Daniel Kahneman

Daniel Kahneman (/ˈkɑːnəmən/; Hebrew: דניאל כהנמן‎; born March 5, 1934) is an Israeli-American psychologist and economist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences (shared with Vernon L. Smith). His empirical findings challenge the assumption of human rationality prevailing in modern economic theory.

With Amos Tversky and others, Kahneman established a cognitive basis for common human errors that arise from heuristics and biases (Kahneman & Tversky, 1973; Kahneman, Slovic & Tversky, 1982; Tversky & Kahneman, 1974), and developed prospect theory (Kahneman & Tversky, 1979).

In 2011, he was named by Foreign Policy magazine to its list of top global thinkers.[2] In the same year, his book Thinking, Fast and Slow, which summarizes much of his research, was published and became a best seller.[3]

He is professor emeritus of psychology and public affairs at Princeton University's Woodrow Wilson School. Kahneman is a founding partner of TGG Group, a business and philanthropy consulting company. He was married to Royal Society Fellow Anne Treisman, who died on February 9, 2018.[4]

In 2015, The Economist listed him as the seventh most influential economist in the world.[5]

Daniel Kahneman
Daniel KAHNEMAN
Kahneman In 2004
BornMarch 5, 1934 (age 84)[1]
ResidenceUnited States
NationalityUnited States, Israel
EducationHebrew University (BA)
University of California, Berkeley (MA, PhD)
Known forCognitive biases
Behavioral economics
Prospect theory
Loss aversion
Spouse(s)Anne Treisman (1978–2018, her death)
AwardsAPA Lifetime Achievement Award (2007)
Nobel Memorial Prize in Economic Sciences (2002)
Tufts University Leontief Prize (2010)
APS Distinguished Scientific Contribution Award (1982)
University of Louisville Grawemeyer Award (2003)
Scientific career
FieldsPsychology, economics
InstitutionsPrinceton University 1993–
University of California, Berkeley 1986–93
University of British Columbia 1978–86
Center for Advanced Study in the Behavioral Sciences 1972–73
Hebrew University of Jerusalem 1961–77
ThesisAn analytical model of the semantic differential (1961)
Doctoral advisorSusan M. Ervin-Tripp
Doctoral studentsAvishai Henik
Baruch Fischhoff
Ziv Carmon
Websiteprinceton.edu/~kahneman/

Biography

Daniel Kahneman was born in Tel Aviv, Mandatory Palestine in 1934, where his mother, Rachel[6] was visiting relatives. He spent his childhood years in Paris, France, where his parents had emigrated from Lithuania in the early 1920s. Kahneman and his family were in Paris when it was occupied by Nazi Germany in 1940. His father, Efrayim[7] was picked up in the first major round-up of French Jews, but he was released after six weeks due to the intervention of his employer, Eugène Schueller.[8]:52 The family was on the run for the remainder of the war, and survived, except for the death of Kahneman's father due to diabetes in 1944. Kahneman and his family then moved to British Mandatory Palestine in 1948, just before the creation of the state of Israel (Kahneman, 2003).

Kahneman has written of his experience in Nazi-occupied France, explaining in part why he entered the field of psychology:

It must have been late 1941 or early 1942. Jews were required to wear the Star of David and to obey a 6 p.m. curfew. I had gone to play with a Christian friend and had stayed too late. I turned my brown sweater inside out to walk the few blocks home. As I was walking down an empty street, I saw a German soldier approaching. He was wearing the black uniform that I had been told to fear more than others – the one worn by specially recruited SS soldiers. As I came closer to him, trying to walk fast, I noticed that he was looking at me intently. Then he beckoned me over, picked me up, and hugged me. I was terrified that he would notice the star inside my sweater. He was speaking to me with great emotion, in German. When he put me down, he opened his wallet, showed me a picture of a boy, and gave me some money. I went home more certain than ever that my mother was right: people were endlessly complicated and interesting. (Kahneman, 2003, p. 417)

