How an Intellectual Odd Couple Reshaped Everything From Medicine to Investing

In The Undoing Project, Michael Lewis shows how a pair of Israeli psychologists revealed the weirdness of the human mind.

Author Michael Lewis

Photographer: David Paul Morris/Bloomberg

Just because Michael Lewis is really good at explaining things doesn’t mean he always wants to. So when he’s writing a book, he comes up with forbiddingly boring ways to talk about it. “Oh, a book on baseball statistics,” he’ll say, or “A book about two Israeli psychologists,” and the conversation, as intended, dies. “No one asks another question,” he says.

Those descriptions aren’t wrong. But Lewis’s great gift is the ability to take seemingly dry subject matter and spin out exhilarating intellectual capers, with the intricacies of financial derivatives or baseball metrics unpacked as the plot goes down. His latest book, however, is in a different genre altogether. Put in a conversation-ending way, it’s about two Israeli psychologists. In the 1970s, Daniel Kahneman and Amos Tversky upended our understanding of human judgment and decision-making, showing the biases that throw off our calculations of costs and benefits.

The Undoing Project
Source: W. W. Norton & Company

Lewis writes their story in his new book, The Undoing Project, as an unlikely and ultimately star-crossed intellectual romance: Tversky brash and charming, Kahneman self-doubting and moody. For the decade the men spent together on the faculty of Hebrew University, they passed hours every day riffing and joking, parrying ideas back and forth, and coming up with the odd, revealing questions they would ask their subjects. Is the letter K more likely to be the first or third letter in a word? Would you rather have a 50 percent chance of winning $1000 or take a sure $400? People’s answers revealed a host of mental shortcuts and the odd places they could lead: It turned out that we assign undue weight to easily pictured things, hate losses more than we love gains, and register changes, rather than totals.

Sitting side-by-side at a single typewriter, they drafted a series of papers that would reshape everything from investing to sports to medicine to management. In 2002, Kahneman won the Nobel Prize in Economics (Tversky would undoubtedly have won as well, if he hadn’t died of cancer several years earlier). Tversky and Kahneman’s work would lay the groundwork for many of the mavericks who would eventually draw Lewis’s attention. The author, a columnist for Bloomberg View, sat down to talk about it in the offices of W.W. Norton, his publisher. The interview has been condensed and edited for clarity.

Bloomberg Businessweek: What’s the central insight at the heart of Kahneman and Tversky’s work?

MICHAEL LEWIS:  We’re programmed for error. It isn’t that some people make mistakes and some people don’t. The mind is programmed to make certain kinds of mistakes, certain kind of systematic misjudgments. The mind is fallible, and it’s not a shameful thing that it’s fallible. 

I’d say the second, related idea—and maybe what leads to the fallibility—is that one of the things the mind is doing is making the world seem a much more certain place than it actually is. People have trouble living with or acknowledging the actual uncertainty that there is in the world at any given moment. And so the mind makes up stories that make the world seem much more certain.

But there are all kinds of little insights that I find breathtakingly interesting: the power of stereotype to distort judgment, the way people are more sensitive to losses than to gains. And the way people respond to descriptions of things, rather than the things themselves. I find as interesting the stuff that was kind of unfinished, where they were just noodling about.

I think if someone asked me, ‘Why should I read your book?’ I wouldn’t say it’s because you need to know their work. I’d say you need to know them. That you need to have them imprinted on your brain well enough so you can ask yourself, ‘I wonder what Amos Tversky would say about this or what Danny Kahneman would say about this.’ It’s really enriching.

Yeah, the title of your book is a reference to some of their later work [on imagination and regret], not the stuff that won the Nobel Prize.

The very idea there are rules of the imagination, that’s a blazing insight. Because you don’t think of it as a rule-based activity. But it is. When people are forced to imagine an alternative scenario, like how Donald Trump might have lost, they all kind of do the same thing. They go right to the last thing that happened that might have changed the outcome and then they do easy, vivid things. Like they remember Hillary Clinton’s speeches or whatever it is. They don’t say, ‘If only Trump were born a girl.’

One of the themes of their work, I think, is how limited the human imagination is. We think of it as this wonderful Apple commercial kind of thing—like anybody can think anything, right? But think how much trouble people are having right now offering an imaginative view of Trump’s presidency. They go to what they kind of remember, like, ‘Oh, maybe it’s Hitler.’ That’s a failure of the imagination. Quite likely it’s going to be something that none of us has imagined. And it’s going to be crazy. The feeling of uncertainty we all have is kind of that: We can't quite imagine it. 

Is it significant that these two guys were Israeli? Did they have to be? Was there something about Israel that shaped their ideas?

It’s ignoring the lessons of Kahneman and Tversky to impose a deterministic pattern on their story. But here’s what I think was really important: Jews in the aftermath of the Holocaust and with the birth of the Israeli state, surrounded by enemies, were especially interested in judgment and decision-making, because judgments can be fatal. The misjudgment of Hitler is in the background, I think.

