Michael Lewis (Moneyball, The Big Short) recently profiled Daniel Kahneman in the December issue of Vanity Fair. For those of you who are not familiar with Daniel Kahneman, he is professor emeritus of psychology and public affairs at Princeton’s Woodrow Wilson School and, along with his colleague Amos Tversky, the father of behavioral economics. He won the Nobel Prize in Economics in 2002 for his work on prospect theory, which shows how people value gains and losses differently. To explain the impact of Kahneman and Tversky’s contribution to economics, let me use a quote from Lewis which does a nice job of summing it all up:
“In a stroke they provided a framework to understand all sorts of human behavior that economists, athletic coaches, and other “experts” have trouble explaining: why people who play the lottery also buy insurance; why people are less likely to sell their houses and their stock portfolios in falling markets; why, most sensationally, professional golfers become better putters when they’re trying to save par (avoid losing a stroke) than when they’re trying to make a birdie (and gain a stroke).”
The article gives a great overview of Kahneman’s work and how he thinks about human behavior. From a personal perspective, Kahneman’s work on behavioral economics provides Wherewithal with the inspiration to provide solutions that address our sometimes irrational tendencies and face them head on instead of ignoring that they exist. Enjoy the read!
The King of Human Error, Vanity Fair