Kahneman received his bachelor of science degree with a major in psychology, and a minor in mathematics from the Hebrew University of Jerusalem in 1954. After earning his undergraduate degree, he served in the psychology department of the Israeli Defense Forces. One of his responsibilities was to evaluate candidates for officer's training school, and to develop tests and measures for this purpose. In 1958, he went to the United States to study for his PhD in Psychology from the University of California, Berkeley. His 1961 dissertation, advised by Susan Ervin, examined relations between adjectives in the semantic differential and "allowed me to engage in two of my favorite pursuits: the analysis of complex correlational structures and FORTRAN programming," as he would later recall.[4]

Academic career

Cognitive psychology

Kahneman began his academic career as a lecturer in psychology at the Hebrew University of Jerusalem in 1961.[4] He was promoted to senior lecturer in 1966. His early work focused on visual perception and attention. For example, his first publication in the prestigious journal Science was entitled "Pupil Diameter and Load on Memory" (Kahneman & Beatty, 1966). During this period, Kahneman was a visiting scientist at the University of Michigan (1965–66) and the Applied Psychology Research Unit in Cambridge (1968/1969, summers). He was a fellow at the Center for Cognitive Studies, and a lecturer in cognitive psychology at Harvard University in 1966/1967.

Judgment and decision-making

This period marks the beginning of Kahneman's lengthy collaboration with Amos Tversky. Together, Kahneman and Tversky published a series of seminal articles in the general field of judgment and decision-making, culminating in the publication of their prospect theory in 1979 (Kahneman & Tversky, 1979). Kahneman was ultimately awarded the Nobel Memorial Prize in Economics in 2002 for his work on prospect theory. Following this, the pair teamed with Paul Slovic to edit a compilation entitled "Judgement Under Uncertainty: Heuristics and Biases" (1982) that proved to be an important summary of their work and of other recent advances that had influenced their thinking.

In his Nobel biography, Kahneman states that his collaboration with Tversky began after Kahneman had invited Tversky to give a guest lecture to one of Kahneman's seminars at Hebrew University in 1968 or 1969.[4] Their first jointly written paper, "Belief in the Law of Small Numbers," was published in 1971 (Tversky & Kahneman, 1971). They published seven articles in peer-reviewed journals in the years 1971–1979. Aside from "Prospect Theory," the most important of these articles was "Judgment Under Uncertainty: Heuristics and Biases" (Tversky & Kahneman, 1974), which was published in the prestigious journal Science and introduced the notion of anchoring.

Kahneman left Hebrew University in 1978 to take a position at the University of British Columbia.[4]

Behavioral economics

Kahneman and Tversky were both fellows at the Center for Advanced Study in the Behavioral Sciences at Stanford University in the academic year 1977–1978. A young economist named Richard Thaler was a visiting professor at the Stanford branch of the National Bureau of Economic Research during that same year. According to Kahneman, "[Thaler and I] soon became friends, and have ever since had a considerable influence on each other's thinking" (Kahneman, 2003, p. 437). Building on prospect theory and Kahneman and Tversky's body of work, Thaler published "Toward a Positive Theory of Consumer Choice" in 1980, a paper which Kahneman has called "the founding text in behavioral economics" (Kahneman, 2003, p. 438).

Kahneman and Tversky became heavily involved in the development of this new approach to economic theory, and their involvement in this movement had the effect of reducing the intensity and exclusivity of their earlier period of joint collaboration. They would continue to publish together until the end of Tversky's life, but the period when Kahneman published almost exclusively with Tversky ended in 1983, when he published two papers with Anne Treisman, his wife since 1978.

Hedonic psychology

In the 1990s, Kahneman's research focus began to gradually shift in emphasis towards the field of "hedonic psychology". This subfield is closely related to the positive psychology movement, which was steadily gaining in popularity at the time. According to Kahneman and colleagues,

Hedonic psychology...is the study of what makes experiences and life pleasant or unpleasant. It is concerned with feelings of pleasure and pain, of interest and boredom, of joy and sorrow, and of satisfaction and dissatisfaction. It is also concerned with the whole range of circumstances, from the biological to the societal, that occasion suffering and enjoyment.[9]

