Daniel Kahneman (1934–2024) was a psychologist whose work with Amos Tversky established that human judgment departs from rational models in systematic, predictable ways. He received the Nobel Prize in Economics in 2002.

Heuristics and biases

Beginning in 1974, Kahneman and Tversky showed that people judge probability using mental shortcuts. Availability substitutes ease of recall for frequency. Representativeness substitutes similarity to a stereotype for base rate. Anchoring shows that an arbitrary number presented first shifts subsequent estimates, even when the number is known to be irrelevant — the mechanism behind price anchoring.

The finding that mattered was that these are systematic. Errors that cancel out are noise; errors that lean in the same direction are biases, and biases can be predicted and exploited.

Prospect theory

Their 1979 paper replaced expected utility as a description of how people actually choose. Outcomes are evaluated as gains and losses relative to a reference point rather than as final states of wealth. Losses weigh roughly twice as heavily as equivalent gains — loss aversion — and people take risks to avoid a loss that they would not take to secure a gain.

Because the reference point can be moved by how a choice is described, the same decision framed as a gain or a loss produces opposite preferences. This is the work the Nobel cited.

Two systems

Thinking, Fast and Slow (2011) presents the material through a distinction between fast, automatic judgment and slow, effortful reasoning. The fast system is competent most of the time and is the source of the biases; the slow system is capable of catching them and is lazy. See Thinking, Fast and Slow.

Later corrections

Kahneman was unusually willing to revise. He publicly retracted a chapter relying on priming research that failed to replicate, and his final book, Noise (2021), argued that inconsistency in judgment is a separate and under-examined problem from bias.