And Israel forced these guys to interact with society in ways that intellectuals normally don’t. They had to fight in the military. Every few years they were being pulled back on their reserve duty, and there was an expectation that you were going to be useful. So Danny Kahneman, if you meet him and get to know him, what he would have been if he had just stayed in France and World War II hadn’t happened, he would have been an intellectual who had nothing to do with the world around him. And Israel forced him to be useful. And once he figured out he could be useful, it became intoxicating.

I loved the detail in the book about how Israeli army units had embedded psychologists.

Those papers about it are hysterical. I mean, who’d do that? Benny Shalit [the head of Israeli military psychology] had all these notions that psychologists were going to be effectively making the decisions on the battlefield, in real time. I mean, that’s crazy.

Obviously, what attracted you partly was these guys’ relationship. In your description it seems like a cross between Lennon and McCartney and a marriage.

Yes. It wasn’t in the book, but there were a couple of times when they were traveling together when the hotel person just was sure they were gay. And they were not. I mean, they’re really crazily straight guys, but their feelings for each other were just stronger than they were for other people, than for their wives. I think that’s pretty clear.

Do you think their breakup was inevitable? Or if they hadn’t left Israel for the U.S., they would have stayed together?

I think if they had stayed in Israel, they would have been fine. There was an egalitarian kind of spirit to the place, so the difference in their statuses—they weren’t reminded of it all the time. So even though Amos was a little bit of a bigger dog than Danny, it didn’t matter that much.

But I’m not sure the work would have ever been known the same way. If they were just a couple of Israeli guys and Amos wasn’t a big shot at Stanford University, interacting with the biggest shots in American intellectual life, I’m not sure that it would’ve been picked up in the same way. Having said that, you read the letters between them and there was an emotional disconnect. Danny had emotional needs that Amos had no idea how to fulfill. And there wasn’t the reverse; Amos didn’t have emotional needs that Danny didn’t fulfill. It’s hard to see either one of them not having some issues at some point. But just looking at what caused the real pressure in the relationship is it was the huge status differences between the two, once they got here.

I wanted to ask about practical applications of these ideas. [The behavioral economist] Richard Thaler started a fund based on this stuff and it’s done OK, but not great. The Obama administration structured a tax cut based on the ideas to try to get people to spend the money, rather then save it, and it doesn’t seem to have worked.

You’re thinking too narrowly, I think. Here’s an application: index funds. I mean, the whole market has moved away from stock picking. Now that’s not just Danny and Amos, obviously, just like evidence-based medicine is not just Danny and Amos. But if you go back and talk to the people at the New England Journal of Medicine who are pushing the idea that doctors should not be making diagnoses from their gut, that there should be some database check on the diagnoses, you talk to them and they say, ‘We were neck-deep in their work.’ That work made a huge difference at the time in explaining to people why you couldn’t trust the intuitive judgment of the expert. So everywhere you look, where the intuitive judgment of the expert is in retreat, they play a role, even on Wall Street.

In baseball. 

Sports management. All the big data stuff. The explanation for why you would turn to an algorithm is that there are flaws in the judgment of the expert.

You wrote this book during an era when this stuff seemed to be ascendant. You had this cerebral president, and [the legal scholar] Cass Sunstein was in the Obama administration, trying to apply Kahneman and Tversky’s ideas. Now we have a very different president-elect, more of a gut guy.

It’s not clear. It’ll be interesting to see what happens to it because it’s not just the U.S. government. The British government, the Australian government, the German government, I mean, all the Scandinavian governments. The notion that the way a decision is presented affects the way the decision is made, that’s not an ideological proposition. It’s not inherently liberal. 

However, what is threatened is a kind of worldview that we should all be sort of probabilistic. In the first place, we should evaluate our leaders in their process of decision-making, not the outcome, because they can’t control it.

Two, that moving through the world with a sense of your own infallibility is a really bad idea. I mean, you never know what’s going to happen, but let’s have a conversation in a couple of years, because Trump could be run out of town on a rail. I mean, this guy is a buffoon. He’s responding to the moment, you know. Anger, sex—there’s no impulse control. And people are doing their damnedest to create a story that makes him look like this great strategic genius. 

He could get really lucky. Good things could happen. I don’t know. But there’s no question that when you view Trump through the lens, which you can, of Amos and Danny, there are lots of things to say, and none of them are pleasant. One thing I would say that’s kind of interesting is that someone who is himself oblivious to the weaknesses or vulnerabilities of his own mind is especially good at preying on the vulnerabilities of other people’s minds. 

What do you mean?

People—they want more certainty than is available and they’ll accept it, even if it’s a lie. They are easily manipulated by vivid examples. You show them one illegal immigrant who has killed somebody, and you can persuade them that this is what illegal immigrants do. This is how [Trump] moves. He exploits the way people think in stereotypes. But I think he does this so well because he thinks that way. We all do, but most of us are trying to resist it a bit because we have a sense that, among other things, it’s wrong a lot of times. 

But he just gives in to it, and I think that’s a balm for people who don’t want to resist it. That seems to be one of the big things at the center of his appeal. It isn’t exactly racism, right? That’s a byproduct. It’s just a lazy categorization of people.

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