It is difficult to determine precisely when Kahneman's research began to focus on hedonics, although it likely stemmed from his work on the economic notion of utility. After publishing multiple articles and chapters in all but one of the years spanning the period 1979–1986 (for a total of 23 published works in 8 years), Kahneman published exactly one chapter during the years 1987–1989. After this hiatus, articles on utility and the psychology of utility began to appear (e.g., Kahneman & Snell, 1990; Kahneman & Thaler, 1991; Kahneman & Varey, 1991). In 1992, Varey and Kahneman introduced the method of evaluating moments and episodes as a way to capture "experiences extended across time". While Kahneman continued to study decision-making (e.g., Kahneman, 1992, 1994; Kahneman & Lovallo, 1993), hedonic psychology was the focus of an increasing number of publications (e.g., Fredrickson & Kahneman, 1993; Kahneman, Fredrickson, Schreiber & Redelemeier, 1993; Kahneman, Wakker & Sarin, 1997; Redelmeier & Kahneman, 1996), culminating in a volume co-edited with Ed Diener and Norbert Schwarz, scholars of affect and well-being.[10]

With David Schkade, Kahneman developed the notion of the focusing illusion (Kahneman & Schkade, 1998; Kahneman, Krueger, Schkade, Schwarz & Stone, 2006) to explain in part the mistakes people make when estimating the effects of different scenarios on their future happiness (also known as affective forecasting, which has been studied extensively by Daniel Gilbert). The "illusion" occurs when people consider the impact of one specific factor on their overall happiness, they tend to greatly exaggerate the importance of that factor, while overlooking the numerous other factors that would in most cases have a greater impact. A good example is provided by Kahneman and Schkade's 1998 paper "Does living in California make people happy? A focusing illusion in judgments of life satisfaction". In that paper, students in the Midwest and in California reported similar levels of life satisfaction, but the Midwesterners thought their Californian peers would be happier. The only distinguishing information the Midwestern students had when making these judgments was the fact that their hypothetical peers lived in California. Thus, they "focused" on this distinction, thereby overestimating the effect of the weather in California on its residents' satisfaction with life.

Life satisfaction

Kahneman has said that in reality humans pursue life satisfaction, which “is connected to a large degree to social yardsticks–achieving goals, meeting expectations.”[11][12]

Teaching

Kahneman is a senior scholar and faculty member emeritus at Princeton University's Department of Psychology and Woodrow Wilson School of Public and International Affairs. He is also a fellow at Hebrew University and a Gallup Senior Scientist.[13]

Personal life

Kahneman was married to the cognitive psychologist Anne Treisman from 1978 until her death in 2018. As of 2014, they lived part-time in Berkeley, California.[14] Kahneman has been described as a Jewish atheist.[15]

Awards and recognition

Notable contributions

Published works

The following is a partial list of publications.

Books

  • Kahneman, D. (1973) Attention and Effort. Englewood Cliffs, NJ: Prentice-Hall.
  • Kahneman, D., Slovic, P., & Tversky, A. (1982) Judgment Under Uncertainty: Heuristics and Biases. New York: Cambridge University Press.
  • Kahneman, D., Diener, E., & Schwarz, N. (Eds.). (1999). Well-being: The Foundations of Hedonic Psychology. New York: Russell Sage Foundation.
  • Kahneman, D., Tversky, A. (Eds.) (2000) Choices, Values and Frames. New York: Cambridge University Press.
  • Kahneman, D. (2011) Thinking, Fast and Slow, Farrar, Straus and Giroux, ISBN 978-0374275631. (Reviewed by Freeman Dyson in New York Review of Books, 22 December 2011, pp. 40–44.)

Interviews

  • "Can We Trust Our Intuitions?" in Alex Voorhoeve Conversations on Ethics. Oxford University Press, 2009. ISBN 978-0-19-921537-9 (Discusses Kahneman's views about the reliability of moral intuitions [case judgments] and the relevance of his work for the search for "reflective equilibrium" in moral philosophy.)

