Daniel Kahneman's legacy

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Daniel Kahneman has passed away, leaving behind a body of work that has significantly influenced how we think about economics and decision-making. Kahneman was not only a pioneering figure in psychology but also a key player in the development of behavioural economics, a field that merges insights from psychology with economic theory to better understand how people make decisions.

His collaboration with Amos Tversky was central to his achievements. Together, they introduced ideas that challenged the conventional wisdom of their time. Unfortunately, Tversky passed away before they could jointly receive the recognition many believe they both deserved, notably the Nobel Prize in Economics which Kahneman won in 2002. This partnership was crucial in advancing their research and ideas.

Three contributions by Kahneman particularly stand out for me:

1. Behavioural economics: Kahneman played a major role in developing this field, showing how psychological factors affect economic decisions. This was a big shift from traditional economics, which often assumed people made decisions purely based on 'rational' self-interest.

2. Prospect theory: Together with Tversky, Kahneman developed this theory, which introduces the idea of loss aversion (i.e. people prefer avoiding losses to acquiring equivalent gains). This was a ground-breaking insight because it contradicted the traditional economic theory that assumed people made decisions purely to maximize utility.

3. Heuristics and biases: Kahneman and Tversky's research into heuristics (mental shortcuts) and biases changed our understanding of decision-making. They showed that these shortcuts don't always lead to the best decisions, especially in complex situations, but they are a fundamental part of how we think and decide.

Kahneman's work has had a broad impact, affecting not just economics but also fields like policy-making, business strategy, and even everyday decision-making. His legacy raised the profile of behavioural scientists and psychologists, highlighting the significance of our science in understanding human nature and the workings of the world.

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