The Undoing Project

Key Takeaways

Michael Lewis on the collaboration between Danny Kahneman and Amos Tversky — the friendship that produced behavioural economics, and then broke. Kyle’s highlights cluster around temperament rather than findings:

• Doubt as method. Kahneman’s “defining emotion is doubt… it makes him go deeper and deeper”; he “moved on from his enthusiasms” and “accepted failure… as if he expected it.” His instruction to students inverts the usual reflex: “When someone says something, don’t ask yourself if it is true. Ask what it might be true of.”
• Tversky’s opposite pole. First reactions “in the top 10 percent”; a decision early on that avoiding embarrassment wasn’t worth the price; “the nice thing about things that are urgent is that if you wait long enough they aren’t urgent anymore.”
• What the work actually claimed. Not that people are stupid but that they are systematically wrong — “the irrational behavior of the few would not be offset by the rational behavior of the many” — and that stories displace probabilities: “the production of a compelling scenario is likely to constrain future thinking.” Hence “no one ever made a decision because of a number. They need a story.”
• Hindsight and its cost. “He who sees the past as surprise-free is bound to have a future full of surprises”; “images of the future are shaped by experience of the past.”
• The regret model. “When they made decisions, people did not seek to maximize utility. They sought to minimize regret” — with the saving grace that not knowing the road not taken “keeps regret in life within tolerable bounds.”

The line Kyle marked about research practice is the one that travels furthest: “The secret to doing good research is always to be a little underemployed. You waste years by not being able to waste hours.”

Connections

Books: Thinking, Fast and Slow — Kahneman’s own account of the same work. Moneyball and The Big Short — Lewis’s earlier books on the same disruption-of-expert-judgement theme he opens with here (“Why had so much conventional wisdom been bullshit?”).

Concepts: Data in Investing — the argument that models beat expert judgement in data-rich domains, and the warning about domains that aren’t. Decision Making · Cognitive Bias · Storytelling — “no one ever made a decision because of a number.”

People: Michael Lewis · Daniel Kahneman · Amos Tversky.

Books: The Big Short and The New New Thing — the other two Michael Lewis titles on Kyle’s shelf; together they mark a sustained read of Lewis across finance, the dot-com era, and decision science. Concepts: Behavioral Economics — the territory the book covers, and the reason it carries the capital-allocation tag here. The corpus’s fuller treatment of that material lives in Thinking, Fast and Slow and on Daniel Kahneman.

Highlights

• “Why had so much conventional wisdom been bullshit? And not just in sports but across the whole society. Why had so many industries been ripe for disruption? Why was there so much to be undone?”

Kyle: About Danny Kahneman — “His defining emotion is doubt,’ said one of his former students. ‘And it’s very useful. Because it makes him go deeper and deeper and deeper.”

