The Undoing Project

Lewis came to the subject sideways. Reviewing Moneyball, Richard Thaler and Cass Sunstein pointed out that the mispricing of baseball players he described had been explained decades earlier by two psychologists, Kahneman and Tversky. This book is his answer: part intellectual history and part double biography of the partnership whose papers changed economics, medicine and finance.

Lewis, the author of Liar's Poker, The Big Short and Moneyball, worked from interviews with Kahneman, family, colleagues, rivals and critics, along with the pair's letters and papers. Tversky died in 1996, so his side comes from documents and the memories of others. The ideas are explained through the experiments, such as the Linda problem, anchoring and the asymmetry between losses and gains.

Jennifer Senior in The New York Times found it moving, and Sunstein and Thaler, in The New Yorker, praised how it turns hard ideas into a page-turner. Kirkus found the opening chapter on Houston Rockets executive Daryl Morey disorienting, and readers wanting a full account of the science will do better with Kahneman's Thinking, Fast and Slow.

It suits investors, analysts and anyone whose job depends on judgment under uncertainty.

1. Experts fall for the same shortcuts as everyone else. Representativeness and availability mislead scouts, doctors and fund managers alike, which is why process and base rates matter.
2. Losses weigh more than gains. Prospect theory's loss aversion and reference points explain why investors sell winners too early, hold losers too long and judge outcomes against arbitrary anchors.
3. Framing changes choices. The same facts presented as survival or mortality rates produce different decisions. How a trade, a pitch or a risk report is framed is not neutral.
4. Models beat intuition, but models have authors. Morey's statistical drafting improves on scouts' gut calls, yet his models inherit their builders' assumptions. Systematic approaches need checks for bias of their own.
5. Hindsight rewrites the story. People mentally undo bad outcomes and see them as obvious afterward, which distorts how a firm reviews losses and promotes people.

The book moves from a modern case study to the two men's lives, their collaboration and its end.

1. The problem. Lewis opens with Daryl Morey of the Houston Rockets, who builds statistical models to draft players and finds that the biggest obstacle is the bias in his own and his scouts' judgment. It sets up the question the psychologists had answered.
2. Two lives. Kahneman's wartime childhood in France and his army work judging officer candidates and designing the interview the Israeli army used to assess combat recruits, then Tversky's upbringing, combat service and rise as a mathematical psychologist.
3. The collision. After a 1969 seminar clash at Hebrew University, the two begin working side by side, writing papers together in a single voice and cataloguing heuristics such as representativeness and availability.
4. Spreading the ideas. Their 1974 Science paper and 1979 prospect theory spread into medicine, through the Toronto physician Donald Redelmeier, and into economics, through Thaler and others, while war and emigration pull at their lives.
5. Undoing. Unequal recognition opens a rift as Tversky wins honors and Kahneman feels sidelined. Lewis follows their last work together, Tversky's illness and death in 1996, and Kahneman's 2002 Nobel Prize.

Brilliant. . . . Lewis has given us a spectacular account of two great men who faced up to uncertainty and the limits of human reason.” —William Easterly, Wall Street Journal Forty years ago, Israeli psychologists Daniel Kahneman and Amos Tversky wrote a series of breathtakingly original papers that invented the field of behavioral economics. One of the greatest partnerships in the history of science, Kahneman and Tversky’s extraordinary friendship incited a revolution in Big Data studies, advanced evidence-based medicine, led to a new approach to government regulation, and made much of Michael Lewis’s own work possible. In The Undoing Project, Lewis shows how their Nobel Prize–winning theory of the mind altered our perception of reality.