Radio interviews

Online interviews

  • Thinking about Thinking – An Interview with Daniel Kahneman (2011) [1]

Television interviews

Bibliography

See also

References

  1. ^ Daniel Kahneman - Facts
  2. ^ "The FP Top 100 Global Thinkers. 71 Daniel Kahneman". foreignpolicy.com. November 28, 2011. Retrieved November 3, 2012.
  3. ^ "The New York Times Best Seller List – December 25, 2011" (PDF). www.hawes.com. Retrieved 2014-08-17.
  4. ^ a b c d e Kahneman, Daniel (2002). "Autobiography". nobelprize.org. Retrieved May 1, 2017.
  5. ^ "Influential economists – That ranking". economist.com. The Economist. January 2, 2015. Retrieved April 4, 2015.
  6. ^ "Rachel Kahneman". GENi.
  7. ^ "Efrayim Kahneman". GENi.
  8. ^ Lewis, Michael (2017) [1st pub. in the USA by W.W. Norton & Company, Inc, 2016]. The Undoing Project: A Friendship That Changed Our Minds. New York: Penguin Random House. ISBN 978-0-14-198304-2.
  9. ^ Kahneman, Diener & Schwarz 1999, p. ix.
  10. ^ Kahneman, Diener & Schwarz 1999.
  11. ^ https://www.haaretz.com/israel-news/.premium.MAGAZINE-why-nobel-prize-winner-daniel-kahneman-gave-up-on-happiness-1.6528513
  12. ^ https://qz.com/1503207/a-nobel-prize-winning-psychologist-defines-happiness-versus-satisfaction/
  13. ^ "Daniel Kahneman, Ph.D." The Gallup Organization. 2012. Archived from the original on November 3, 2012. Retrieved November 3, 2012.
  14. ^ "How You Really Make Decisions". Horizon. Series 2013-2014. Episode 9. 2014-02-24. Event occurs at 00:20:13. BBC. BBC Two. Retrieved 2014-02-26. I live in Berkeley during summers and I walk a lot.
  15. ^ Engber, Daniel (December 21, 2016). "How a Pioneer in the Science of Mistakes Ended Up Mistaken". Slate Magazine. It’s a portrait of besotted opposites: Both Kahneman and Tversky were brilliant scientists, and atheist Israeli Jews...
  16. ^ Daniel Kahneman
  17. ^ "2003- Daniel Kahneman and Amos Tversky". Archived from the original on July 23, 2015.
  18. ^ Cynkar, Amy (April 4, 2007). "A towering figure". Monitor on Psychology. American Psychological Association. Retrieved November 26, 2008. Daniel Kahneman will receive APA’s lifetime contributions award at convention for his work challenging human rationality and decision-making.
  19. ^ "Daniel Kahneman". Erasmus University Rotterdam. Archived from the original on January 7, 2013. Retrieved November 3, 2012.
  20. ^ "The 50 Most Influential People in Global Finance". Bloomberg L.P. Archived from the original on July 16, 2012. Retrieved November 3, 2012.
  21. ^ "Talcott Parsons Prize Ceremony and Address: Two Systems in the Mind". American Academy of Arts and Sciences. November 9, 2011. Retrieved November 3, 2012.
  22. ^ "Alex Shakar, Stephen King win Times Book Prizes". LA Times. Tribune Company. April 20, 2012. Retrieved November 3, 2012.
  23. ^ "And the Winners Are …". Keck Futures Initiative. National Academy of Sciences. October 12, 2012. Retrieved June 24, 2013. An outstanding and accessible book that brings to the public key scientific insights about how we think and make decisions.
  24. ^ "His Excellency Dr. Daniel Kahneman". www.racef.es. June 14, 2012. Retrieved November 2, 2012.
  25. ^ "President Obama Names Presidential Medal of Freedom Recipients". Office of the Press Secretary, The White House. August 8, 2013. Retrieved August 8, 2013.
  26. ^ McGill to award 16 honorary degrees : McGill Reporter

Further reading

External links

Awards
Preceded by
George A. Akerlof
A. Michael Spence
Joseph E. Stiglitz
Laureate of the Nobel Memorial Prize in Economics
2002
Served alongside: Vernon L. Smith
Succeeded by
Robert F. Engle III
Clive W.J. Granger
Amos Tversky

Amos Nathan Tversky (Hebrew: עמוס טברסקי‎; March 16, 1937 – June 2, 1996) was a cognitive and mathematical psychologist, a student of cognitive science, a collaborator of Daniel Kahneman, and a figure in the discovery of systematic human cognitive bias and handling of risk.

