The undoing project, by Michael Lewis

Review of Michael Lewis’ book The Undoing Project

Another excellent book by Michael Lewis.

Here he departs from his usual subjects: stock market, high finances, statistics and applied math. The beginning of “The undoing project” narrates the way that a person whose main interests are more related to finance, statistics and math end up interested in a pair of psychologist: Daniel Kahneman and Amos Tversky.

Wrong-Way
Wrong-Way

The author arrives to this connection when he went deeper looking for the origins of the behavioral economics. Repeatedly he is sent back to these Israeli professors and to a seminal paper wrote in 1979 (years before the very existence of the term “behavioral economics”): “Prospect Theory: An Analysis of Decision under Risk”.

But the author goes in detail narrating this friendship that overcome wars (Second World War and the different wars after the constitution of the State of Israel) and different countries (as teachers in USA, and going back to Israel).

Both authors infancy was marked by the experience of the Second World War. As adults they were officials in the Israeli army, participating in the wars since the proclamation of the State of Israel.

In this military effort, they started the branch of psychology in the Israeli Army. There they put the roots for the work of profiling soldiers and assign them to the most appropriate position. Their objective was to reduce the failure in the officer courses due to the lack of leadership. They developed a method for the IDF that proved to be so efficient that US military was interested in applying it.

In this story, as it happens, their paper of 1979 pass unnoticed. We have to wait untile the 90’s when it’s rediscovered and starts the consolidation of a new discipline in economy, the behavioral economics.

Misbehaving: The Making of Behavioral Economics

A very interesting audiobook, it’s organized like an intelectual autobiography as Carnap’s or my favorite, Feyerabend’s. This book follows chronologically the advances in the developing of the branch of “Behavioral Economics” by one of the founders of the discipline, Richard Thaler.

The birth of behavioral economics

The book traces the steps of the author from the perplexity in front of a irresoluble problem fron the usual economic point of view, towards taking a different perspective on economics. This new perspective leaves the classical theory and assumes that economics has to talk about real people, not theoretical homo economicus.

The focus of his work is that the homo economicus doesn’t exist and it’s not an adecuate way to analyze the problems that emerge in microeconomy. People don’t work according to logic and don’t follow the most rational way to solve the problem of economics.

The behaviour of the individuals is not ruled by the logical and rational approach that the classical theory of economics used to apply.

Thaler propposed that an interdisciplinal approach would work better and provide more exact, and useful explanations on the real conduct of the individuals.

What I liked most about this book…

It’s quite captivating to see that Richard Thaler recognized the limitation of his knowledge on certain areas and that he either devoted time to introduce himself in the area -psicology- or joined with an expert -for example in the case of his interest in finance-.

Another compelling aspect of this book is to see that he started beign an outsider or a rogue economist, and end up founding a new discipline of economics.

Gang Leader for a Day by Sudhir Venkatesh

I discovered this book of Sudhir Venkatesh through the reference in the book by Stephen J. Dubner and Steven Levitt Freakonomics.

It’s a memoir of the period of time the author were living in the ‘projects’ of  Chicago. While in his studies of sociology he was suggested to attempt a study of the structures of the live in a gang dominated neighbourhood in Chicago.

What’s the “Gang Leader for a day” about

In the years that Sudhir Venkatesh walks the getto, he finds an intrincate economical and social structure. In the “projects” the gang that control the area, the ‘Black Kings’ in this case, is deeply integrated in the comunity.

Venkatesh discovers that the gang not only extract money from the comunity, but it gives back in different ways. He shows that the gang offer security in an area that police rarely visit except after crime has been commited. But the gang leader works as a kind of judge, that rules over disputes in the comunity and enforces the arrangement.

The gang is like a local industry were the youngsters can find a job to get by as “soldiers”. But the gang, we discover, doesn’t hire anyone that appear at the door. Venkatesh shows that the gang is a complex structure, with different managing levels, ruled by the gang leader, that works like a CEO. This illegal enterprise put to work marketing strategies to price and offer the product, has a logistics operation and a financial department.

The members of the gang are subject to a area manager, that’s supervised by the high management. This area manager has to be able to work independently the part of the business he has been assigned. That means not only to price the product accordingly to the market, but to defend against the competence.

Later on, we discover that in fact even the gang leader is part of a bigger structure accross the united states that links all the Black Kings franchises.

Why I find this interesting?

It discovers some of the tricks needed for living between the poorest of the society.

For example, the mothers took the child out to pee in the stairs so that hookers and drug addicts don’t use the stairs for their business. Or that the fathers of the families had to hide when social workers passed by to check, because most mothers say that they are single mothers to enjoy more social benefits.

But the neighbours not only have to hide their income from the State, but from the gang too. All the activities (legal and illegal) are subjected to a tax by the gang.

Overall I find it an interesting book, thought it’s more about the personal experiences rather than on providing the conclusions of his study. That, I expect, will be in his books American Project. The Rise and Fall of a Modern Ghetto (2000) and Off the Books. The Underground Economy of the Urban Poor (2006).

A more recent book, that seem quite interesting is Floating City: A Rogue Sociologist Lost and Found in New York’s Underground Economy. That one talks about his experience with the gangs of New York, were he continued his investigation after leaving Chicago due a offer of a position in the Columbia University.

Superforecasting – The art and science of prediction

A really attractive tittle, and the content is true to it. But unfortunately it doesn’t go beyond explaining an unknown world of superforesters that put their effort in predicting future events.

But…

The most you will take out of this book is to know that there’s an algorithm and an application that collects all the inputs of the predictors and aggregates the results to determine who are the most fitted to the job: the superforecasters.

With this I won’t say that it’s not an interesting reading. But maybe it gets repetitive after the second or third time that repeats the amazing thing that “normal” person can get to be a really efficient predictor of political and economical future events.

Moneyball: The Art of Winning an Unfair Game by Michael Lewis

Moneyball is a gripping account of one baseball season of the Oakland A’s. In 2002 season their manager, Billy Beane, did his own way ignoring all the traditions of the sport.

He took a new approach to the baseball based only in the results of each player. According to his view he didn’t took on account if a player was fat or too slim, if he throw the ball in a funny way or didn’t steal bases. In his approach he made abstraction of these factors considering them just obstacles to a efficient way of developing the sport.

He looked for what made a team to win, not just in a game, but in an entire season. And to do so he discovered that you could ignore all the rhetoric around the sport. Using a statistical approach he identified the hints that made a successful team and remade his own team according to it.

This would help him in other way. The Oakland A’s was one of the poorest teams on the league. But it had to compete, either way, with the ones with bigger budgets like the New York Yankees. So, he needed to be ruthlessly efficient in its player choosing and the way they worked on the field to make the best of the money available. That mean to don’t try something spectacular but risky like trying to steal a base and go for the surest and more profitable like do walks.

It’s remarkable that, like it or not at the beginning, you get engaged in the baseball environment.

This book came to be a film, with Brad Pitt as Billy Bean. In the film you will find a different history. As usual the story is remade to comfort the requirements of the filmed narrative. And some characters are completely fictional, although they get in themselves the spirit of the real ones (even several of them, like in the case of the fictional Peter Brand), as they put it. Apart from it, the film is entertaining.