Michael Lewis is the poet laureate of the financial world. Each of his deeply researched, beautifully composed books causes a stir when published. Recall the brouhaha that erupted when Lewis, discussing his 2014 book, “Flash Boys” on “ 60 Minutes,” said that markets are rigged.
Lewis’ newest book, “The Undoing Project: A Friendship That Changed Our Minds,” (excerpt here) is a very different work from earlier Lewis writings. Its subject is two academics, Amos Tversky and Daniel Kahneman – their backgrounds, how they met and how two wildly different personalities became a singular brain to “undo” our misunderstanding of how the human mind operates.
Books from Lewis, despite their disparate subjects, share common elements, beginning with a recognizable situation that is inherently unfair: The disadvantages of a small-market baseball team with a limited payroll, the lack of transparency in the subprime-mortgage market, the tax imposed by high-frequency trading on investors.
But Lewis — a Bloomberg View columnist – always goes a step further, offering a narrative that unfolds through the eyes not of the main actors, but players on the fringes. They tend to be eccentric, gifted oddballs looking in from the outside. Aggrieved by the injustices of the world they witness — Billy Beane in “Money Ball,” Jim Clark in “The New New Thing,” Brad Katsuyama in “Flash Boys,” Michael Burry in “The Big Short” — they see the world differently from everyone else. That same is true of “The Undoing Project.”
The origin of the book is worth some amplification: a review of Lewis’ “Moneyball” in The New Republic by University of Chicago economist Richard Thaler and my Bloomberg View colleague Cass Sunstein gently took Lewis to task for failing to recognize the origins of the cognitive errors he described in the book. The kinds of mistakes made by the scouts and managers in “Moneyball” had already been thoroughly described by Tversky and Kahneman, who won the Nobel Prize in economics the year before Lewis’ book was published.
Lewis acknowledges the oversight: “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.” He has atoned by writing “The Undoing Project.”
Speaking of which: it is an insightful, touching work, an introduction to behavioral economics thinly disguised as a biography of its two protagonists. The intellectual romance between these two brilliant psychologists is revealed as they find in each other a gifted foil. The product of this cerebral ferment was so powerful that it changed the way we think about human decision-making.
Lewis almost casually takes the reader through decades of psychological innovation, culminating in Tversky and Kahneman’s slow demolition of the concept of homo economicus — the underlying assumption of the economics profession that people are rational, self-interested optimizers with perfect judgment.
All of the biases and cognitive failings that people exhibit when making decisions are laid bare here. We watch as it becomes clear that errors in human judgment are not merely predictable, but systematic.
Lewis fans will not be disappointed. The writing practically explodes on the page, which are filled with moments that would be the highlight of a lesser writer’s career:
Part of the problem was the wild diversity of the people who wanted to be psychologists – a rattle-bag of characters with motives that ranged from the urge to rationalize their own unhappiness, to a conviction that they had deep insights into human nature but lacked power to write a decent novel, to a need for a market for their math skills after they’d been found inadequate by the physics department, to a simple desire to help people in pain.
If you find this single sentence as powerful as I do, you will surely enjoy this book. (If you share my enthusiasm, then your follow-up project should be to read Kahneman’s “Thinking Fast and Slow.”) For those of you familiar with the latest behavioral economics literature, the sections on Dr. Don Redelmieir and evidence-based medicine, and Daryl Morey, general manager of the Houston Rockets (basketball’s version of Billy Beane) are both fresh and intriguing. (If I have any complaint, it is that book could use an index. There are so many people, ideas, innovations, psychological concepts defined that a reference would be useful.)
It isn’t all joy and light. Envy and friction enters the Kahneman-Tversky partnership, perhaps the inevitable price of collaboration; Tversky succumbs to metastatic melanoma at age 59 in 1996.
At bottom, the book is about a special relationship, and how it led to a new and deeper understanding of human decision-making. Reading it is a decision you won’t regret.