Founders of Behavioural Economics

Daniel Kahneman was born on March 5, 1934, in Tel Aviv, Palestine. Amos Tversky was born on March 16, 1937, in Haifa, Palestine. Both were influential psychologists who, through their collaboration in the 1970s, transformed the study of human decision-making, giving rise to the field of behavioral economics. Their most groundbreaking work is prospect theory, introduced in 1979, which challenged traditional economic assumptions of rational decision-making. Prospect theory demonstrated that people make decisions based on perceived gains and losses rather than the final outcome, with a phenomenon known as loss aversion at the core of human decision-making. Their research also uncovered various cognitive biases, such as anchoring, availability bias, and representativeness bias, all of which highlighted how decisions are often irrational, contradicting the standard economic model of fully rational behavior.

In addition to prospect theory, they published several key works that deepened our understanding of human judgment and decision-making. The 1974 paper “Judgment under Uncertainty: Heuristics and Biases” explored how people use mental shortcuts that frequently lead to systematic errors. They later expanded on these ideas in the influential volume Judgment under Uncertainty: Heuristics and Biases (1982), which they co-edited with Paul Slovic and Baruch Fischhoff. Their 1984 book Choices, Values, and Frames further examined how the framing of decisions and the way choices are presented influence people’s judgments and preferences. This work extended their earlier research on decision theory and introduced new insights into how the framing effect impacts economic decisions and policy-making. Additionally, their The Psychology of Preferences (1995) explored the ways in which preferences can be shaped by various psychological factors, further cementing their contributions to understanding decision-making processes.

Kahneman later popularized these ideas in his bestselling book Thinking, Fast and Slow (2011), in which he distinguished between two modes of thought: System 1, which is fast, automatic, and emotional, and System 2, which is slower, more deliberate, and logical. His research has reshaped not only economics but also psychology, public policy, and even legal studies.

Kahneman was awarded the Nobel Memorial Prize in Economic Sciences in 2002 for his pioneering work in behavioral economics, recognizing his role in integrating psychological insights into economic theory. Tversky, however, passed away prematurely on June 19, 1996, at the age of 59 due to cancer. His untimely death occurred just as their work was beginning to reach its full influence, leaving a lasting legacy in the field of decision-making and beyond.