• “But it was the start of a pattern: seizing on some idea of ambition with great enthusiasm only to abandon it in disappointment. ‘I’ve always felt ideas were a dime a dozen,’ he said. ‘If you had one that didn’t work out, you should not fight too hard to save it, just go find another.”
• “Danny would tell students, ‘When someone says something, don’t ask yourself if it is true. Ask what it might be true of.’ That was his intellectual instinct, his natural first step to the mental hoop: to take whatever someone had just said to him and try not to tear it down but to make sense of it.”
• “He compelled himself to be brave until bravery became a habit.”
• “He would say, for example, ‘You know, in an Israeli university meeting, everyone jumps in to speak, because they think someone else might be about to say what they want to say. And in an American university faculty meeting everyone is quiet, because they think someone else will think to say what they want to say…’ And he’d be off on a disquisition on the difference between Americans and Israelis — how Americans believed tomorrow will be better than today, while Israelis were sure tomorrow would be worse; how American kids always came to class prepared, while Israeli kids never did the reading, but it was Israeli kids who always had the bold idea, and so on.”
• “The Princeton philosopher Avishai Margalit said, ‘No matter what the topic was, the first thing Amos thought was in the top 10 percent. This was such a striking ability. The clarity and depth of his first reaction to any problem — any intellectual problem — was something mind-boggling. It was as if he was right away in the middle of any discussion.”
• “Amos thought people paid an enormous price to avoid embarrassment,’ said his friend Avishai Margalit, ‘and he himself decided early on it was not worth it.”
• “The nice thing about things that are urgent,’ he liked to say, ‘is that if you wait long enough they aren’t urgent anymore.’ ‘I would say to Amos I have to do this or I have to do that,’ recalled his old friend Yeshu Kolodny. ‘And he would say, ‘No. You don’t.’ And I thought: lucky man!”
• “Amos liked to say that stinginess was contagious and so was generosity, and since behaving generously made you happier than behaving stingily, you should avoid stingy people and spend your time only with generous ones.”
• “Israeli intellectuals were presumed to have some possible relevance to the survival of the Jewish state, and the intellectuals responded by at least pretending to be relevant.”
• “Danny said to me, ‘It’s okay, just learn the books.’ And I said, ‘What do you mean just learn the books?’ And he said, ‘Take the books with you and memorize them.’ And so that’s what Avi had done. He returned to Danny’s classroom just in time ford the final exam. He’d memorized the books. Before Danny handed back the exams to the students, he asked Avi to raise his hand. ‘I raised my hand — what did I do this time? Danny says, ‘You got 100 percent. And if someone gets a grade like this it should be said publicly.”
• “You don’t study memory. You study forgetting.”
• “That was another thing colleagues and students noticed about Danny: how quickly he moved on from his enthusiasms, how easily he accepted failure. It was as if he expected it. But he wasn’t afraid of it. He’d try anything. He thought of himself as someone who enjoyed, more than most, changing his mind. ‘I get a sense of movement and discovery whenever I find a flaw in my thinking,’ he said.”
• “There was a relentlessness in the way Danny’s mind moved from insight to application. Psychologists, especially the ones who became university professors, weren’t exactly known for being useful.”
• “You have completed a three-year program in psychology. You are by definition professionals. Don’t hide behind research. Use your knowledge to come up with a plan.”
• “Someone once said that education was knowing what do when you don’t know. Danny took that idea and ran with it.”
• “Danny found problems where none seemed to exist; it was as if he structured the world around him so that it might be understood chiefly as a problem.”
• “When you are a pessimist and the bad thing happens, you live it twice, Amos liked to say. Once when you worry about it, and the second time when it happens.”
• “If human judgement was somehow inferior to simple models, humanity had a big problem: Most fields in which experts rendered judgements were not as data-rich, or as data-loving, as psychology. Most spheres of human activity lacked the data to build the algorithms that might replace the human judge. For most of the thorny problems in life, people would need to rely on the expert judgement of some human being: doctors, judges, investment advisors, government officials, admissions officers, movie studio executives, baseball scouts, personnel managers, and all the rest of the world’s deciders of things. Hoffman, and the psychologists who joined his research institute, hoped to figure out exactly what experts were doing when they rendered judgements. ‘We didn’t have a special vision,’ said Paul Slovic. ‘We just had a feeling this was important: how people took pieces of information and somehow processed that and came up with a decision or a judgement.”
• “He didn’t have any great hope that his paper would be read outside of his small world: What happened in this little corner of psychology tended to stay there. ‘People who were making judgements in the real world wouldn’t have come across it,’ said Lew Goldberg. ‘The people who are not psychologists do not read psychology journals.”
