{"id":917,"date":"2024-04-17T13:45:26","date_gmt":"2024-04-17T11:45:26","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=917"},"modified":"2024-05-27T19:46:22","modified_gmt":"2024-05-27T17:46:22","slug":"farewell-to-daniel-kahneman-the-psychologist-who-changed-economics","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/04\/17\/farewell-to-daniel-kahneman-the-psychologist-who-changed-economics\/","title":{"rendered":"Farewell to Daniel Kahneman, the psychologist who changed economics"},"content":{"rendered":"

Nicola Gennaioli, <\/span><\/em>Full Professor in the Finance Department at Bocconi University.<\/span><\/em><\/p>\n

As a psychologist, he won the Nobel Prize in Economics in 2002 because his work exposed the flaws of the rationality principle, which had long dominated economic research. He did this based on experimental studies. His scientific contribution has influenced a multitude of fields.<\/span><\/i><\/p>\n

Daniel Kahneman was born in Tel Aviv in 1934 and passed away on March 28, 2024, in New York. He was considered the father of behavioral finance and had received the Nobel Prize in Economics in 2002. To understand Kahneman’s scientific contribution one must start from the theory that dominated the social sciences from the 1950s. This is the paradigm of rational behavior, a scientific hypothesis according to which individuals form their opinions and make optimal choices, using the rules of statistics and based on stable preferences. In finance, for example, it is assumed that an investor considers the probabilities with which securities A and B will offer various returns and chooses the one best suited to their risk propensity. The hypothesis is notoriously difficult to test empirically, given the challenge of accurately measuring people’s opinions and preferences.<\/span><\/p>\n

Kahneman’s great scientific merit was to devise experiments that incontrovertibly demonstrated that the rationality hypothesis is often violated and to systematize the violations based on specific psychological traits. Investors, for example, tend to give excessive weight to the possibility of exorbitant or disastrous returns because such events, although statistically rare, are memorable. Similarly, the same investor may consider security A less attractive if its low return is merely described to him as a loss compared to security B rather than as a lesser gain compared to the status quo. When psychology comes into play, opinions and choices assume non-rational features.<\/span><\/p>\n

In developing prospect theory and in many other studies, Kahneman’s work is inseparable from that of his longtime collaborator Amos Tversky, who passed away in 1996. The two are among the most important social scientists of the 20th century. The “psychological distortions” they discovered have deeply influenced psychology, finance, economics, medical communication, marketing, managerial practices, public policy, and other fields still. These distortions indeed describe human behavior better than rationality, and thus help develop better science and public policy.<\/span><\/p>\n

Daniel Kahneman\u2014and with him, Amos Tversky\u2014will have a lasting influence on economic thought and leaves us with a formidable challenge: developing a new paradigm of choice based on a few fundamental cognitive factors rather than the rationality principle.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Nicola Gennaioli, Full Professor in the Finance Department at Bocconi University. 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