The Undoing Project: A Friendship that Changed the World(73)
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In the history of Danny and Amos, there are periods when it is difficult to disentangle their enthusiasm for their ideas from their enthusiasm for each other. The moments before and after the Yom Kippur war appear, in hindsight, less like a natural progression from one idea to the next than two men in love scrambling to find an excuse to be together. They felt they were finished exploring the errors that arose from the rules of thumb people use to evaluate probabilities in any uncertain situation. They’d found decision analysis promising but ultimately futile. They went back and forth on writing a general interest book about the various ways the human mind deals with uncertainty; for some reason, they could never get beyond a sketchy outline and false starts of a few chapters. After the Yom Kippur war—and the ensuing collapse of the public’s faith in the judgment of Israeli government officials—they thought that what they really should do was reform the educational system so that future leaders were taught how to think. “We have attempted to teach people to be aware of the pitfalls and fallacies of their own reasoning,” they wrote, in a passage for the popular book that never came to be. “We have attempted to teach people at various levels in government, army etc. but achieved only limited success.”
Adult minds were too self-deceptive. Children’s minds were a different matter. Danny created a course in judgment for elementary school children, Amos briefly taught a similar class to high school students, and they put together a book proposal. “We found these experiences highly encouraging,” they wrote. If they could teach Israeli kids how to think—how to detect their own seductive but misleading intuition and to correct for it—who knew where it might lead? Perhaps one day those children would grow up to see the wisdom of encouraging Henry Kissinger’s next efforts to make peace between Israel and Syria. But this, too, they never followed through on. They never went broad. It was as if the temptation to address the public interfered with their interest in each other’s minds.
Instead, Amos invited Danny to explore the question that had kept Amos interested in psychology: How did people make decisions? “One day, Amos just said, ‘We’re finished with judgment. Let’s do decision making,’” recalled Danny.
The distinction between judgment and decision making appeared as fuzzy as the distinction between judgment and prediction. But to Amos, as to other mathematical psychologists, they were distinct fields of inquiry. A person making a judgment was assigning odds. How likely is it that that guy will be a good NBA player? How risky is that triple-A-rated subprime mortgage–backed CDO? Is the shadow on the X-ray cancer? Not every judgment is followed by a decision, but every decision implies some judgment. The field of decision making explored what people did after they had formed some judgment—after they knew the odds, or thought they knew the odds, or perhaps had judged the odds unknowable. Do I pick that player? Do I buy that CDO? Surgery or chemotherapy? It sought to understand how people acted when faced with risky options.
Students of decision making had more or less given up on real-world investigations and reduced the field to the study of hypothetical gambles, made by subjects in a lab, in which the odds were explicitly stated. Hypothetical gambles played the same role in the study of decision making that the fruit fly played in the study of genetics. They served as proxies for phenomena impossible to isolate in the real world. To introduce Danny to his field—Danny knew nothing about it—Amos gave him an undergraduate textbook on mathematical psychology that he had written with his teacher Clyde Coombs and another Coombs student, Robyn Dawes, the researcher who had confidently and incorrectly guessed “Computer scientist!” when Danny handed him the Tom W. sketch in Oregon. Then he directed Danny to a very long chapter called “Individual Decision Making.”
The history of decision theory—the textbook explained to Danny—began in the early eighteenth century, with dice-rolling French noblemen asking court mathematicians to help them figure out how to gamble. The expected value of a gamble was the sum of its outcomes, each weighted by the probability of its occurring. If someone offers you a coin flip, and you win $100 if the coin lands on heads but lose $50 if it lands on tails, the expected value is $100 × 0.5 + (-$50) × 0.5, or $25. If you follow the rule that you take any bet with a positive expected value, you take the bet. But anyone with eyes could see that people, when they made bets, didn’t always act as if they were seeking to maximize their expected value. Gamblers accepted bets with negative expected values; if they didn’t, casinos wouldn’t exist. And people bought insurance, paying premiums that exceeded their expected losses; if they didn’t, insurance companies would have no viable business. Any theory pretending to explain how a rational person should take risks must at least take into account the common human desire to buy insurance, and other cases in which people systematically failed to maximize expected value.
The major theory of decision making, Amos’s textbook explained, had been published in the 1730s by a Swiss mathematician named Daniel Bernoulli. Bernoulli sought to account a bit better than simple calculations of expected value for how people actually behaved. “Let us suppose a pauper happens to acquire a lottery ticket by which he may with equal probability win either nothing or 20,000 ducats,” he wrote, back when a ducat was a ducat. “Will he have to evaluate the worth of the ticket as 10,000 ducats, or would he be acting foolishly if he sold it for 9,000 ducats?” To explain why a pauper would prefer 9,000 ducats to a 50-50 chance to win 20,000, Bernoulli resorted to sleight of hand. People didn’t maximize value, he said; they maximized “utility.”