Lewis's The Undoing Project turns back from data to the problem that number crunching leaves unsolved -- to the human mind when it is faced with uncertainty, processing evidence, forming judgments and misjudgments, drawing conclusions, arriving at decisions, good and bad. Many voices and theories will be mooted, but the book is also a biography of two Israeli academics: Amos Tversky and Daniel Kahneman, economist and psychologist, Mutt and Jeff. It is a book about the mind and the marketplace (there is a long algebraic footnote on page 259, to emphasize that science is being spoken here, some of the time), but equally engagingly, it is a book about an unlikely and extraordinarily fruitful friendship. And, yes, as Lewis has demonstrated since Liar's Poker, he writes like a smoothie feels -- silken: "Danny was a refugee in the way that, say, Vladimir Nabokov was a refugee. A refugee who kept his distance. A refugee with airs."
There has not always been a great deal of hobnobbing between economists and psychologists, but inroads have been made in identifying biases that lead to market inefficiencies. The only way to counter the unconscious power these forces have over our decisions, writes Lewis, is to understand where they come from. So begins a grand tour through the wacky world of bias, the warping of judgment, and why we should reach to secure our wallets when we hear the word "expert."
Lewis offers up a rogues' gallery of prejudices and evaluative short-circuits. What makes them so insidious is that you don't realize they are at work. There is confirmation bias: "The human mind was just bad at seeing things it did not expect to see, and a bit too eager to see what it expected to see." There's subjective probability, or the odds you assign when you are more or less guessing, and the endowment effect, when people "attached some strange extra value to whatever they happened to own, simply because they owned it." We use hindsight bias everyday, revising our narratives to fit whatever just happened. "Historians imposed false order upon random events, too, probably without even realizing what they are doing . . . 'Creeping determinism.' " The story is not all about our foibles and follies. Systematic bias may be wrecking much of our good work and intentions, but Tversky and Kahneman also had prospect theory to offer, which poses that people make decisions based on potential value and loss, and that these decisions are often sabotaged by heuristics -- shortcuts that help us navigate life but can also send us astray. For example, good judgment can be undermined by the use of representative prototypes, the influence of similar events that spring to mind, or the tendency to put too much credence on the first piece of information that comes our way. This is real-life, descriptive decision making at work, as opposed to the optimal, prescriptive, normative models. It was the glimmering start of behavioral economics, which identifies the emotional-impact factors in decision making. Those with a jones for economic theory will be in heaven; those without will find themselves unexpectedly ensnared.
There's more here, however, than the lessons: the story of Tversky and Kahneman's friendship is tear making in its humor and pathos. They were schooled all over the place, but the most endearing is the rubber-bands-and-tape Hebrew University in the years after Israel's nationhood. Kahneman recalled that his "professors were less an assemblage of specialists than a collection of characters, most of the European refugees . . . They had lived big lives." Kahneman is a genius, a connoisseur of human error, a devotee of doubt, comfortable in the messy of life and weird human ways. Tversky (who died in 1996) was a genius, a war hero, enthusiastic and optimistic, a burning star. One dished out criticism at a blink, the other was almost undone by any suggestion his work had flaws. They loved one another; they wrote their bevy of peerless papers sitting together at one typewriter.
" 'We just found each other more interesting than anyone else,' said Danny. 'Even if we had just spent the entire day working together.' " They'd become a single mind, creating ideas about why people did what they did, and cooking up odd experiments to test them." There was also a snake in the grass. Tversky, likely because he was so publicly brilliant, was lavished with honors. Kahneman rarely appeared on the dance card. Envy broke up their relationship -- "I am very much in his shadow in a way that is not representative of our interaction . . . There is envy! It's just disturbing. I hate the feeling of envy . . . I am maybe saying too much now," said Kahneman, saying too much -- though it was put to rest in the last months of Tversky's life, before he died of cancer at age fifty-nine. Kahneman then went on to garner a Nobel Prize in economics, despite being the psychologist of the two. He wound up teaching at Princeton and published the much-respected Thinking, Fast and Slow.
Tversky died as they were writing their last coauthored piece. "In their final conversation, Danny told Amos that he dreaded the thought of writing something under Amos's name of which Amos might disapprove. 'I said, "I don't trust what I am going to do," ' Danny said. 'And he said, "You will just have to trust the model of me that is in your mind," ' a good, doubt-free behavioral economist to the end.
Peter Lewis is the director of the American Geographical Society in New York City. A selection of his work can be found at writesformoney.com.
Reviewer: Peter Lewis