Much of his early work concerned the foundations of measurement. He was co-author of a three-volume treatise, Foundations of Measurement (recently reprinted). His early work with Kahneman focused on the psychology of prediction and probability judgment; later they worked together to develop prospect theory, which aims to explain irrational human economic choices and is considered one of the seminal works of behavioral economics. Six years after Tversky's death, Kahneman received the 2002 Nobel Prize in Economics for the work he did in collaboration with Amos Tversky. (The prize is not awarded posthumously.) Kahneman told The New York Times in an interview soon after receiving the honor: "I feel it is a joint prize. We were twinned for more than a decade."

Tversky also collaborated with many leading researchers including Thomas Gilovich, Itamar Simonson, Paul Slovic and Richard Thaler. A Review of General Psychology survey, published in 2002, ranked Tversky as the 93rd most cited psychologist of the 20th century, tied with Edwin Boring, John Dewey, and Wilhelm Wundt.

Anecdotal value

In communication studies, science communication, psycholinguistics and choice theory, anecdotal value refers to the primarily social and political value of an anecdote or anecdotal evidence in promoting understanding of a social, cultural, or economic phenomenon. While anecdotal evidence is typically unscientific, in the last several decades the evaluation of anecdotes has received sustained academic scrutiny from economists and scholars such as Felix Salmon S. G. Checkland (on David Ricardo), Steven Novella, R. Charleton, Hollis Robbins, Kwamena Kwansah-Aidoo, and others. These academics seek to quantify the value of the use of c awareness of a disease. More recently, economists studying choice models have begun assessing anecdotal value in the context of framing; Daniel Kahneman and Amos Tversky suggest that choice models may be contingent on stories or anecdotes that frame or influence choice. As an example, consider Joseph Stalin's apocryphal quote: The death of one man is a tragedy, the death of millions is a statistic.

Cumulative prospect theory

Cumulative prospect theory (CPT) is a model for descriptive decisions under risk and uncertainty which was introduced by Amos Tversky and Daniel Kahneman in 1992 (Tversky, Kahneman, 1992). It is a further development and variant of prospect theory. The difference between this version and the original version of prospect theory is that weighting is applied to the cumulative probability distribution function, as in rank-dependent expected utility theory but not applied to the probabilities of individual outcomes. In 2002, Daniel Kahneman received the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for his contributions to behavioral economics, in particular the development of Cumulative Prospect Theory (CPT).

Disposition effect

The disposition effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to sell assets that have increased in value, while keeping assets that have dropped in value.

Hersh Shefrin and Meir Statman identified and named the effect in their 1985 paper, which found that people dislike losing significantly more than they enjoy winning. The disposition effect has been described as "[o]ne of the most robust facts about the trading of individual investors" because investors will hold stocks that have lost value yet sell stocks that have gained value."In 1979, Daniel Kahneman and Amos Tversky traced the cause of the disposition effect to the so-called "prospect theory". The prospect theory proposes that when an individual is presented with two equal choices, one having possible gains and the other with possible losses, the individual is more likely to opt for the former choice even though both would yield the same economic result.

The disposition effect can be minimized by a mental approach called "hedonic framing".

Ed Diener

Edward F. Diener (born 1946) is an American psychologist, professor, and author. Diener is a professor of psychology at the University of Utah and the University of Virginia, and Joseph R. Smiley Distinguished Professor Emeritus at the University of Illinois, as well as a senior scientist for the Gallup Organization. He is noted for his research over the past thirty years on happiness, including work on temperament and personality influences on well-being, theories of well-being, income and well-being, cultural influences on well-being, and the measurement of well-being. As shown on Google Scholar as of May 2017, Diener's publications have been cited over 145,000 times.

For his fundamental research on the subject, Diener is nicknamed Dr. Happiness. Researchers he has worked with include Daniel Kahneman and Martin Seligman.

Generalized expected utility

Generalized expected utility is a decision-making metric based on any of a variety of theories that attempt to resolve some discrepancies between expected utility theory and empirical observations, concerning choice under risky (probabilistic) circumstances.

