Daniel Kahneman is a Nobel Prize-winning psychologist who helped develop the ground-breaking idea of "prospect theory". This theory effectively developed a brand new field of economics that helps to explain how people make judgments and decision-making under uncertainty.
Here we explore the man's troubled early life and track his rise to becoming a world-renowned academic.
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Who is Daniel Kahneman?
Daniel Kahneman is a Nobel Prize-winning Israeli-American psychologist who is best known for his work in psychology and economics. He is primarily celebrated for his work on cognitive bias, prospect theory, and behavioral economics.
He was born in Tel Aviv, Israel in March of 1934.
After completing his studies in psychology at the Hebrew University of Jerusalem in 1954, he would later complete his Ph.D. at the University of California in 1961.
He later returned to his alma mater to work as a lecturer and later a professor until 1978. Afterward, he took up a teaching post at the University of British Columbia in Vancouver as well as returning to teach at the University of California between the mid-1980s and mid-1990s.
In 1993, Kahneman became the Eugene Higgins Professor of Psychology at Princeton University. He was also promoted to the position of professor of public affairs at Princeton's Woodrow Wilson School of Public and International Affairs.
Kahneman would eventually retire as an emeritus professor of both posts in 2007.
Kahneman has also served on the editorial boards of several academic journals including, but not limited to:-
- The Journal of Behavioral Decision Making and;
- The Journal of Risk and Uncertainty.
In 2011, Kahneman was awarded the Talcott Parsons Prize from the American Academy of Arts and Sciences for his contributions to the social sciences. He also published his best selling, and world-renowned book, "Thinking, Fast and Slow", the same year.
Kahneman was awarded the U.S. Presidential Medal of Freedom in 2013.
What did Daniel Kahneman do?
Kahneman's most important work began in the 1960s. At this time he was attempting to figure out how people make economic decisions from a psychological perspective.
Drawing on cognitive psychology, Kahneman managed to show the mental processes that appeared to be used to form judgments and make choices. Teaming up with Amos Tversky, the pair formulated a new branch of economics called prospect theory.
"Prospect theory is a behavioral model that shows how people decide between alternatives that involve risk and uncertainty (e.g. % likelihood of gains or losses). It demonstrates that people think in terms of expected utility relative to a reference point (e.g. current wealth) rather than absolute outcomes.
Prospect theory was developed by framing risky choices and indicates that people are loss-averse; since individuals dislike losses more than equivalent gains, they are more willing to take risks to avoid a loss." - behaviouraleconomics.com.
To this end, their work in this area was published in their seminal work "Prospect Theory: An Analysis of Decisions Under Risk” in 1979.
Prior to the creation of this theory, economists believed that people's decision-making processes were determined by their expected gains from each possible future scenario. This, they believed, was further reinforced by the perceived probability of that scenario occurring.
However, this had a fatal flaw. Any 'errors' made in judgment by applying more weight to one scenario than another would result in a person's decisions being drastically different from those predicted by traditional economic models.
To attempt to address this, Kahneman’s research took a more hands-on approach, and using surveys and experiments, he showed that his subjects were incapable of analyzing complex decision situations. This, he noted, was especially true when the future consequences had a lot of uncertainty.
Instead, Daniel discovered, people tend to rely on heuristic shortcuts, or rules of thumb to make such decisions. And, in fact, few people evaluated the underlying probability at all.
What does "What you see is all there is" mean?
"What you see is all there is", or WYSIATI is a mnemonic to help describe cognitive bias as first described in Kahneman's book "Thinking, Fast and Slow".
It was devised to help readers understand how irrational we can be when making decisions and how little it actually matters to us.
"WYSIATI refers to the fact that we normally make our judgments and impressions according to the information we have available. In general, we don’t spend too much time thinking “well, there are still many things I don’t know”. Simply, we assert what we do know." - facilethings.com.
Why did Daniel Kahneman win the Nobel Prize?
As we have already touched upon, Kahneman was jointly-awarded the Nobel Prize for Economics in 2002.
According to the Nobel Prize Foundation, this was for "having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty."
He shared the prize with Vernon L. Smith.
7 interesting things about Daniel Kahneman
1. Kahneman was born on the 5th of March, 1934 in Tel Aviv while his mother was on a trip to see her relatives' in Israel. His parents were actually domiciled in Paris at the time and Daniel spent his first few years in the French capital.
Kahneman's parents were originally Lithuanian Jews who emigrated to France in the early-1920s.
2. The National Socialist invasion and occupation of France in 1940 was a difficult time for Kahneman's family. His father was arrested and scheduled for extermination but was later released. As a result, the family constantly moved around to avoid Nazi attention and eventually took shelter in Vichy France.
This would take its toll, and his father would succumb to diabetes in 1944.
3. After the conclusion of the Second World War, Kahneman's family was relocated to British Mandatory Palestine in 1948 just prior to the official foundation of the State of Israel.
4. Kahneman had a close-shave of his own during the German occupation of Paris when walking alone home after the 6 pm Jewish curfew. He passed an S.S. soldier, but because he had hidden his mandated Star of David badge, the soldier embraced him, spoke passionately to him in German (while showing a photo of his son), and gave Daniel some money.
"I went home more certain than ever that my mother was right: people were endlessly complicated and interesting," Daniel later recalled.
5. In 1954, Kahneman was drafted as 2nd lieutenant in the Israeli Defence Force and worked in the psychology department. He would complete his two-year term and be awarded a fellowship to study a Ph.D. abroad.
6. Kahneman moved to the U.S. in 1958 to take advantage of his fellowship offer at the University of California. He completed his Ph.D. in 1961.
7. In 2002, Kahneman was jointly-awarded the Nobel Prize for Economics for his integration of psychological research into economic science.