Daniel Kahneman

Economists that believe in the rational economic model claim that they deal with people in the real world, not in a lab. Rationalist believe that we are driven by our self-interest. Edgeworth a philosopher and political economist said “the first principle of Economics is that every agent is actuated only by self-interest” (Sen, pg. 317–344). The rationalist claim that it is okay for people to go against their financial interest as long most people base their decisions rationally most of the time. However, the rationalist economic model assumes that people calculate the advantages and disadvantages before making a decision. In the film Harvard Business Reviewer Justin Fox stated “Basically, you build the models assuming people were like these calculators who would look at the range of possible outcomes and the risks and balance it all out.” (Mind Over Money, 2010). The fact is we not always look at the risk and outcomes when it comes to spending

Happiness is something that many people spend their whole lives searching for, but when it comes down to it, is often impossible to truly find. In John Gertner’s essay “The Futile Pursuit of Happiness,” he discusses the findings from the happiness studies done by Daniel Gilbert, Tim Wilson, George Loewenstein, and Daniel Kahneman. The results of the studies suggest that although people can predict who or what will make them happy, they do not know how long it will last or to what degree.

The BBC Documentary is about how human beings actually make decisions and how cognitive biases affect their decision-making ability. Decision making is an important part of one’s life. There is a battle between intuition and logic when one makes a decision. The battle goes on when one makes a small decision like what to eat to when one makes a big decision about whom to marry. One makes between 2000-10,000 decisions in a day. The Documentary introduces one to the scholarly work of Professor Danny Kahneman from the Princeton University who has been researching the field of decision-making for the last 40 years. Professor Kahneman uses puzzles to understand the decision-making process. He says that the puzzle of the New York cab drivers can give an insight into how cognitive biases affect our decision- making ability. He says that logically the cab drivers should spend more time working on a rainy day than on a sunny day if

“The best we can do is a compromise:” states Kahneman “learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high” (142-143). An Israeli-American psychologist and professor, David Kahneman, was born in Tel Aviv in 1934. He and his family were Jewish and lived in continuous fear of persecution during the Nazi occupation of France from 1940-1944. He received his bachelor’s degree in 1954 and moved to the United States in 1958 to work towards his Ph.D. in psychology. His theories on people’s decision making during uncertain situations earned him the Nobel Memorial Prize in Economics in 2002. Kahneman’s work argues that the two cognitive systems illustrate that the human mind

However, almost for all the economic models, there is one tacitly accepted assumption, that is, everyone and everything being rational. Life has proved that this is not true, or at least, not always true. A simple example is that people often choose their interested job rather than the job gives highest NPV. In such manner, I will introduce the model of irrational household behaviour3 developed by Bojan Krstić and Milos Krstić. The model explains that households maximize their utility based on both current situation and previous experiences

In the book Predictably Irrational, Dan Ariely brings forth the idea that all human behavior is done according to certain patterns; however these patterns are not always the patterns you would think of right off the bat. He leads the reader in a compelling journey into the realm of the human mind, and how humans view the world. For every turn of the page there is something new and surprising. However even with this constant change the book follows the same pattern, proving all thought is irrational. Dan’s use of imagery and descriptions along with many studies of how the human mind reacts to certain situations provide a stimulating read for all, regardless of the reader’s beliefs.

While acknowledging the limitation of the prospect theory, that it fails to deal with disappointment and regret, Kahneman neglects the effect of emotions that human

Happiness as a phenomenon is a subject that has attracted attention from researchers in psychology. It is baffling how happiness is an intrinsic desire all wish to attain. There are many theories throughout time about how to achieve it and debates about whether it is even an ongoing process or a place. Many famous figures from ancient Greeks, Plato, and contemporary philosophers, Robert Nozick, have queried the meaning of it. Thus, there is no one set definition for happiness. Amongst the many concepts of happiness, is the one by Ed Diener and Shigehiro Oishi in their article, The Nonobvious Social Psychology of Happiness. They examine happiness in a non-conventional and psycho-social viewpoint. To them, there are three main factors that contribute to happiness; close social relationships, the ratio of negative events over positive events in relationships and culture and well-being (Diener & Oishi, 2004). Another minor finding discussed is the hedonic treadmill of adaptation which essentially the theory that life stresses and pleasures only provides temporary sadness or happiness. In other words, the effect it has neutralizes with time and adaptation to it occurs.

