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Analysis

Unravelling stories behind human bias

by Rachel Pine

Unravelling stories behind human bias


Star American author Michael Lewis’ latest book, The Undoing Project, is timely and perfectly on message. The story of psychologists Daniel Kahneman and Amos Tversky, who studied the inherent fallibility of human decision-making, coincides with a period in history that will possibly be remembered as the era in which large swathes of voters lost their collective minds.

With plenty of behind-the-scenes moments, The Undoing Project is at once a historical volume, a primer on behavioural economics, and an epic ‘bromance’. It combines the best features of the popular economics genre with Lewis’ characteristic galloping style.

There have been few odder couples than Kahneman and Tversky, who first met in 1960s Israel. Kahneman had arrived from France in 1944, having spent time in hiding on various farms, latterly in a chicken coop with his entire family during the second world war. He was as moody and melancholic as Tversky was fizzy and charismatic.

Tversky, a decorated paratrooper in the Israeli army, enjoyed being the centre of attention. Kahneman was far more reticent, wanting nothing more than to be alone with his studies, using psychology as a means to solve problems that would be critical to the future of Israel. Included in his research were studies that led to advances in understanding how to judge which army recruits would become successful officers, members of elite squads or, perhaps, wind up in jail.

Understanding intuitive judgements
Kahneman and Tversky were each drawn to the study of psychology, then a nascent field in Israel, in order to understand how people make intuitive judgements. Their work was fuelled by a fascination with human bias, leading to discoveries that were often as shocking as they were prescient.

What they learned turned prevailing wisdom on its head. For example, statisticians are incapable of removing bias from their decisions. And a computer programme can predict the probable malignancy of a tumour with greater accuracy than a roomful of esteemed oncologists. Just about any situation that can be simply modelled will be judged more accurately by a machine than by a human.

Kahneman and Tversky’s first paper, ‘Belief in the law of small numbers’, brought to light a trap which was ensnaring even trained statisticians, psychologists and other experts – that a conclusion can be drawn from even a small sample. Disproving the idea that any sample of a given population was representative of the entire population buried numerous popular social and psychological theories. But it was the failure of scientists and mathematicians to discern this bias that drew Kahneman and Tversky’s attention.

‘If people do not use statistical reasoning, even when faced with a problem that could be solved with statistical reasoning, what kind of reasoning do they use?’ they wondered. Among the pair’s conclusions recounted in Lewis’ book, the most pertinent is that no one ever makes a decision solely because of a number – they need a story.

Legacy of a lifelong partnership
Lewis does a masterly job of telling this tale against the backdrop of Middle East politics, academia and, most of all, Kahneman and Tversky’s friendship. The latter was all-encompassing and often took primary importance, even above their relationships with their spouses and children. Unlike many partnerships where individuals jealously guard their contributions, Kahneman and Tversky were truly two halves of a whole, often unable to recall which of them had contributed a specific idea to their joint work. Their collaboration continued even after their friendship faded, publishing together with minimal contact from the mid 1980s until Tversky’s death in 1996.

Kahneman and Tversky’s work led to the development of behavioural economics, and garnered a Nobel prize for Kahneman in 2002, although it came too late for Tversky. There is almost no field that has been untouched by their research. The fields of philosophy, statistics, political science, law and medicine have all benefited from their work.

Behavioural economics gained additional momentum a few years later when Barack Obama, in his first term as US president, convened the Social and Behavioral Sciences Team, nicknamed the ‘nudge unit’, to apply behavioural economics theories to help improve federal programmes. This has included encouraging federal workers to save for retirement, increasing health insurance enrolment and boosting university enrolment among underprivileged students. Obama later used an executive order to institute the SBST as a permanent part of the White House. We can only guess what will become of the nudge unit under the Trump administration. ▪

Rachel Pine is Senior Manager, North America and Caribbean & Pensions at OMFIF.

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