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.