The Undoing Project: A Friendship That Changed Our Minds

by Michael Lewis

Danny recalled the moment he and Amos lost faith in decision analysis.

“That was the moment I gave up on decision analysis,” said Danny. “No one ever made a decision because of a number. They need a story.”

The trouble, Danny suspected, was that “the understanding of numbers is so weak that they don’t communicate anything. Everyone feels that those probabilities are not real—that

They’d found decision analysis promising but ultimately futile.

“One day, Amos just said, ‘We’re finished with judgment. Let’s do decision making,’”

The distinction between judgment and decision making appeared as fuzzy as the distinction

Not every judgment is followed by a decision, but every decision implies some judgment.

When choosing between sure things and gambles, people’s desire to avoid loss exceeded their desire to secure gain.

“It reflects a general property of the human organism as a pleasure machine.

Regret had to go, at least as a theory. It might explain why people made seemingly irrational decisions to accept a sure thing over a gamble with a far greater expected value. It could not explain why people facing losses became risk seeking.

people approached risk very differently when it involved losses than when it involved gains.

Now they saw that people reacted differently to different degrees of uncertainty.

They responded to probabilities not just with reason but with emotion.

People’s emotional response to extremely long odds led them to reverse their usual taste for risk, and to become risk seeking when pursuing a long-shot gain and risk avoiding when faced with the extremely remote possibility of loss.

People treated all remote probabilities as if they were possibilities.

To create a theory that would predict what people actually did when faced with uncertainty, you had to “weight” the probabilities, in the way that people did, with emotion.

Their theory explained all sorts of things that expected utility failed to explain. But it implied, as utility theory never had, that it was as easy to get people to take risks as it was to get them to avoid them.

Mostly they had been economists, who directed their attention to the way people made decisions about money. “It is an ecological fact,” wrote Amos and Danny in a draft, “that most decisions in that context (except insurance) involve mainly favorable prospects.” The gambles that economists studied were, like most savings and investment decisions, choices between gains. In the domain of gains, people were indeed risk averse. They took the sure thing over the gamble.

In politics and war, as in fraught human relationships, the choice faced by the decision maker was often between two unpleasant options. “A very different view of man as a decision maker might well have emerged if the outcomes of decisions in the private-personal, political or strategic domains had been as easily measurable as monetary gains and losses,”

“Risk-Value Theory.”

“We’re developing what appears to us to be a rather complete and quite novel account of choice under uncertainty.

A loss, according to the theory, was when a person wound up worse off than his “reference point.”

“In the experiments it’s pretty clear what a loss is,” Arrow said later. “In the real world it’s not so clear.”

Even in straight gambles you could shift a person’s reference point and make a loss seem like a gain, and vice versa. In so doing, you could manipulate the choices people made, simply by the way they were described.

“What constitutes a gain or a loss depends on the representation of the problem and on the context in which it arises,”

Simply by changing the description of a situation, and making a gain seem like a loss, you could cause people to completely flip their attitude toward risk, and turn them from risk avoiding to risk seeking.

People did not choose between things. They chose between descriptions of things.

Thaler began to keep a list. On the list were a lot of irrational things people do that economists claim that they don’t do, because economists presume that people are rational.

“The idea that it could make you better off to reduce your choices—that idea was alien to economics,”

People attached some strange extra value to whatever they happened to own, simply because they owned it, and so proved surprisingly reluctant to part with their possessions, or endowments, even when trading them made economic sense.

Economics was meant to be the study of an aspect of human nature, but it had ceased to pay attention to human nature.

If people could be systematically wrong, their mistakes couldn’t be ignored. The irrational behavior of the few would not be offset by the rational behavior of the many. People could be systematically wrong, and so markets could be systematically wrong, too.

descriptive theory of choice cannot be rejected on the grounds that it predicts ‘irrational behavior’ if the behavior in question is, in fact, observed.”

“It was very difficult to campaign for promotion for people who did their work collaboratively,” said Shore. “Because the system is based on the individual.

“In the beginning we were able to answer a question that had not been asked,”

“We study natural stupidity instead of artificial intelligence.”

Now Danny wanted to explore regret, and other emotions, from the opposite direction. He wanted to study how people undid events that had already happened.

Danny now had an idea that there might be a fourth heuristic—to add to availability, representativeness, and anchoring.

“The simulation heuristic,”

was all about the power of unrealized possibilities to contami...

They based their judgments and decisions in part on these imagined scenarios. And yet not all scenarios were equally easy to imagine; they were constrained, much in the way that people’s minds seemed constrained when they “undid” some tragedy.

Discover the mental rules that the mind obeyed when it undid events after they had occurred and you might find, in the bargain, how it simulated reality before it occurred.

He wanted to investigate how people created alternatives to reality by undoing reality. He wanted, in short, to discover the rules of the imagination.

Evidently there are constraints on the freedom of fantasy.”

Experiences that led to regret and frustration were not always easy to undo. Frustrated people needed to undo some feature of their environment, while regretful people needed to undo their own actions. “The basic rules of undoing, however, apply alike to frustration and regret,” he wrote. “They require a more or less plausible path leading to the alternative state.”

Imagination wasn’t a flight with limitless destinations. It was a tool for making sense of a world of infinite possibilities by reducing them. The imagination obeyed rules: the rules of undoing. One rule was that the more items there were to undo in order to create some alternative reality, the less likely the mind was to undo them.

“The more consequences an event has, the larger the change that is involved in eliminating that event,”

“an event becomes gradually less changeable as it recedes into the past.” With the passage of time, the consequences of any event accumulated, and left more to undo. And the more there is to undo, the less likely the mind is to even try.

This was perhaps one way time heals wounds, by making them f...

Or maybe the problem was how different these new ideas felt from their other work. Their work until then had always started as a challenge to some existing, widely accepted theory. They exposed the flaws in theories of human behavior and created other, more persuasive theories. There was no general theory of the human imagination to disprove. There was nothing to destroy, or really even to push up against.