On March 27, one of the pioneers of psychology and economics research, Daniel Kahneman, passed away. Kahneman was a psychologist who spent a large part of his career at Princeton University. He did some of his best known work with Amos Tversky, a mathematical psychologist who passed away in 1996.
No stranger to fame
Kahneman and Tversky made substantial contributions to the field of judgement and decision-making, which deals with how human beings make choices in different situations. They published a series of pioneering research papers in the 1980s that integrated insights from psychology and economics to better understand human behaviour at large.
Together, they form the bedrock of the contemporary field of behavioural economics, despite explicitly never having had the intention for their work to be part of economics.
Kahneman was also not a stranger to fame and attention outside of academia. His 2011 book ‘Thinking, Fast and Slow’ is among the best-selling books in psychology and business and his partnership with Tversky was famously the subject of Michael Lewis’ 2016 book ‘The Undoing Project’.
But before embarking on his unspoken mission to change the face of psychology and economics, Kahneman’s work was concerned with attention and perception, which are the core cognitive faculties that often precede action, or for that matter inaction.
Attention and decision-making
His first book, ‘Attention and Effort’ (1973), summarised the then state-of-the-art literature on divided attention, which is the bane of multi-tasking; focused attention, i.e. what moves in and out of an individual’s awareness; and selective attention. He also co-authored some other papers with Anne Triesman, a leading cognitive psychologist and his wife, on the topics of attention, memory, recall, and visual perception. Triesman passed away in 2018.
His book ‘Judgement Under Uncertainty’ (1982) cemented the connections between Kahneman’s early work in mental effort and the then emerging area of decision-making. Their original 1974 paper, published in the general-interest journal Science, has nearly 50,000 citations according to Google scholar, making it one of the most influential papers in psychology.
For example, one of the major postulates of the duo’s prospect theory deals with loss aversion. They hypothesised that individuals are more sensitive to loss than an equivalent amount of gain, and that in general losses loom larger on an individual’s mind. They were able to prove this by running laboratory experiments in which they compared outcomes framed as gains and losses.
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. For example, if someone found an unclaimed Rs-500 note on the ground versus if they suddenly realised a Rs-500 note was missing from their wallet, loss aversion contended that the person would experience the loss more strongly than the gain.
Limits on loss aversion
Kahneman and Tversky’s experiments, however, didn’t explicitly delve into the context in which loss aversion manifests in the human psyche. For example, they did not test whether loss aversion is sensitive to the stakes of a decision (e.g. a choice such as gaining or losing a high-valued stock or asset).
In later studies (Zeif and Yechiam 2022), other psychologists found loss aversion actually only showed up when people were dealing with very large losses, those worth more than around $40 (Rs 3,300). Loss aversion was also found to be somewhat context-specific. One 2019 study (Mrkva et al.) found it was more common in decisions related to automobile purchases and household financial decisions.
Nonetheless, when he won the economics Nobel Prize in 2002 with experimental economist Vernon L. Smith, it was a formal recognition of the role psychological insights, as Kahneman and his collaborators had inferred them, played in economics. Although the Nobel Prize has never been awarded posthumously, Kahneman has said his half of the prize was shared with Tversky, to honour their joint work.
Measuring happiness
Kahneman also made substantial contributions to the study of happiness and well-being later. His work focused on measuring happiness using multiple methods. One, called the day reconstruction method (DRM), 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. An important study by Anna Alexandrova in 2005 suggested such an approach only accounted for a part of subjective well-being, not for happiness as an experience and an attitude. Kahneman’s work also identified how high income could impact life satisfaction but not really happiness.
Rethinking thinking
Kahneman’s legacy is multifold. Among his most influential works is the dichotomy between System 1 and System 2 thinking. The former is quick, intuitive, and nearly automatic whereas the latter is slow, deliberative, and cautious. Psychologists have studied and verified the two processes extensively.
But then, like some of his other work, including loss aversion, experts realised Kahneman didn’t have the full picture: they found System 1/2 may not apply across cultures, especially in non-WEIRD (Western, educated, industrialised, rich, and democratic) contexts.
Even so, psychology, behavioural economics and science, public policy, and many other fields owe a great debt to Kahneman’s work. His work couldn’t be generalised to more than a few settings or contexts, but that shouldn’t spell the end of Kahneman’s mission to rethink how people think. Much like other foundational work in the behavioural sciences, it has instead given us a better idea of where to begin.
Hansika Kapoor and Anirudh Tagat
First featured in: The Hindu (3/04/2024)