• “The stories we make up, rooted in our memories, effectively replace probability judgements. ‘The production of a compelling scenario is likely to constrain future thinking,’ wrote Danny and Amos. ‘There is much evidence showing that, once an uncertain situation has been perceived or interpreted in a particular fashion, it is quite difficult to view it any other way.”
• “Images of the future are shaped by experience of the past,’ they wrote, turning on its head Santanyana’s famous lines about the importance of history: Those who cannot remember the past are condemned to repeat it. What people remember about the past, they suggested, is likely to warp their judgement of the future. ‘We often decide that an outcome is extremely likely or impossible, because we are unable to imagine any chain of events that could cause it to occur. The defect, often, is in our imagination.”
• “People often work hard to obtain information they already have. And avoid new knowledge.”
• “He who sees the past as surprise-free is bound to have a future full of surprises.”
• “As Kahneman and Tversky long ago had pointed out, a person who is making a prediction — or a diagnosis — is allowed to ignore base rates only if he is completely certain he is correct. Inside a hospital, or really anyplace, Redelmeier was never completely certain about anything, and he didn’t see why anybody else should be, either.”
• “And if we are fallible in algebra, where the answers are clear, how much more fallible must we be in a world where the answers are much less clear?”
• “What is it with you freedom-loving Americans? Live free or die. I don’t get it. I say, ‘Regulate me gently. I’d rather live.”
• “A part of good science is to see what everyone else can see but think what no one else has ever said.”
• “So many problems occur when people fail to be obedient when they are supposed to be obedient, and fail to be creative when they are supposed to be creative.”
• “The secret to doing good research is always to be a little underemployed. You waste years by not being able to waste hours.”
• “It is sometimes easier to make the world a better place than to prove you have made the world a better place.”
• “Both Amos and Danny thought that voters and shareholders and all the other people who lived with the consequences of high-level decisions might come to develop a better understanding of the nature of decision making. They would learn to evaluate a decision not by its outcomes — whether it turned out to be right or wrong — but by the process that led to it. The job of the decision maker wasn’t to be right but to figure out the odds in any decision and play them well.”
• “No one ever made a decision because of a number. They need a story.”
• “Adult minds were too self-deceptive. Children’s minds were a different matter.”
• “When they made decisions, people did not seek to maximize utility. They sought to minimize regret.”
• “The absence of definite information concerning the outcomes of actions one has not taken is probably the single most important factor that keeps regret in life within tolerable bounds,’ Danny wrote. ‘We can never be absolutely sure that we would have been happier had we chosen another profession or another spouse… Thus, we are often protected from painful knowledge concerning the quality of our decisions.”
• “If people could be systematically wrong, their mistakes couldn’t be ignored. The irrational behavior of the few would not be offset by the rational behavior of the many. People could be systematically wrong, and so markets could be systematically wrong, too.”
• “The way it feels to me is that there were certain ideas that I was put on this earth to think.”
• “Science is a conversation and you have to compete for the right to be heard.”
• “With the passage of time, the consequences of any event accumulated, and left more to undo. And the more there is to undo, the less likely the mind is to even try. This was perhaps one way time heals wounds, by making them feel less avoidable.”
• “He thought by talking.”
• “Even sophisticated doctors were getting from Danny and Amos only the crude, simplified message that their minds could never be trusted. What would become of medicine? Of intellectual authority? Of experts?”

Kyle: [One of the opponents of Danny and Amos’ work] “argued that as man had created the concept of rationality he must, by definition, be rational. ‘Rational’ was whatever most people did. Or, as Danny put it in a letter that he reluctantly sent in response to one of Cohen’s articles, ‘Any error that attracts a sufficient number of votes is not an error at all.”

• “In some strange way Danny contained within himself his own opponent. He didn’t need another one.”
• “Amos changed,’ said Danny. ‘When I gave him an idea he would look for what was good in it. For what was right with it. That, for me, was the happiness in the collaboration. He understood me better than I understood myself. He stopped doing that.”
• “He did what critics sometimes do: He described the object of his scorn as he wished it to be rather than it was. Then he debunked his description.”
• “Danny added, ‘On a day on which they announce the discovery of 40 billion new galaxies we argue about six words in a post script… It is remarkable how ineffective the number of galaxies is as an argument for giving up in the debate between ‘repeat’ and ‘reiterate.’”
• “The brain is limited. There are gaps in our attention. The mind contrives to make those gaps invisible to us. We think we know things we don’t. We think we are safe when we are not.”
• “Life is a book. The fact that it was a short book doesn’t mean it wasn’t a good book. It was a very good book.”