Michael Lewis is the author of books on Wall Street: Flash Boys, The Big Short, and Moneyball. He recently published The Undoing Project: a friendship that changed our minds. The book recounts the extremely productive intellectual relationship between two Israeli psychologists, Amos Tverski, and Daniel Kanneman.
The essence of the Tverski/Kanneman approach was to look at the way the human mind has characteristic ways of miscalculating probabilities, such as risks, chances and expected outcomes.
When I first read Daniel Kanneman’s Thinking Fast, Thinking Slow, I confess that I was irked, and that in some sense I thought the author was just being a smart-ass. I gather from reading Micheal Lewis that my reaction is quite common, because the results are so devastating to one’s belief that, more or less, we humans get it right. We do, and we do not. Kanneman and Tverski show how we do not correctly appreciate risks, in quite exact and well described ways. By so doing they launched a direct attack, via statistical results from psychology, on the notion of the economically rational man. More than this, their thinking about our error-pronedness has had an effect on how hospitals treat patients, even so far as why cell phone use while driving has been banned, and why governments now enroll you automatically for benefits rather than expect you to tick a box to express your assent.
Oban once remarked that “economics was a peculiarly anorexic discipline”, because of the extreme narrowness of assumptions about human behaviour and the excessive mathematization of the issues with which it deals. The mathematization allows for precision, but the assumptions that allow the mathematical approach drastically limit the range of thequestions that may be asked. Nowadays the works of Tversky/Kanneman are among the most cited works in economics papers.
The Lewis book examines the remarkable collaboration between two utterly different psychological types as represented in Kanneman and Tversky. It also covers the effects of their thinking on other domains. I recommend it highly.
For a more complete discussion of the Tversky/Kanneman approach to thinking, you will well served by Kanneman’s Thinking Fast, Thinking Slow.