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Investor Psychology

The Undoing Project: A Friendship That Changed Our Minds

Traditional economic theory holds that people act in their best interests, particularly where money is concerned.

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  • Author: Michael Lewis
  • Publisher: Norton, W.W. & Company, 368 pages

 

Traditional economic theory holds that people act in their best interests, particularly where money is concerned. Israeli psychologists Daniel Kahneman and Amos Tversky challenged this notion with a series of studies that show we’re nowhere near as rational as we think we are, particularly when it comes to understanding risk. (We’re also really bad at math.) They pioneered the field of behavioral economics, even though they weren't economists. And in 2002, Kahneman won the Nobel Prize in Economic Sciences, a first for a non-economist.

This is their story, told by a skilled author. Michael Lewis has a tremendous ability to write fun, readable books about otherwise dry topics (The Big Short, his bestseller about collateralized debt obligations, was lively enough to be made into an Oscar-nominated movie). He doesn’t disappoint with this work, either. His two main characters had sharply different personalities—Kahneman the insecure introvert, Tversky the a self-assured showman. Yet their passion enabled them to produce research that continues to influence economic policies today. They were bound by the shared experience of conducting field research from the back of a jeep during the 1973 Yom Kippur War. Lewis’ description of what it was like to live in Israel during those years is worth the price of the book even if you’re uninterested in behavioral economics.

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