The paper that resulted five years later, the abovementioned “Prospect Theory,” not only proved that one of the central premises of economics was seriously flawed—the so-called utility theory, “based on elementary rules (axioms) of rationality”—but also spawned a sub-field of economics known as behavioral economics. This field attracted the interest of a Harvard undergraduate named Paul DePodesta. With a mind prepared to view markets and human decision-making as less than perfectly rational, DePodesta had gone into sports management, been hired by Billy Beane to work for the Oakland A’s, and proceeded to exploit the unreason of baseball experts. A dotted line connected the Israeli psychologists to what would become a revolution in sports management. Outside of baseball there had been, for decades, an intellectual revolt, led by a free thinker named Bill James, devoted to creating new baseball knowledge. The movement generated information of value in the market for baseball players, but the information went ignored by baseball insiders. The market’s willful ignorance had a self-reinforcing quality: the longer the information was ignored, the less credible it became. After all, if this stuff had any value, why didn’t baseball insiders pay it any attention? To see the value in what Bill James and his crowd were up to you had first to believe that a market as open and transparent as the market for baseball players could ignore valuable information—that is, that it could be irrational. Kahneman and Tversky had made that belief reasonable.
– Michael Lewis, “The King of Human Error”
Saw this via Rob Neyer. Two thoughts on this:
1. Vanity Fair has a business section? Vanity Fair has sections? I’ve never opened one.
2. I want to read this guy’s book.
That’s all. Michael Lewis writing about baseball and people who see the world for what it is — always an interesting read. Check it out.