The Undoing Project: A Friendship That Changed Our Minds

by Michael Lewis

But to Danny the reason seemed obvious: regret. In the first situation people sensed that they would look back on their decision, if it turned out badly, and feel they had screwed up; in the second situation, not so much. Anyone who turned down a certain gift of $5 million would experience far more regret, if he wound up with nothing, than a person who turned down a gamble in which he stood a slight chance of winning $5 million. If people mostly chose option 1, it was because they sensed the special pain they would experience if they chose option 2 and won nothing. Avoiding that pain became a line item on the inner calculation of their expected utility. Regret was the ham in the back of the deli that caused people to switch from turkey to roast beef.

Happy people did not dwell on some imagined unhappiness the way unhappy people imagined what they might have done differently so that they might be happy. People did not seek to avoid other emotions with the same energy they sought to avoid regret. When they made decisions, people did not seek to maximize utility. They sought to minimize regret. As the starting point for a new theory, it sounded promising. When people asked Amos how he made the big decisions in his life, he often told them that his strategy was to imagine what he would come to regret, after he had chosen some option, and to choose the option that would make him feel the least regret.

Once, at a dinner with Amos and their wives, Danny went on at length and with great certainty about his premonition that his son, then still a boy, would one day join the Israeli military; that war would break out; and that his son would be killed. “What were the odds of all that happening?” said Barbara Tversky. “Minuscule. But I couldn’t talk him out of it. It was so unpleasant talking with him about these small probabilities that I just gave up.” It was as if Danny thought that by anticipating his feelings he might dull the pain they would inevitably bring.

Weirdly—but as Danny and Amos had suspected—the further the winning number was from the number on a person’s lottery ticket, the less regret they felt. “In defiance of logic, there is a definite sense that one comes closer to winning the lottery when one’s ticket number is similar to the number that won,” Danny wrote in a memo to Amos, summarizing their data. In another memo, he added that “the general point is that the same state of affairs (objectively) can be experienced with very different degrees of misery,” depending on how easy it is to imagine that things might have turned out differently.

Amos and Danny had a thought: People regretted what they had done, and what they wished they hadn’t done, far more than what they had not done and perhaps should have. “The pain that is experienced when the loss is caused by an act that modified the status quo is significantly greater than the pain that is experienced when the decision led to the retention of the status quo,” Danny wrote in a memo to Amos. “When one fails to take action that could have avoided a disaster, one does not accept responsibility for the occurrence of the disaster.”

They set out to build a theory of regret. They were uncovering, or thought they were uncovering, what amounted to the rules of regret. One rule was that the emotion was closely linked to the feeling of “coming close” and failing. The nearer you came to achieving a thing, the greater the regret you experienced if you failed to achieve it.† A second rule: Regret was closely linked to feelings of responsibility. The more control you felt you had over the outcome of a gamble, the greater the regret you experienced if the gamble turned out badly. People anticipated regret in Allais’s problem not from the failure to win a gamble but from the decision to forgo a certain pile of money.

They were “risk averse.” But what was this thing that everyone had been calling “risk aversion?” It amounted to a fee that people paid, willingly, to avoid regret: a regret premium.

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

For most people, the happiness involved in receiving a desirable object is smaller than the unhappiness involved in losing the same object.”

As they sorted through the implications of their new discovery, one thing was instantly clear: 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. Anyone who wanted to argue that regret explains why people prefer a certain $500 to an equal chance to get $0 and $1,000 would never be able to explain why, if you simply subtracted $1,000 from all the numbers and turned the sure thing into a $500 loss, people would prefer the gamble.

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.

The Asian Disease Problem was actually two problems, which they gave, separately, to two different groups of subjects innocent of the power of framing. The first group got this problem: Problem 1. Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimate of the consequence of the programs is as follows: If Program A is adopted, 200 people will be saved. If Program B is adopted, there is a 1/3 probability that 600 people will be saved, and a 2/3 probability that no people will be saved. Which of the two programs would you favor? An overwhelming majority chose Program A, and saved 200 lives with certainty. The second group got the same setup but with a choice between two other programs: If Program C is adopted, 400 people will die. If Program D is adopted, there is a 1/3 probability that nobody will die and a 2/3 probability that 600 people will die. When the choice was framed this way, an overwhelmingly majority chose Program D. The two problems were identical, but, in the first case, when the choice was framed as a gain, the subjects elected to save 200 people for sure (which meant that 400 people would die for sure, though the subjects weren’t thinking of it that way). In the second case, with the choice framed as a loss, they did the reverse, and ran the risk that they’d kill everyone. People did not cho...

Thaler got someone to send him a draft of “Value Theory.” He instantly saw it for what it was, a truck packed with psychology that might be driven into inner sanctums of economics and exploded.

Amos, to be Amos, needed opposition. Without it he had nothing to triumph over. And Amos, like his homeland, lived in a state of readiness for battle. “Amos didn’t have Danny’s feeling that we should all think together and work together,” said Walter Mischel, who had been the chair of Stanford’s Psychology Department when it hired Amos. “He thought, ‘Fuck You.’”

“Amos changed,” said Danny. “When I gave him an idea he would look for what was good in it. For what was right with it. That, for me, was the happiness in the collaboration. He understood me better than I understood myself. He stopped doing that.”

“Prospect Theory,” scarcely cited in the first decade after its publication, would become, by 2010, the second most cited paper in all of economics. “People tried to ignore it,” said Thaler. “Old economists never change their minds.” By 2016 every tenth paper published in economics would have a behavioral angle to it, which is to say it had at least a whisper of the work of Danny and Amos.

A paper Thaler had titled in his mind “Stupid Shit That People Do” he’d finally published as “Toward a Positive Theory of Consumer Choice.”

In May Amos gave his final lecture at Stanford, about the many statistical fallacies in professional basketball. His former graduate student and collaborator Craig Fox asked Amos if he would like for it to be videotaped. “He thought about it and said, ‘No, I don’t think so,’” recalled Fox. With one exception, Amos didn’t change his routine, or even his interactions with those around him, in any way. The exception was that, for the first time, he spoke of his experience of war. For instance, he told Varda Liberman the story of how he had saved the life of the soldier who had fainted on top of the Bangalore mine. “He said this one event in a way kind of shaped his entire life,” said Liberman. “He said, ‘Once I did that, I felt obliged to keep this image of hero. I did that, now I have to live up to it.’”

Most people with whom Amos interacted never even suspected he was ill. To a graduate student who asked if he would supervise his dissertation, Amos simply said, “I’m going to be very busy the next few years,” and sent him on his way.

But because he was Danny, he made a rule about his fantasy life: He never fantasized about something that might happen. He established this private rule for his imagination once he realized that, after he had fantasized about something that might actually happen, he lost his drive to make it happen. His fantasies were so vivid that “it was as if you actually had it,” and if you actually had it, why would you bother to work hard to get it? He’d never end the war that killed his father, so what did it matter if he created an elaborate scenario in which he won it single-handedly?