Psychology permeates nearly every area of human endeavor. In the world of investing, for instance, psychology can help us understand the systematically poor decision-making that drives the academic anomalies explored on this blog. One cannot be a student of investing without also being a student of psychology.

The emergent field of behavioral economics puts our irrational tendencies under the microscope, and is largely based on discoveries that arose from a unique collaboration between two Israeli psychologists, Daniel Kahneman and Amos Tversky (K&T). Although Kahneman went on to win a Nobel Prize in 2002 in connection with this body of work, Tversky, sadly could not share it since he passed away in 1996 (the Nobel is only awarded to living scholars).

In “The Undoing Project: A Friendship That Changed Our Minds,” Michael Lewis tells the story of K&T’s remarkable collaboration and one of the most productive academic partnerships in history.

The Undoing Project Michael Lewis

The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis

Michael Lewis has a way of shedding light on overlooked areas that can have profound influences. If you read his book, “Moneyball,” you know that the Oakland A’s overcame the lowest payroll in baseball by focusing on statistics-driven algorithms, instead of flawed human scouting assessments. “The Undoing Project” explores the how and why of this type of human irrationality, and the history of K&T’s research effort to explore human decision-making under uncertainty.

What I like about the book?

The book offers an engrossing biographical perspective on this brilliant academic duo. The individual stories of these men and their work makes for a fascinating read.

Lewis describes Kahneman’s childhood, which he spent as a Jewish refugee trying to avoid the Nazis during the German occupation of France in the early 1940s. Although Kahneman’s father died during the war, Kahneman and his mother eventually made their way to Jerusalem, where Kahneman attended high school, and later Hebrew University, to pursue studies in psychology. Later, having distinguished himself intellectually by earning a PhD from Berkeley, Kahneman was called on by the Israeli military to apply his knowledge of psychology to the problem of evaluating new conscripts, and training soldiers.

During this time, Amos Tversky, who was several years younger than Kahneman, was jumping out of airplanes as a paratrooper and leading Israeli army platoons in combat. Like Kahneman, he was a formidable intellect, and also studied psychology at Hebrew University. After getting his PhD at the University of Michigan, he returned in 1966 to Israel.

Both men were teaching in the psychology department at Hebrew University in 1969, when Kahneman invited Tversky to speak at a seminar. Tversky presented work by Ward Edwards that described humans as “conservative Bayesians,” an idea that struck Kahneman as attributing far too much statistical sophistication to humans who, as Kahneman knew from his experience with the military, often made messy real-world decisions based on imperfect intuition and misperceptions that didn’t fit easily into elegant math-based academic theories. Kahneman laid into the presentation, and the usually confident Tversky began to question himself, recognizing there were new dimensions to his field that he had not considered.

Soon after, K&T began working closely together, observing the cognitive errors they themselves tended to make, and then testing these on others. They noted that different classes of biases led to predictable logical inconsistencies in how humans reason. They would spend hours together in a room, dissecting their own misjudgments, and could be heard laughing behind closed doors. They devised clever experiments that pinpointed and probed the mechanisms of these errors. Who contributed what to their research efforts? They couldn’t say. It was a team effort and the two worked so well together they would finish each other’s sentences.

They were also polar opposites in temperament. Tversky was gregarious, outgoing and confident. Meanwhile, Kahneman shunned the spotlight and was consumed by uncertainty. It was a combination that worked well together. Kahneman’s self-doubt enabled him to relentlessly explore his own cognitive errors, and Tversky’s brashness drove the forceful tone of a series of pioneering papers they co-authored.

They proposed that people relied on mental shortcuts (heuristics) when forming judgments, and these led to errors: the Halo effect; Representativeness; Availability; Anchoring; Framing; the Endowment effect, and many more. Whole books could be written about each of these areas (we’ve written extensively on these subjects as well). The granddaddy of them all, and the basis for the Nobel prize, may be Prospect Theory, which is the idea that losses hurt more than gains of similar magnitude feel good.

These ideas started as simple observations they empirically measured in others, but revealed profound truths about how humans perceive the world. In the end, we should be skeptical of our own judgment, since it is deeply clouded by bias.

One sense in which their work together was an “undoing project” was in that while their distinct personalities allowed for their combined brilliance, it also created the conditions for their “undoing,” and the dissolution of the partnership.

Tversky had a reputation as a first-rate intellect, and was outspoken and charismatic. Khaneman was left off some papers, and when people called they wanted to talk to Tversky. It was Tversky who was hired for the prestigious positions, while Kahneman was the afterthought. In the end, Kahneman grew resentful of the attention that people paid to Tversky. This became so difficult for Kahneman that they eventually went their separate ways, driven by Kahneman’s desire for recognition of his own talents.

Thus, “The Undoing Project” is a tragedy with an ironic twist — ironic because today, with Tversky gone, it is Kahneman who receives all the accolades, which is the reverse of the dynamic that triggered their separation. It must be bittersweet for Kahneman today, and I’m sure the irony is not lost on him.

Constructive Criticism

One criticism I have of the book is that some of the writing felt like a re-hash of Kahneman’s 2011 magnum opus, “Thinking Fast and Slow,” which is carefully organized around K&D’s work. The “Undoing Project” by contrast, is more of a biography, with the academic ideas presented in hodgepodge fashion, or referred to only in passing, as Lewis races through the literature. Perhaps this is unavoidable. Lewis had to make the book short and accessible, but cover a lot of complex material and condense it into a compelling read.

Meanwhile K&T labored over the language they used. Lewis reports that Tversky might wrestle with the wording of a single sentence for an entire day. Also, even “Thinking Fast and Slow” is itself a summary. If you really want to understand these ideas you have to read the source papers, and study and reflect on the ideas over time. If your goal is to come away with a deep understanding of this academic work, you will be disappointed. There is simply too much ground to cover in a mass-market paperback format.


However, if you are looking for a brief but readable overview of the field and don’t have the patience or time for a cognitively demanding slog through “Thinking Fast and Slow,” the book is excellent. Or, if you are already

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