Context
Daniel Kahneman, one of the pioneers of psychology and economics research recently passed away.
Daniel Kahneman
- About Kahneman: Daniel Kahneman was a psychologist who did some of his best known work with Amos Tversky, a mathematical psychologist who passed away in 1996.
- Research Papers: They published a series of pioneering research papers in the 1980s that integrated insights from psychology and economics to better understand human behaviour.
- Behavioural economics: Together, they form the bedrock of the contemporary field of behavioural economics.
Behavioural economics: It combines elements of economics and psychology to understand how and why people behave the way they do in the real world.
- It differs from neoclassical economics, which assumes that most people have well-defined preferences and make well-informed, self-interested decisions based on those preferences.
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- Legacy of Kahneman: Among his most influential works is the dichotomy between System 1 and System 2 thinking.
- System 1: It is quick, intuitive, and nearly automatic
- System 2: It is slow, deliberative, and cautious.
Daniel Kahneman: His Major Contributions
- Contribution to Judgement and Decision-making: Daniel Kahneman and Amos Tversky made substantial contributions to the field of judgement and decision-making, which deals with how human beings make choices in different situations.
- ‘Attention and Effort’(1973): His first book, summarised contemporary literature on divided attention, a significant challenge in multitasking.
- He delved into focused attention, examining the dynamics of what captures an individual’s awareness, as well as selective attention.
- He collaborated with Anne Triesman, a prominent cognitive psychologist and his spouse, on various papers concerning attention, memory, recall, and visual perception.
- Triesman passed away in 2018.
- Judgement Under Uncertainty’(1982): This book cemented the connections between Kahneman’s early work in mental effort and the then emerging area of decision-making.
- Loss aversion Theory: Daniel Kahneman and Tversky’s experiments hypothesised that individuals are more sensitive to loss than an equivalent amount of gain, and losses have in general, greater psychological impact on individuals.
- The results changed the world of decision-making, which previously held that individuals only looked at outcomes in an absolute way, not as changes in outcomes.
Reconstruction method: It asked participants to think about their previous day and break it up into episodes.
- For each episode, a participant had to calculate the happiness they experienced as the difference between a rating of “happy” (worth +6 points) and other ratings for “tense”, “depressed” or “angry” (each worth -6 points).
- This measure as well as some others drew from Kahneman’s theory of hedonic psychology, which suggests that people value experiences, not just outcomes.
- Such advances in measurements were important because scholars were beginning to realise they couldn’t measure individual well-being in economic terms alone.
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- Study of happiness and well-being: He made substantial contributions to the study of happiness and well-being later. His work focused on measuring happiness using multiple methods such as the reconstruction method.
- Book ‘Thinking, Fast and Slow’: It is among the best-selling books in psychology and business.
- Nobel Prize for Economics: He won the economics Nobel Prize in 2002 with experimental economist Vernon L. Smith.
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April 3, 2024