#6 - The Undoing Project by Michael Lewis

During my service in the military, experiencing unpredictable schedules and incessant tiredness, I went on a literary hiatus for about four years. Despite my love for books, I simply wasn’t able to build any reading rhythm, and I’m not the type of person that can read a book without momentum. Unfortunately, I’m also not the type of person that can start a new book without finishing the current one. 

So when you combine the two, you get a stubborn, self-sabotaging soldier that is stuck in between two misplaced dispositions, like Buridan’s donkey, equally thirsty and hungry, stuck between a stack of hay and a pail of water. I really needed a thought-provoking pageturner to ignite the spark and help me rediscover my love for reading. 

Of all the books in this series, The Undoing Project is my favorite. In fact, it’s probably my favorite book of all time, and it was exactly what I needed. The subtitle “A Friendship That Changed Our Minds” is comically prevalent throughout every chapter, as you realize just how much Daniel Kahneman and Amos Tversky have shaped the way we think. 

Michael Lewis’ book follows the incredible stories of two Israeli behavioral psychologists, pioneers in the fields of decision making and judgment. Their work reshaped our understanding of the human cognitive process, challenging the rational actor models and highlighting important cognitive shortcomings that influence our attitudes, beliefs, and actions. The book is a collection of intellectually brilliant ideas that seem so obvious, and as the story progresses, you realize that they’re the reason why. 

Whereas Daniel Kahneman’s bestseller ‘Thinking, Fast and Slow’ is a dryer exploration of the pairs’ work that won them a Nobel Prize in Economics, ‘The Undoing Project’ explores their friendship, backgrounds, and careers to contextualize their groundbreaking ideas. Lewis manages to magically capture some of Twersky’s humorous encounters that he had as a result of being so smart. As they say, “the sooner you figure out that Amos is smarter than you are, the smarter you are.” 

The books are interchangeable on this list in terms of their practicality. However, for this series, I chose ‘The Undoing Project’ over ‘Thinking, Fast and Slow’ as it’s my go-to when I want to reaffirm one of their ideas to help me on a day-to-day basis. 

My Most Important Lesson from this Book?

Before Kahneman and Tversky’s behavioral economics, people considered humans to be perfectly rational decision-makers (homo economicus theory). The Israeli duo examine ‘heuristics’ - cognitive shortcuts that we use to make decisions - to systematically place doubt to this theory. 

The book doesn’t necessarily have one single overarching lesson, rather presents years of behavioral breakthroughs condensed into a sequence of a-ha moments, to capture the role of fallibility in human nature.

The key lesson that I learned from the book is that you can unlock a lot of clarity regarding your clients and employees by exploring behavioral psychology. Concepts from The Undoing Project appear frequently in our daily interactions, and identifying them is the first step to being able to capitalize on them. 

How we’ve used this lesson in our company? 

Perceived Value - Kahneman and Tversky’s key findings suggest that human interpretation of value is subjective rather than objective. Our aim as service providers is to be as valuable as possible to our clients, but sometimes, this has a lot more to do with circumstance and emotion than logic. 

Understanding what your clients find valuable provides significant shortcuts and allows you to frame your services in a form that is more attractive to the unpredictable mind. The most famous case of this is supermarkets pricing their items at 99c instead of a dollar. 

Initially, at MultiplyMii, we charged our clients a single monthly fee that was methodically determined on the back end, but presented to them as a single sum without the associated calculations. Our hypothesis was that clients preferred simplicity over complexity, and would appreciate the peace of mind. 

After a few months, we split-tested to see how clients would react when we charged them the same price, but divided down into employee salary, benefits, admin costs, onboarding costs, and MultiplyMii’s professional fee. Invariably, when surveyed about our services, the clients who received a transparent pricing model deemed our service to be better value for money than those who received simple pricing, even though it was exactly the same price. 

As a result, these clients are more likely to refer their colleagues, expand their team, and less likely to attrit, significantly benefiting our business. These are the type of breakthroughs that are made possible by reading Kahneman and Twersky’s work on behavioral economics. 

Additional Nuggets of Gold

• Gambler’s Fallacy - People seem to believe that if a flipped coin lands on heads a few times in a row that it is more likely to land tails - as if the coin can even things out. 
• Recency Bias - We believe that an outcome that happened recently is more likely/common than it really is.
• Anchoring - Hearing an arbitrary number before being asked to make an estimate of something is used as an anchor to make the estimate, even if it is completely unrelated
• Regret - When people make a decision, they do not seek to maximize utility, rather minimize potential regret.

Who Should Read this Book?

This book is highly entertaining for anyone even mildly interested in human psychology and behavioral economics. You’ll find yourself laughing, having frequent epiphanies, thinking you’re ridiculously unintelligent and entirely random. 

In a business sense, anyone in a marketing or sales position simply must read this book and apply the learnings about heuristics to their day-to-day strategy. 

Favorite Quotes

“He refused to start a paper until he had decided what it would be called. He believed the title forced you to come to grips with what your paper was about.”

“When you are a pessimist and the bad thing happens, you live it twice,' Amos liked to say. 'Once when you worry about it, and the second time when it happens”

“The guy walks around with a banana in his ear. And people are like, ‘Why do you have a banana in your ear?’ He says, ‘To keep the alligators away! There are no alligators! See?”

“The nice thing about things that are urgent,” he liked to say, “is that if you wait long enough they aren’t urgent anymore.”

“Doubt is not a pleasant condition, but certainty is an absurd one.”

“Work, for Amos, had always been play: If it wasn’t fun, he simply didn’t see the point in doing it.”

“There was the time that Amos walked into an Ann Arbor diner and ordered a hamburger with relish.

The waiter said they didn’t have relish. Okay, Amos said, I’ll have tomato. We don’t have tomato, either, said the waiter. “Can you tell me what else you don’t have?” asked Amos.

Series Introduction - How Books Replaced a College Degree

#10 - The Hard Thing About Hard Things - Ben Horowitz

#9 - The Lean Startup - Eric Ries

#8 - Outliers - Malcolm Gladwell

#7 - Zero to One - Peter Theil

#6 - The Undoing Project - Michael Lewis

#5 - Freakonomics - Stephen D Levitt & Stephen J Dubner

#4 - Steve Jobs - Walter Isaacson

#3 - The Sales Acceleration Formula - Mark Roberge

#2 - Multipliers - Liz Wiseman

#1 - Traction - Gino Wickman