) “It was such a Jewish-Israeli story, and I had no obvious point of entry,” Lewis says. “I’m a happy guy from New Orleans. I wondered whether I could do it.”
As we’re discussing decisionmaking processes, what causes Lewis to decide to commit to a particular subject for a book?
“In most cases what gets me to that decision is the conviction that nobody else will do it,” he says. “In this case I thought Malcolm Gladwell should do it. It was a book which would have to bring ideas to life, and I thought he was better at that than me. But then I just got to know Danny and the Tversky family very well.
“They were the beginning of a movement that led to the questioning of expert-based judgment in many spheres of human activity. But why me? I hit a moment when I realised it was because I have the relationships. But I found their minds quite intimidating. I had Amos on one shoulder and Danny on the other saying, ‘Hmm . . . not quite right.’ Danny is so unhappy with any definitive statement that he keeps the ground unstable. He would figure out what I was thinking and try to undermine it.”
Many of the ideas that Kahneman and Tversky proposed have found practical applications in everything from the way a medical diagnosis is made to how the command structure on an airliner functions.
Cass Sunstein, who cowrote that review of Moneyball in 2003, went on to write a book with Thaler called Nudge: Improving Decisions about Health, Wealth and Happiness. A nudge, they explained, is anything that influences our choices; it's a key concept of behavioural economics, a field that the pair developed from Kahneman and Tversky's work. Sunstein was later hired by the Obama administration to apply the principles to areas such as encouraging people to invest in pensions.
What it means to be human
Many lives have been saved because of these insights. But the work also raises profound questions about what it means to be human and conscious.
“They’re grappling with some very big stuff,” Lewis says, pointing out that Kahneman and Tversky were always careful not to stray beyond what their empirical data showed. “They avoided using the words ‘rational’ or ‘irrational’, for example, because they knew that would open up a front with philosophers about what rationality was. They leave it to the reader to make the grand claims.”
One of the many fascinating things about The Undoing Project is the tension between its subjects and the very idea of storytelling. In one way the illusions and mistakes that Kahneman and Tversky describe are the same tools we use to impose narrative on a seemingly random universe. Tversky once described metaphors as cover-ups, which "replace genuine uncertainty about the world with semantic ambiguity".
“I think their atheism is important,” Lewis says. “The fact that they actively rebelled against religion. You are rebelling against deterministic thinking when you do that. They’re infertile material for a story, because a story sees meaning and patterns where there isn’t any meaning. Danny says, ‘My childhood is meaningless.’ You got chased by Nazis from the age of six? I beg to differ. How many subjects have endured the Holocaust and tell their biographer, ‘Oh, don’t worry about that, that’s trivial’?”
The other part of all this is that the way societies now amass data, and the sophistication of statistical modelling, allow us to see the impact of human error in a way that was impossible until recently. So if evidence shows that medical consultants are misdiagnosing 15 per cent more than the statistical mean, that problem can be addressed.
“How can you evaluate the experts unless you have statistical models? The computer allows you to save data,” Lewis says. “It allows you to compare the experts’ judgment over a length of time against some algorithm. It allows you to run the algorithm.”
Orwellian algorithms
Some of which, of course, makes people a little uneasy. The idea that algorithms are measuring a doctor’s performance, or that complex psychological models are used to make people behave in a certain way, strikes some as manipulative or even Orwellian.
Lewis doesn’t buy that. “The argument against the ‘nudge’ stuff is just totally stupid, because there’s always a nudge,” he says. “If you make people opt in to pension plans then that’s a nudge. Imagine all the pension plans were opt-out and someone came along and made them opt-in. Now that would be evil. The fact is we now know that the way people make a decision can turn a lot on how that decision is presented to them.”
How, then, I wonder, should we think of these recurring errors? Are they evidence of some evolutionary shortfall, with our brains failing to cope with the complexity of modern life?
“When people ask why would evolution not have stamped this out of us, Amos’s answer was that the mind is like a Swiss army knife: it’s good for carrying out a whole range of tasks, but it’s foolish to think it will be perfectly equipped to deal with whatever situation or era we happen to be in.”
For Lewis much of the work done by Kahneman and Tversky grows out of the observation that people just won’t accept the level of uncertainty that exists in the world. “They want to see the world as much more deterministic than it is,” he says.
“We need to change our relationship to our own fallibility and not see it as a shameful thing. It’s something that’s part of us. The insistence that mistakes are always avoidable leads us to, among other things, false expectations of leaders, who are forced to pretend to be confident about things they shouldn’t be confident about.”
The Undoing Project: A Friendship That Changed the World is published by Allen Lane
