Kahneman talks rationality

Nobel Prize winner Daniel Kahneman discussed the cognitive biases that undermine the rational assumptions of economics.
Nobel Prize winner Daniel Kahneman discussed the cognitive biases that undermine the rational assumptions of economics. Photo by Allie Krause.

Addressing an overflowing crowd in SSS 114 Wednesday afternoon, Nobel Prize winner Daniel Kahneman outlined a psychological framework for understanding irrationality in our everyday lives.

Though trained as a psychologist, Kahneman won the 2002 Nobel Memorial Prize in Economic Sciences for his work on prospect theory — an umbrella term for the series of cognitive biases he has documented over more than four decades in the field. In the talk, Kahneman proposed a dual systems model for understanding these cognitive shortcomings, with “System 1” responsible for fast, instinctive processing and “System 2” engaging in slower, more deliberate cognition.

“We have a mind which is really incompatible with the basic requirements of rationality as explained in decision theory and the basis of economics,” Kahneman said.

In his 2011 best-selling book, “Thinking, Fast and Slow,” Kahneman detailed the now-famous two-system model of cognition.

In the model, the mind is the product of both the unconscious and effortful systems. Kahneman told the audience to consider this cognitive model as a newsroom: System 1 is a group of journalists proposing stories to an editor — System 2 — who either lets the story go to print or decides to reject it. This model helps frame many of the cognitive biases he documented as an experimental psychologist — for instance, System 2 is often lazy and System 1 makes us both jump to conclusions and resist change, he said.

“[My book] in a way is an attempt to go a little beyond what we have in psychology by trying to take a lot of phenomena and trying to put them in a unified framework,” he added.

Kahneman never took an economics class in school and said he was stunned when, early in his career, he first read an economics paper describing humans as rational, unselfish beings with unchanging tastes. In the first half of Wednesday’s lecture, Kahneman described various ways he has observed humans deviate from this rational economic model — such as by constructing preferences and assigning inappropriate weights to certain outcomes. This tendency results in a range of common psychological phenomena including loss aversion, risk aversion and irrational discounting of future outcomes, he said.

“It is clear that the theory of rationality within decisions theory is profoundly non-psychological,” he added.

In his introduction, economics professor Robert Shiller said the large crowd that assembled testifies to the broad influence that Kahneman’s work has had. At Yale, Shiller said he sees Kahneman’s influence in disciplines ranging from economics and law to psychology and political science.

All five people interviewed after the talk praised the lecture for its clarity and accessibility.

Ben Miller GRD ’18 said reading Kahneman’s work as an undergraduate inspired him to study behavioral economics at the graduate level. Philosophy professor Tamar Gendler ’87 said she thought the talk was “absolutely terrific.”

“I think he is one of the great shapers of 21st century intellectual life, and it was just an incredible experience for people to have the chance to see him in person. I think he is absolutely delightful.”

Kahneman’s talk was one of a series of Okun Memorial Lectures in honor of late Yale economist Arthur Okun.

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