In Memoriam - Daniel Kahneman - A Founding Father of Behavioural Economics

Daniel Kahneman, the Israeli-American Nobel-Prize winning psychologist and economist, has passed away at the age of 90. His work has transformed our understanding of human behaviour and, from a personal perspective, his research infused and invigorated my own teaching for the best part of two decades. How exciting it has been to see so many thousands of Economics students engaging in behavioural economics and making the subject seem more relevant to them. In this blog, I am curating some responses to Daniel Kahneman's passing and to some useful resources. May he rest in peace.

Here are some of his key contributions:

Kahneman’s acclaimed work cast doubt on the rationality of decision-making and was instrumental in the rise of behavioural economics

1. Prospect Theory: Developed in collaboration with Amos Tversky, prospect theory explains how people make decisions under uncertainty. It describes how individuals weigh potential gains and losses, and how they evaluate risky choices. Kahneman and Tversky found that people tend to be risk-averse when facing potential gains but risk-seeking when facing potential losses.
2. Heuristics and biases: Kahneman and Tversky also identified various heuristics (mental shortcuts) and cognitive biases that influence decision-making, such as anchoring, availability, and representativeness. These concepts have been widely applied in economics and other social sciences.
3. Framing effects: Kahneman demonstrated how the way choices are presented (or "framed") can significantly affect people's decisions, highlighting the importance of context in decision-making.
4. Loss aversion: Kahneman's research showed that people tend to feel the pain of losses more strongly than the pleasure of gains, a phenomenon known as loss aversion. This insight has had a profound impact on economic theory and decision-making in various domains.
5. The dual-process model of cognition: Kahneman proposed that human cognition involves two systems: System 1, which is fast, intuitive, and emotional, and System 2, which is slower, more deliberate, and logical. This model has been influential in understanding human decision-making processes.

Kahneman's groundbreaking research earned him numerous accolades, including the Nobel Memorial Prize in Economic Sciences in 2002. His work shaped our understanding of decision-making, cognitive biases, and the interplay between psychology and economics.