The expected utility model developed by John von Neumann and Oskar Morgenstern dominated decision theory from its formulation in 1944 until the late 1970s, not only as a prescriptive, but also as a descriptive model, despite powerful criticism from Maurice Allais and Daniel Ellsberg who showed that, in certain choice problems, decisions were usually inconsistent with the axioms of expected utility theory. These problems are usually referred to as the Allais paradox and Ellsberg paradox.

Beginning in 1979 with the publication of the prospect theory of Daniel Kahneman and Amos Tversky, a range of generalized expected utility models were developed with the aim of resolving the Allais and Ellsberg paradoxes, while maintaining many of the attractive properties of expected utility theory.

Important examples were anticipated utility theory, later referred to as rank-dependent utility theory, weighted utility (Chew 1982), and expected uncertain utility theory. A general representation, using the concept of the local utility function was presented by Mark J. Machina. Since then, generalizations of expected utility theory have proliferated, but the probably most frequently used model is nowadays cumulative prospect theory, a rank-dependent development of prospect theory, introduced in 1992 by Daniel Kahneman and Amos Tversky.

Given its motivations and approach, generalized expected utility theory may properly be regarded as a subfield of behavioral economics, but it is more frequently located within mainstream economic theory.

Heuristic

A heuristic technique (; Ancient Greek: εὑρίσκω, "find" or "discover"), often called simply a heuristic, is any approach to problem solving or self-discovery that employs a practical method, not guaranteed to be optimal, perfect, logical, or rational, but instead sufficient for reaching an immediate goal. Where finding an optimal solution is impossible or impractical, heuristic methods can be used to speed up the process of finding a satisfactory solution. Heuristics can be mental shortcuts that ease the cognitive load of making a decision. Examples that employ heuristics include using a rule of thumb, an educated guess, an intuitive judgment, a guesstimate, profiling, or common sense.

Insensitivity to sample size

Insensitivity to sample size is a cognitive bias that occurs when people judge the probability of obtaining a sample statistic without respect to the sample size. For example, in one study subjects assigned the same probability to the likelihood of obtaining a mean height of above six feet [183 cm] in samples of 10, 100, and 1,000 men. In other words, variation is more likely in smaller samples, but people may not expect this.In another example, Amos Tversky and Daniel Kahneman asked subjects

A certain town is served by two hospitals. In the larger hospital about 45 babies are born each day, and in the smaller hospital about 15 babies are born each day. As you know, about 50% of all babies are boys. However, the exact percentage varies from day to day. Sometimes it may be higher than 50%, sometimes lower.

For a period of 1 year, each hospital recorded the days on which more than 60% of the babies born were boys. Which hospital do you think recorded more such days?

The larger hospital

The smaller hospital

About the same (that is, within 5% of each other)

56% of subjects chose option 3, and 22% of subjects respectively chose options 1 or 2. However, according to sampling theory the larger hospital is much more likely to report a sex ratio close to 50% on a given day than the smaller hospital which requires that the correct answer to the question is the smaller hospital (see the law of large numbers).

Relative neglect of sample size were obtained in a different study of statistically sophisticated psychologists.Tversky and Kahneman explained these results as being caused by the representativeness heuristic, according to which people intuitively judge samples as having similar properties to their population without taking other considerations into effect. A related bias is the clustering illusion, in which people under-expect streaks or runs in small samples. Insensitivity to sample size is a subtype of extension neglect.To illustrate this point, Howard Wainer and Harris L. Zwerling demonstrated that kidney cancer rates are lowest in counties that are mostly rural, sparsely populated, and located in traditionally Republican states in the Midwest, the South, and the West, but that they are also highest in counties that are mostly rural, sparsely populated, and located in traditionally Republican states in the Midwest, the South, and the West. While various environmental and economic reasons could be advanced for these facts, Wainer and Zwerlig argue that this is an artifact of sample size. Because of the small sample size, the incidence of a certain kind of cancer in small rural counties is more likely to be further from the mean, in one direction or another, than the incidence of the same kind of cancer in much more heavily populated urban counties.

List of Israeli Nobel laureates

Since 1966, there have been twelve Israelis who were awarded Nobel Prize, the most honorable award in various fields including chemistry, economics, literature and peace.

