EconoRead: The Undoing Project / by Todd Yarbrough

Book review for Michael Lewis' The Undoing Project (2016)

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I was truly fascinated to learn Michael Lewis' next book project was a deep dive into the relationship and lives of Daniel Kahneman and Amos Tversky. Although I am a voracious reader, I don't spend much time researching what books are coming out soon. I have my favorite authors that I keep my eye on, and as a result I often get to books once they've already permeated the cultural zeitgeist. This prevents me from picking up truly bad books, using respected critics and friends as a filter on new books. I free ride the risk seeking ability of the more book-brave, shall we say. Regardless, I WAS excited for this book to be released. I actually received it as a gift from a colleague, and have been generally too busy until recently to dig in.

My excitement for this book mostly springs from my graduate school experience. Many economics students are quite stunned to find out that your first year of graduate school isn't so much economics, as it is mathematical psychology and mathematics. This includes covering several of the seminal papers co-authored by the dynamic duo of Kahneman and Tversky. The name Kahneman and Tversky probably brings to mind at least 2 papers graduate economics students vividly remember from graduate school written by the pair. These papers are so important to graduate work in economics because they basically suggest that most economic models are wrong...

Kahneman and Tversky wrote several absolutely seminal papers (1, 23, and much more) that dealt with the way in which humans make decisions, specifically when confronted with a dilemma that involves the need to estimate probabilities. They found that humans were dreadful at computing and understanding the relative probabilities of events, that we cling to past experiences to the extent that it negatively impacts our future decision making, and that a lot of so called experts were just lucky. All this to say that the papers began to chip away at the rigid theoretical foundations of traditional economic behavior, which assumed rationality. If humans were made to act irrational because they showed systemic misunderstandings of complex situations, what made us think that their economic decisions, which are very complex, would somehow just happen to be rational. Thus, the Undoing Project was born.

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Confirmation bias, the hot-hand fallacy, loss aversion, and a whole host of concepts that have become part of our general vernacular were first uncovered by the unique working relationship well described in Lewis' book. Before there was Moneyball, there was Danny Kahneman and Amost Tversky, and they were the ones who changed the way we saw human decision making. They made a generation of economic models better, and challenged the very foundation of the economics discipline. Yet, their work was so powerful the economics discipline ultimately welcomed their theories with open arms, making sure to teach the next generation of economists what we'd gotten wrong about rationality for all those years. 

I am perhaps somewhat disappointed by the time not spent more robustly discussing their work, instead we get snapshots of their incredible personal lives, including experiences in the Holocaust, wars in Israel, and personal upheaval. I understand why Lewis chose to write the book in this way, but personally would have liked 200 more pages on just the evolution of their theories. The book is very good and is a quick read. I consumed it in about 6 reading sessions, each about 1.5 hours each. 

Ultimately I most enjoyed the book for the nostalgia factor of coming back to the ideas of papers I read ten years ago in my first year of graduate school. Most economists will enjoy that aspect, but the book is better in the hands of the uninitiated, for they have the most to benefit. If someone has liked Lewis' books up to this point, I think they'll greatly enjoy this one as well. 

3.5 / 5 -- A good read!