Daniel Kahneman, who passed away in March at the age of 90, received the Nobel Prize in Economics despite having never taken an economics course. Nevertheless, his scholarship reshaped and upended the discipline’s fundamental assumptions, laying the groundwork for the emergence of behavioral economics.
CAMBRIDGE – The recent passing of psychologist and Nobel laureate Daniel Kahneman is an apt moment to reflect on his invaluable contribution to the field of behavioral economics. While Alexander Pope’s famous assertion that “to err is human” dates back to 1711, it was the pioneering work of Kahneman and his late co-author and friend Amos Tversky in the 1970s and early 1980s that finally persuaded economists to recognize that people often make mistakes.
When I received a fellowship at Stanford University’s Center for Advanced Study in the Behavioral Sciences (CASBS) four years ago, it was this fundamental breakthrough that motivated me to choose the office – or “study” (to use CASBS terminology) – that Kahneman occupied during his year at the Center in 1977-78. It seemed like the ideal setting to explore Kahneman’s three major economic contributions, which challenged economic theory’s apocryphal “rational actor” by introducing an element of psychological realism into the discipline.
Kahneman’s first major contribution was his and Tversky’s groundbreaking 1974 study on judgment and uncertainty, which introduced the idea that “biases” and “heuristics,” or rules of thumb, influence our decision-making. Instead of thoroughly analyzing each decision, they found, people tend to rely on mental shortcuts. For example, we may rely on stereotypes (known as the “representativeness heuristic”), be overly influenced by recent experiences (the “availability heuristic”), or use the first piece of information we receive as a reference point (the “anchor effect”).
CAMBRIDGE – The recent passing of psychologist and Nobel laureate Daniel Kahneman is an apt moment to reflect on his invaluable contribution to the field of behavioral economics. While Alexander Pope’s famous assertion that “to err is human” dates back to 1711, it was the pioneering work of Kahneman and his late co-author and friend Amos Tversky in the 1970s and early 1980s that finally persuaded economists to recognize that people often make mistakes.
When I received a fellowship at Stanford University’s Center for Advanced Study in the Behavioral Sciences (CASBS) four years ago, it was this fundamental breakthrough that motivated me to choose the office – or “study” (to use CASBS terminology) – that Kahneman occupied during his year at the Center in 1977-78. It seemed like the ideal setting to explore Kahneman’s three major economic contributions, which challenged economic theory’s apocryphal “rational actor” by introducing an element of psychological realism into the discipline.
Kahneman’s first major contribution was his and Tversky’s groundbreaking 1974 study on judgment and uncertainty, which introduced the idea that “biases” and “heuristics,” or rules of thumb, influence our decision-making. Instead of thoroughly analyzing each decision, they found, people tend to rely on mental shortcuts. For example, we may rely on stereotypes (known as the “representativeness heuristic”), be overly influenced by recent experiences (the “availability heuristic”), or use the first piece of information we receive as a reference point (the “anchor effect”).