Tuesday, November 15, 2016

The Undoing Project by Micheal Lewis

Before the war, Danny and Amos had shared the hope that their work on human judgment would find its way into high-stakes real-world decision-making. In this new field, called decision analysis, they could transform high-stakes decision-making into a sort of engineering problem. They would design decision-making systems. Experts on decision-making would sit with leaders in business, the military, and government and help them to frame every decision explicitly as a gamble, to calculate the odds of this or that happening, and to assign values to every possible outcome.

If we seed the hurricane, there is a 50 percent chance we lower itsAdapted from The Undoing Project: A Friendship That Changed Our Minds, by Michael Lewis wind speed but a 5 percent chance that we lull people who really should evacuate into a false sense of security: What do we do?

In the bargain, the decision analysts would remind important decision-makers that their gut feelings had mysterious powers to steer them wrong. “The general change in our culture toward numerical formulations will give room for explicit reference to uncertainty,” Amos wrote in notes to himself for a talk of his own. Both Amos and Danny thought that voters and shareholders and all the other people who lived with the consequences of high-level decisions might come to develop a better understanding of the nature of decision-making. They would learn to evaluate a decision not by its outcomes—whether it turned out to be right or wrong—but by the process that led to it. The job of the decision-maker wasn’t to be right but to figure out the odds in any decision and play them well. As Danny told audiences in Israel, what was needed was a “transformation of cultural attitudes to uncertainty and to risk.”

Exactly how some decision analyst would persuade any business, military, or political leader to allow him to edit his tis thinking was unclear. How would you even persuade some important decision-maker to assign numbers to his “utilities” (that is, personal value as opposed to objective value)? Important people didn’t want their gut feelings pinned down, even by themselves. And that was the rub.

Later, Danny recalled the moment he and Amos lost faith in decision analysis. The failure of Israeli intelligence to anticipate the Yom Kippur attack led to an upheaval in the Israeli government and a subsequent brief period of introspection. They’d won the war, but the outcome felt like a loss. The Egyptians, who had suffered even greater losses, were celebrating in the streets as if they had won, while everyone in Israel was trying to figure out what had gone wrong. Before the war, the Israeli intelligence unit had insisted, despite a lot of evidence to the contrary, that Egypt would never attack Israel as long as Israel maintained air superiority. Israel had maintained air superiority, and yet Egypt had attacked. After the war, with the view that perhaps it could do better, Israel’s Ministry of Foreign Affairs set up its own intelligence unit. The man in charge of it, Zvi Lanir, sought Danny’s help. In the end, Danny and Lanir conducted an elaborate exercise in decision analysis. Its basic idea was to introduce a new rigor in dealing with questions of national security. “We started with the idea that we should get rid of the usual intelligence report,” said Danny. “Intelligence reports are in the form of essays. And essays have the characteristic that they can be understood any way you damn well please.” In place of the essay, Danny wanted to give Israel’s leaders probabilities, in numerical form.


Danny and Lanir then presented their probabilities to Israel’s Foreign Ministry. (“The National Gamble,” they called their report.) Foreign Minister Allon looked at the numbers and said, “Ten percent increase? That is a small difference.”

Danny was stunned: if a 10 percent increase in the chances of full-scale war with Syria wasn’t enough to interest Allon in Kissinger’s peace process, how much would it take to turn his head? That number represented the best estimate of the odds. Apparently, the foreign minister didn’t want to rely on the best estimates. He preferred his own internal probability calculator: his gut. “That was the moment I gave up on decision analysis,” said Danny. “No one ever made a decision because of a number. They need a story.” As Danny and Lanir wrote, decades later, after the U.S. Central Intelligence Agency asked them to describe their experience in decision analysis, the Israeli Foreign Ministry was “indifferent to the specific probabilities.” What was the point of laying out the odds of a gamble if the person taking it either didn’t believe the numbers or didn’t want to know them? The trouble, Danny suspected, was that “the understanding of numbers is so weak that they don’t communicate anything. Everyone feels that those probabilities are not real—that they are just something on somebody’s mind.”

Excerpts from The Undoing Project: A Friendship That Changed Our Minds, by Michael Lewis

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