November 15, 2011


The King of Human Error: Billy Beane's sports-management revolution, chronicled by the author in Moneyball, was made possible by Israeli psychologists Daniel Kahneman and Amos Tversky. At 77, with his own new book, Thinking, Fast and Slow, the Nobel Prize-winning Kahneman reveals the built-in kinks in human reasoning--and he's Exhibit A. (Michael Lewis, December 2011, Vanity Fair)

Their work intersected with economics in the early 1970s when Tversky handed Kahneman a paper on the psychological assumptions of economic theory. As Kahneman recalled:

I can still recite its first sentence: "The agent of economic theory is rational, selfish, and his tastes do not change."

I was astonished. My economic colleagues worked in the building next door, but I had not appreciated the profound difference between our intellectual worlds. To a psychologist, it is self-evident that people are neither fully rational nor completely selfish, and that their tastes are anything but stable.

The paper that resulted five years later, the abovementioned "Prospect Theory," not only proved that one of the central premises of economics was seriously flawed--the so-called utility theory, "based on elementary rules (axioms) of rationality"--but also spawned a sub-field of economics known as behavioral economics. This field attracted the interest of a Harvard undergraduate named Paul DePodesta. With a mind prepared to view markets and human decision-making as less than perfectly rational, DePodesta had gone into sports management, been hired by Billy Beane to work for the Oakland A's, and proceeded to exploit the unreason of baseball experts. A dotted line connected the Israeli psychologists to what would become a revolution in sports management. Outside of baseball there had been, for decades, an intellectual revolt, led by a free thinker named Bill James, devoted to creating new baseball knowledge. The movement generated information of value in the market for baseball players, but the information went ignored by baseball insiders. The market's willful ignorance had a self-reinforcing quality: the longer the information was ignored, the less credible it became. After all, if this stuff had any value, why didn't baseball insiders pay it any attention? To see the value in what Bill James and his crowd were up to you had first to believe that a market as open and transparent as the market for baseball players could ignore valuable information--that is, that it could be irrational. Kahneman and Tversky had made that belief reasonable.

Kahneman is a professor emeritus at Princeton, but, as it turned out, he lived during the summers with his wife, Anne Treisman, another well-known psychologist, near my house in Berkeley. Four years ago I summoned the nerve to write him an e-mail, and he invited me for a safe date, a cup of coffee. I found his house on the top of our hill. He opened the door wearing hiking shorts and a shirt not tucked into them, we shook hands, and I said something along the lines of what an honor it was to meet him. He just looked at me a little strangely and said, "Ah, you mean the Nobel. This Nobel Prize stuff, don't take it too seriously." He then plopped down into a lounge chair in his living room and began to explain to me, albeit indirectly, why he took such an interest in human unreason. His laptop rested on a footstool and a great many papers and books lay scattered around him. He was then 73 years old. It was tempting to describe him as spry, but the truth is that he felt more alert and alive than most 20-year-olds.

He was working on a book, he said. It would be both intellectual memoir and an attempt to teach people how to think. As he was the world's leading authority on his subject, and a lot of people would pay hard cash to learn how to think, this sounded promising enough to me. He disagreed: he was certain his book would end in miserable failure. He wasn't even sure that he should be writing a book, and it was probably just a vanity project for a washed-up old man, an unfinished task he would use to convince himself that he still had something to do, right up until the moment he died. Twenty minutes into meeting the world's most distinguished living psychologist I found myself in the strange position of trying to buck up his spirits. But there was no point: his spirits did not want bucking up. Having spent maybe 15 minutes discussing just how bad his book was going to be, we moved on to a more depressing subject. He was working, equally unhappily, on a paper about human intuition--when people should trust their gut and when they should not--with a fellow scholar of human decision-making named Gary Klein. Klein, as it happened, was the leader of a school of thought that stressed the power of human intuition, and disagreed with the work of Kahneman and Tversky. Kahneman said that he did this as often as he could: seek out people who had attacked or criticized him and persuade them to collaborate with him. He not only tortured himself, in other words, but invited his enemies to help him to do it. "Most people after they win the Nobel Prize just want to go play golf," said Eldar Shafir, a professor of psychology at Princeton and a disciple of Amos Tversky's. "Danny's busy trying to disprove his own theories that led to the prize. It's beautiful, really."

Posted by at November 15, 2011 5:50 AM

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