Daniel Kahneman (1934-2024): The psychologist who upended economics

One of the founding fathers of behavioural economics, Kahneman exposed human biases that affect decision-making and won a Nobel Prize in 2002.

Daniel Kahneman at Princeton University in October 2002. Kahneman, a psychologist, won the Nobel Memorial Prize in Economic Sciences for his insights into how ingrained neurological biases influence decision-making. | Photo Credit: DANIEL HULSHIZER/AP Photo/File

Daniel Kahneman, a psychologist whose work cast doubt on the rationality of decision-making and helped spawn the field of behavioural economics which won him a Nobel Prize, has died. He was 90.

He died on March 27, The Washington Post reported, citing his stepdaughter, Deborah Treisman, the fiction editor for The New Yorker. The details of his death have not been revealed.

Princeton University, where Israeli-American academic Kahneman worked until his death, confirmed his passing in a statement on its website. “Many areas in the social sciences simply have not been the same since he arrived on the scene. He will be greatly missed,” said former colleague and professor Eldar Shafir in a press release.

Kahneman upended assumptions about rationality that had dominated economics for decades. He was able to show the logic behind a number of puzzling behaviours—why people refuse to sell stocks that have lost value, or why they will drive to a distant store to save money on a small item, but not to make the same saving on an expensive one.

Kahneman was “the world’s most influential living psychologist”, Harvard University professor Steven Pinker told The Guardian in 2014. “His work is really monumental in the history of thought.”

Collaboration with Amos Tversky

Working with psychologist Amos Tversky, Kahneman isolated biases that distort decision-making. These include aversion to loss and how the way a question is framed can affect the answer. For example, if a health programme will save 200 lives and result in 400 deaths, whether it is accepted may depend on whether its proponents highlight the lives saved or the lives lost.

Kahneman said that the brain reacts quickly and on the basis of incomplete information, often with unfortunate results. “People are designed to tell the best story possible,” he said in a 2012 interview with the American Psychological Association. “We don’t spend much time saying, ‘Well, there is much we don’t know.’ We make do with what we do know.”

Under the rubric “prospect theory”, Kahneman and Tversky sparked a revolution in psychology and then in economics, which had seldom been considered an experimental science. The field of behavioural economics arose near the end of the 20th century as a group of young economists used their insights to challenge classical notions of “homo economicus”, the rational actor.

‘Cognitive minefield’

In 2011, Kahneman published the bestselling Thinking, Fast and Slow, finding a wide audience for his ideas. The study presented a comprehensive view of the mind as containing two systems, one fast and intuitive, the other slow and more rational. It offered advice for making better decisions, starting with: “Recognise the signs that you are a cognitive minefield.”

Kahneman was born on March 5, 1934, in Tel Aviv, where his mother was visiting relatives. The family lived in France, having emigrated there from Lithuania. His father, a Jewish chemist, was arrested because of his religion during World War II, and then released. After the war, the family moved to Palestine.

President Barack Obama awards Kahneman with the Presidential Medal of Freedom on November 20, 2013, during a ceremony in the East Room of the White House in Washington, DC. | Photo Credit: AP Photo/Evan Vucci, File

He received a bachelor’s degree in psychology from the Hebrew University in Jerusalem in 1954. Later that year, he joined the Israel Defense Forces, where he was assigned to the psychology branch and put in charge of evaluating recruits. The system he developed was used for decades, he wrote in Thinking, Fast and Slow.

Take, for instance, false confidence in predictions. In an excerpt, Kahneman described a “leaderless group” challenge used by the Israeli army’s Psychology Branch to assess future leadership potential. Eight candidates, all unknowns to one another, had to cross a six-foot wall together using only a long log—without touching the wall or the ground with the log or touching the wall themselves.

Observers of the test, including Kahneman himself, confidently identified leaders-in-the-making from these challenges, only to learn later that their assessments bore little relation to how the same soldiers performed at officer training school. The kicker: This fact did not dent the group’s confidence in its own judgments, which seemed intuitively obvious—and yet also continued to fail at predicting leadership potential. “It was the first cognitive illusion I discovered,” Kahneman later wrote. He coined the phrase “the illusion of validity” to describe the phenomenon.

He received a PhD from the University of California at Berkeley in 1961 and returned to the Hebrew University to teach in the psychology department. In 1969, he met Tversky, who became his collaborator for over a decade in his Nobel Prize-winning work. The two worked together so closely that they flipped a coin to determine which of them would be the lead author on their first paper, and thereafter simply alternated that honour for decades. “Amos and I shared the wonder of together owning a goose that could lay golden eggs—a joint mind that was better than our separate minds,” Kahneman wrote. “I have probably shared more than half the laughs of my life with Amos.”

Ultimatum game

Their collaboration produced papers, books, and innovative experiments such as the ultimatum game, in which a person is given money on the condition that they share it with a second person. Typically, the second person will not take less than a 20 per cent or 30 per cent share, even though it would be rational to accept any amount. The close partnership between Kahneman and Tversky became more widely known with the 2016 publication of Michael Lewis’ The Undoing Project.

Kahneman had appointments at the University of British Columbia in Vancouver and Berkeley. In 1993, he moved to Princeton University in New Jersey, where he was a psychology professor and also taught at the Woodrow Wilson School of Public and International Affairs.

In later years he studied happiness—more technically, hedonics: things that make experiences pleasant or unpleasant, and how to measure that. One notable finding was that wealthy people were rarely happier than those with lower incomes, challenging the idea that money buys happiness. 

In 2002, Kahneman shared the Nobel Memorial Prize in Economic Sciences with Vernon Smith, another experimental economist. Kahneman received the prize for these and other contributions that ended up underpinning the discipline now known as behavioural economics. Economists say Tversky would certainly have shared the prize had he not died in 1996. The Nobel is not awarded posthumously.

Kahneman and his first wife, Irah Kahn, had two children: Michael and Lenore. The couple divorced, and he later married psychologist Anne Treisman, who died in 2018.

(with inputs from Bloomberg, AFP, and AP)