The Prospect Theory Paper That Wins the Nobel Prize in Economics

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David Frum: Two Israeli intellectuals who were at odds with their own field. They really are just asking what's going on inside the mind and trying to find scientifically respectable ways to investigate it, he says. When they're doing this work, they stumble upon some insights that become a Nobel Prize-winning paper called prospect theory. He says these people blew a hole in the side of economics and shoved some psychology into it.

Michael Lewis is one of the most successful non-fiction authors alive. He has been acclaimed as a genius by Malcolm Gladwell and as the best current writer in America by Tom Wolfe. In a series of titles that have sold 9 million copies worldwide, he has lifted the lid on the biggest stories of our times, enthralling readers with his knack for humanising complex subjects and giving them the page-turning urgency of the best thrillers. Liar's Poker is the cult classic that defined Wall Street during the 1980s; Moneyball was made into a film with Brad Pitt; Boomerang was a breakneck tour of Europe’s post-crunch economy; and The Big Short was made into a major Oscar-winning film starring Christian Bale, Ryan Gosling and Steve Carell. In November 2017 Lewis came to the Intelligence Squared stage, where he was joined by Stephanie Flanders, former economics editor at the BBC. Discussing the themes of his latest book, The Undoing Project: A Friendship that Changed the World, they explored the extraordinary story of the relationship between Daniel Kahneman and Amos Tversky – a collaboration which created the field of behavioural economics. This is the theory which shows that human beings are not the rational creatures we imagined ourselves to be, and has revolutionised everything from big data to medicine, from how we are governed to how we spend, from high finance to football. It won Kahneman the Nobel Prize in economics in 2002 – the first time the award had gone to a psychologist.

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