Newman and Randy J. Larsen, has many arguments refuting the work of Schueller and Parks. The hedonic treadmill theory states that after a good or bad life event, people have a propensity to return to their preexisting level of happiness soon after the event, people emotionally stay in the same place (Newman and Larsen). Thus, any sudden surge of happiness resulting from the strategies suggested in the yes article, will likely be short lived. Of what influences our happiness in lasting ways, all are found to be life events that are also outside the realm of our control; the focal problem with the yes article is that it overstates how much control people have over their happiness. Newman and Larsen also attack the yes article for having inconsistent and temporary results, Schueller and Parks do not happen to list any numeric statistics from their cited studies in their article. Negative events affect us longer and more deeply than positive ones, this is called the negativity bias (Newman and Larsen). Positive and negative emotions are independent of each other, simply increasing our positive emotions will not decrease the negative ones and could potentially leave us without any change in the way we

Understanding how the mind works has always been a major goal throughout philosophy, and an important piece of this deals with how humans come to experience the world. Many philosophers have attempted to investigate this issue, and proposed a framework by which human understanding could be understood. Happiness is one of those issues that philosophers have tried to attempt to investigate its understanding and how it is important for every human being to have happiness. Generally speaking we see that people would go through any lengths possible by which to acquire many varied materials and issues use to induce pleasures in each person, and intrinsically, this emotion happiness remains the ultimate goal. John

Daniel Kahneman is one of the most influential psychologists who has a tremendous understanding on how and why individuals make the decisions they make. In 2002, professor Kahneman received the Nobel Prize in Economic for his contributions integrating insights from psychological research into economic science focusing on human judgment and decisions making. Human decisions are influenced by environmental, physical, and emotional characteristics of life impacting decisions making at any given moment. In the book, Thinking Fast and Slow, Kahneman described in the first part of the book, the basic elements of a two-system approach to judgment and choice. When individuals perceive and react to things automatically and require little or no effort,

Within the business disciplines, we are fortunate to have two major paradigms (schools of thought): rationalist and behavioralist. An ideological/theoretical conflict has existed between the two paradigms for over 50 years. Is human decision behavior more consistent with the rationalist models or behavioralist models? Behavioral finance has grown out of this conflict and will likely result in the resolution of the conflict as time passes.

According to the Efficient Market Hypothesis, competition will instantaneously cause the effects of new information to be reflected in actual share prices. This assumption presupposes that the participants in a market act rationally. The concept of the homo economicus has a long-standing history in economics and is a relevant premise of efficient markets. According to the founder of economic thought, Adam Smith, the homo economicus is human who constantly peruses self-interest while always acting rational to reach his subjectively defined ends (Coase, 1994). At times, psychologists joined this discussion and challenged the concept of the economic man. Among the most prominent researchers who question the rationality in human decision making is Daniel Kahneman. Kahneman challenged the rationality in decision making processes and is one of the founders of behavioral economics. Behavioral economists argue that markets are not perfectly efficient because various cognitive biases in humans (HBR, 2015). Among the most prominent cognitive biases that influence stock prices are the Overconfidence Hypothesis and the Disposition Effect.

The behavior and attitudes of people determine a lot of the decisions that they make (Lessing, 1987). The society is willing to accept or entertain the irrational beliefs, thus, the society 's attitude towards irrational decisions influences a lot on the way individual think and act.

Published in the July 2016 issue of Cognitive Science, Gonzalez and Mehlhorn’s article, “Framing from Experience: Cognitive Processes and Predictions of Risky Choice,” seeks to advance the work of renowned behavioral economists Tversky and Kahneman. Tversky and Kahneman, a seminal pairing in the fields of economics, cognitive science, and psychology, investigated biases in human decision making that led people to make sub-optimal choices. One of their principle theories, prospect theory, framed decision-making in two graphs. First, they proposed a value graph comparing the subjective and actual values of gains and losses. It took the form of an asymmetrical s-curve, with humans experiencing more displeasure from losses than pleasure from gains and reaping less marginal pleasure from further gains once already at a position of significant gains (Kahneman & Tversky, 1984). Second, they proposed a probability graph which showed that humans tend to overweight low likelihood events and underweight high likelihood events (Kahneman & Tversky, 1984). Taken together, these functions explain some elements of human behavior: people are generally more loss-averse than gain-seeking at a neutral position, they value gains more at a position of loss, and they value gains less at a position of gain.