Do It! Check Out the Undoing Project
Whether you are new to Behavioral Economics (BE) or have been studying it for quite some time, The Undoing Project by Michael Lewis is a worthwhile read. This personal story of the groundbreaking collaboration between Amos Tversky and Daniel Kahneman that led to much of our BE thinking today sheds new light on how so much of our formerly “rational” economic theory has been upended.
The examples reviewed will likely be familiar to those who have spent time in the marketing research or economics fields, but Lewis has carefully chosen them in such a way that someone new to the subject can understand both the theoretical underpinnings and the implications of BE. And for those who will gloss over the examples as already-known territory, Lewis’ recounting of the pair’s early days in the psychology department at Hebrew University in the late 60s and their work throughout the 70s is charming. Lewis obviously delights in describing their first meeting and challenging of minds when Kahneman invites Tversky to speak at his seminar. Following the talk Kahneman tells him “Brilliant talk, but I don’t believe a word of it.” Thus the spark of collaboration began.
The book also suggests, as psychologists apply decision making constructs to economic theory, that cross-disciplinary approaches are important to create new thinking. Reading this book serves as an important reminder of the heuristics and shortcuts we all use in our own decision making, and the dangers of being blinded to our own biases in terms of framing and representation. Echoing his description of the Oakland A’s success in challenging accepted wisdom in Moneyball, Lewis here starts out with performance prediction for NBA draftees, based in part on psychological insights, and shows that just maybe the Houston Rockets have proven to be kindred heirs to baseball’s A’s.
While serious at times considering the central role these psychological (and economic) insights played in Israeli military training (how can training and feedback improve pilot performance?), the book is also occasionally funny, largely due to some anecdotes about Tversky. He was famously brilliant and not apt to suffer fools gladly. For instance, Lewis conveys that Tversky once heard an economist talk about how so-and-so was stupid and so-and-so was a fool. Tversky quipped, “All your economic models are premised on people being smart and rational, and yet all the people you know are idiots.”
That thought is, of course, central to behavioral economics– that we often make what appear to be “irrational” decisions and gains and losses are not inverse values to one another.
Lewis entertainingly draws a line from Tversky’s and Kahneman’s pioneering work to present day BE practitioners such as Thaler and Sunstein, authors of Nudge. The implications for public policy and private choice behavior are well presented – such as the new USDA food “plate” that replaced the food pyramid in 2011 and making automatic enrollment in company 401k plans the default choice rather than an “opt in” choice.
For marketing researchers in particular, Lewis’ book encourages us to always consider System 1 thinking in our research. But as good researchers, we should not dogmatically apply BE to every business decision at hand– some issues benefit from a research solution incorporating BE and some don’t.
At MMR, we strive for continuous learning in this area and do not introduce BE applications and measures just for the sake of doing so. We have seen choice models and concept testing work perfectly well without a BE component and be borne out in marketing implementation. Conversely, we have seen how adding BE components to brand image/equity in particular can deliver a greater understanding of brand positioning and loyalty.
To learn more about Behavioral Economics and the history of the critical partnership between Tversky and Kahneman that drove so much of BE theory and implication, include The Undoing Project on your reading “to do” list – it might also help you set aside your own biases when conducting research. And always take great care in crafting your questions and stimuli – like good writing, good research always benefits from rounds of editing.
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