Planning fallacy

The planning fallacy, first proposed by Daniel Kahneman and Amos Tversky in 1979, is a phenomenon in which predictions about how much time will be needed to complete a future task display an optimism bias and underestimate the time needed.

This phenomenon sometimes occurs regardless of the individual's knowledge that past tasks of a similar nature have taken longer to complete than generally planned. The bias only affects predictions about one's own tasks; when outside observers predict task completion times, they show a pessimistic bias, overestimating the time needed. The planning fallacy requires that predictions of current tasks' completion times are more optimistic than the beliefs about past completion times for similar projects and that predictions of the current tasks' completion times are more optimistic than the actual time needed to complete the tasks. In 2003, Lovallo and Kahneman proposed an expanded definition as the tendency to underestimate the time, costs, and risks of future actions and at the same time overestimate the benefits of the same actions. According to this definition, the planning fallacy results in not only time overruns, but also cost overruns and benefit shortfalls.

Prospect theory

Prospect theory is a theory in cognitive psychology that describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are uncertain. The theory states that people make decisions based on the potential value of losses and gains rather than the final outcome, and that people evaluate these losses and gains using some heuristics. The model is descriptive: it tries to model real-life choices, rather than optimal decisions, as normative models do.

The theory was created in 1979 and developed in 1992 by Daniel Kahneman and Amos Tversky as a psychologically more accurate description of decision making, compared to the expected utility theory. In the original formulation, the term prospect referred to a lottery. The paper "Prospect Theory: An Analysis of Decision under Risk" (1979) has been called a "seminal paper in behavioral economics".

Rank-dependent expected utility

The rank-dependent expected utility model (originally called anticipated utility) is a generalized expected utility model of choice under uncertainty, designed to explain the behaviour observed in the Allais paradox, as well as for the observation that many people both purchase lottery tickets (implying risk-loving preferences) and insure against losses (implying risk aversion).

A natural explanation of these observations is that individuals overweight low-probability events such as winning the lottery, or suffering a disastrous insurable loss. In the Allais paradox, individuals appear to forgo the chance of a very large gain to avoid a one per cent chance of missing out on an otherwise certain large gain, but are less risk averse when offered the chance of reducing an 11 per cent chance of loss to 10 per cent.

A number of attempts were made to model preferences incorporating probability theory, most notably the original version of prospect theory, presented by Daniel Kahneman and Amos Tversky (1979). However, all such models involved violations of first-order stochastic dominance. In prospect theory, violations of dominance were avoided by the introduction of an 'editing' operation, but this gave rise to violations of transitivity.

The crucial idea of rank-dependent expected utility was to overweigh only unlikely extreme outcomes, rather than all unlikely events. Formalising this insight required transformations to be applied to the cumulative probability distribution function, rather than to individual probabilities (Quiggin, 1982, 1993).

The central idea of rank-dependent weightings was then incorporated by Daniel Kahneman and Amos Tversky into prospect theory, and the resulting model was referred to as cumulative prospect theory (Tversky & Kahneman, 1992).

Reference class forecasting

Reference class forecasting or comparison class forecasting is a method of predicting the future by looking at similar past situations and their outcomes.The theories behind reference class forecasting were developed by Daniel Kahneman and Amos Tversky. The theoretical work helped Kahneman win the Nobel Prize in Economics.

Reference class forecasting is so named as it predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast.

Discussion of which reference class to use when forecasting a given situation is known as the reference class problem.

Richard Thaler

Richard H. Thaler (; born September 12, 1945) is an American economist and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. In 2015, Thaler was president of the American Economic Association.He is a theorist in behavioral economics, and collaborated with Daniel Kahneman, Amos Tversky and others in further defining that field. In 2018, he was elected a member in the National Academy of Sciences.

In 2017, he was awarded the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics. In its Nobel prize announcement, the Royal Swedish Academy of Sciences said that his "contributions have built a bridge between the economic and psychological analyses of individual Decision-making. His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioral economics."

