Remember Moneyball? You know, the movie with Brad Pitt and Jonah Hill that came out a few years ago? If you haven't seen it or don't remember what movie I'm referring to, the film was centered on the 2002 Oakland A's baseball team and their General Manager (now Executive Vice President) Billy Beane, who used an evidence-based, statistical approach to recruit undervalued baseball players and take the financially strapped team on a stellar winning streak.
What does Moneyball have to do with behavioral economics?
Well, the film's based on a book written by American Author Michael Lewis, which was published in 2003. Unbeknownst to Lewis, behavioral economics was at the core of Billy Beane analytical method, showing that statistics can do a lot better than intuitions. According to The New Yorker, Lewis read The New Yorker's book review, began to take an interest in the whole topic of human rationality, and, improbably, decided to write a book about Kahneman and Tversky. Lewis kindly even gave them credit for setting him down that path.
Unexpectedly, writing Moneyball eventually led Lewis to write his latest publication, The Undoing Project: A Friendship That Changed Our Minds, the story behind the two Israeli psychologists who eventually shifted the world view from the economic theory of homo economicus to "homer economicus", aka what Dan Ariely describes as the human tendency to be predictably irrational.
I recently came across an interview featuring Lewis in which he dives into the process of writing the story of the relationship between Kahneman and Tversky. Some of the key take-aways from the interview include:
- Moneyball was about misjudging assets (in this case, baseball players). Players that looked like they were "players" or good-looking players had a tendency to be overvalued.
- "What people do together can get very interesting if the right people collaborate".
- Kahneman was "immune to social embarrassment".
- No one could see how the relationship between Kahneman and Tversky worked - "Amos had no time for difficult people. He thought life was pretty simple and he thought people were basically pretty simple and the complexity they added was mostly bullshit. But every now and then, a complicated person entered his life, because this person was complicated in an interesting way."
- Kahneman brought an artistic imagination to the work of the two scientists.
- What Amos did was take the ideas of Kahneman and try to turn it into math and logical to frame them into a way to publish them in a academic papers.
- The backdrop of Israel, being part of the Israeli army and what they saw in the war played into their insight into Prospect Theory.
- As a young Jewish boy, Kahneman and his family hid from the Nazi's in France, having decided not to go back to Israel due to his father misjudgment of the intention of the Germans.
- The unpublished study on "rules of human imagination" - People have a tendency to create alternative realities, involving "if only" statements.
- People don't decide between things. People decide between description of things. If you change the description, you change the decision.
- The ultimate point of Kahneman and Tversky's work was that "fallibility is human".
- While you can't see your mistakes, sometimes other people can. Does that mean we're condemned to a cycle where we need someone else to check our biases? Yes.
I quite enjoyed the interview and would suggest it to anyone looking for a little context behind what led to the findings of behavioral economics. Here's another book to add to my summer reading list.