The Undoing Project: A Friendship that Changed the World(83)
When he called his observations to the attention of his fellow economists, they weren’t interested. “The first thing they’d always say was, ‘Of course we know people make mistakes every now and then, but the mistakes are random, and they’ll wash out in the market,’” recalled Thaler. Thaler no longer believed that. His list, and the impulse to create it, did not win him friends in the University of Rochester’s Department of Economics, or its business school. “He had enemies and he’s not awfully good at mollifying enemies,” said Tom Russell, a fellow economics professor at Rochester. “If you tell an academic to his face, ‘You’ve just said something really stupid’—okay, the big ones might say, ‘How is it stupid?,’ but the little ones just store it.”
The University of Rochester denied Thaler tenure. His future was hazy when, in 1976, he attended a conference on how to value a human life. When he heard of Thaler’s curious interests, another conference attendee suggested that Thaler read Kahneman and Tversky’s article in Science that sought to explain why people did stupid things. Thaler went home and found “Judgment Under Uncertainty” in an old copy of Science. He couldn’t believe his own excitement as he read it. He went and pulled all the other articles in other publications written by Kahneman and Tversky. “I have vivid memories of running from one article to another,” says Thaler. “As if I have discovered the secret pot of gold. For a while I wasn’t sure why I was so excited. Then I realized: They had one idea. Which was systematic bias.” 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.
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. The logic in the paper was awesome, overpowering. What soon would be known as prospect theory explained most of the items on Thaler’s list, in a language economists could understand. There were items on Thaler’s list that prospect theory did not address—self-control was the big one—but that didn’t matter. The paper blew a hole in economic theory for psychology to enter. “That really is the magic of the paper,” said Thaler, “showing you could do it. Math with psychology in it. That paper was what an economist would call proof of existence. It captured so much of human nature.”
Till then, Thaler had felt his place in economics to be as uncertain as his ability to copy Tom Sawyer. “If they didn’t exist, I don’t know if I would have stayed in the field,” he said. After finishing the collected works of the Israeli psychologists, he had a new feeling. “The way it feels to me,” he said, “is that there were certain ideas that I was put on this earth to think. And now I can think them.” He would begin, he decided, by turning his list into an article. But even before he did, he found a mailing address for the Department of Psychology at Hebrew University and wrote a letter to Amos Tversky.
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It was almost always to Amos that the economists wrote. They understood him. Amos’s insistently logical mind was much like their own but somehow better: They could see his genius. To most economists, Danny’s mind was a mystery. Richard Zeckhauser, an economist at Harvard who became friends with Amos, spoke for his entire field when he said, “My impression of the way they worked on a paper is that they walked around and let Danny do a variety of things. ‘Guess what, Amos, I went to buy a car and I offered 38 grand and the salesman said 38.9 and I said yes! Did I do a good job?’ And Amos would say, ‘Let’s write that up.’” The economists’ view of the collaboration was that Amos Tversky had set out, like an anthropologist, to study an alien tribe of beings less rational than himself, and his tribe was Danny. “I share your feeling that such behavior is, in some sense, unwise or erroneous, but this does not mean that it does not occur,” Amos wrote, to an American economist who complained about the description of human nature implied by “Value Theory.” “A theory of vision cannot be faulted for predicting optical illusions. Similarly, a descriptive theory of choice cannot be rejected on the grounds that it predicts ‘irrational behavior’ if the behavior in question is, in fact, observed.”
Danny, for his part, claimed that it wasn’t until 1976 that he woke up to the effects their theory might have on a field he knew nothing about. His awakening came when Amos handed him a paper written by an economist. The paper opened, “The agent of economic theory is rational, selfish, and his tastes do not change.” The economists at Hebrew University were in the building next door, but Danny hadn’t paid any attention to their assumptions about human nature. “To me, the idea that they really believed in it—that this is really their worldview—was incredible,” he said. “It’s the worldview in which if people tip in a restaurant to which they will never return it counts as a puzzle.” It was a worldview that took it as given that the only way to change people’s behavior was to change their financial incentives. The idea of it struck him as so bizarre that he could scarcely bring himself to engage with it directly. To Danny the whole idea of proving that people weren’t rational felt a bit like proving that people didn’t have fur. Obviously people were not rational, in any meaningful sense of that term.