Scope neglect

Scope neglect or scope insensitivity is a cognitive bias that occurs when the valuation of a problem is not valued with a multiplicative relationship to its size. Scope neglect is a specific form of extension neglect.In one study, respondents were asked how much they were willing to pay to prevent migrating birds from drowning in uncovered oil ponds by covering the oil ponds with protective nets. Subjects were told that either 2,000, or 20,000, or 200,000 migrating birds were affected annually, for which subjects reported they were willing to pay $80, $78 and $88 respectively. Other studies of willingness-to-pay to prevent harm have found a logarithmic relationship or no relationship to scope size.Daniel Kahneman explains scope neglect in terms of judgment by prototype, a refinement of the representativeness heuristic. "The story [...] probably evokes for many readers a mental representation of a prototypical incident, perhaps an image of an exhausted bird, its feathers soaked in black oil, unable to escape," and subjects based their willingness-to-pay mostly on that mental image.

Susan M. Ervin-Tripp

Susan Moore Ervin-Tripp (1927-2018) was an American linguist whose psycholinguistic and sociolinguistic research focused on the relation between language use and the development of linguistic forms, especially the developmental changes and structure of interpersonal talk among children.Born Susan Moore Ervin on June 29, 1927 in Minneapolis, MN, she earned her undergraduate degree in Art History at Vassar College. She earned a PhD from the University of Michigan in 1955 for thesis entitled, The Verbal Behaviour of Bilinguals: The Effect of Language of Report upon the Thematic Apperception Test Stories of Adult French Bilinguals, under the supervision of Theodore Newcomb. She taught at the University of California at Berkeley. In her academic work she conducted research on child language acquisition and bilingualism among children and has made contributions to the fields of linguistics, psychology, child development, sociology, anthropology, rhetoric, and women's studies.She was a doctoral advisor of Daniel Kahneman, a 2002 Nobel Prize winner.

Ervin-Tripp was a Guggenheim Fellow in 1974.A festschrift dedicated to Ervin-Tripp was published in 1996.

The Undoing Project

The Undoing Project: A Friendship That Changed Our Minds is a 2016 nonfiction book by American author Michael Lewis, published by W.W. Norton. The Undoing Project explores the close partnership of Israeli psychologists Daniel Kahneman and Amos Tversky, whose work on heuristics in judgment and decision-making demonstrated common errors of the human psyche, and how that partnership eventually broke apart. The book revisits Lewis' interest in market inefficiencies, previously explored in his books Moneyball (2003), The Big Short (2010), and Flash Boys (2014). It was acclaimed by book critics.

Thinking, Fast and Slow

Thinking, Fast and Slow is a best-selling book published in 2011 by Nobel Memorial Prize in Economic Sciences laureate Daniel Kahneman. It was the 2012 winner of the National Academies Communication Award for best creative work that helps the public understanding of topics in behavioral science, engineering and medicine.The book summarizes research that Kahneman conducted over decades, often in collaboration with Amos Tversky. It covers all three phases of his career: his early days working on cognitive biases, his work on prospect theory, and his later work on happiness.The central thesis is a dichotomy between two modes of thought: "System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical. The book delineates cognitive biases associated with each type of thinking, starting with Kahneman's own research on loss aversion. From framing choices to people's tendency to replace a difficult question with one which is easy to answer, the book highlights several decades of academic research to suggest that people place too much confidence in human judgment.

Well travelled road effect

The well travelled road effect is a cognitive bias in which travellers will estimate the time taken to traverse routes differently depending on their familiarity with the route. Frequently travelled routes are assessed as taking a shorter time than unfamiliar routes. This effect creates errors when estimating the most efficient route to an unfamiliar destination, when one candidate route includes a familiar route, whilst the other candidate route includes no familiar routes. The effect is most salient when subjects are driving, but is still detectable for pedestrians and users of public transport. The effect has been observed for centuries but was first studied scientifically in the 1980s and 1990s following from earlier "heuristics and biases" work undertaken by Daniel Kahneman and Amos Tversky.Much like the Stroop task, it is hypothesised that drivers use less cognitive effort when traversing familiar routes and therefore underestimate the time taken to traverse the familiar route. The well travelled road effect has been hypothesised as a reason that self-reported experience curve effects are overestimated (see Experience curve effects).

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