Daniel Kahneman, 1934-2024: Nobel Prize Winner & CASBS Legend

Daniel Kahneman, the Nobel laureate, professor emeritus of psychology and public affairs at Princeton University, and among the most distinguished and consequential cognitive and behavioral scientists of the past half-century, passed away on March 27, 2024. He was 90.

Kahneman’s groundbreaking and celebrated work, often conducted in collaboration with Amos Tversky and others, fundamentally challenged the classical economic assumption of human rationality. Kahneman and Tversky introduced the concept of cognitive biases and heuristics, demonstrating how people often rely on mental shortcuts that lead to systematic errors. Their development of Prospect Theory highlighted how individuals assess potential losses and gains, profoundly influencing specific fields such as economic theory, finance, and public policy. They famously laid the foundation for the establishment of the field of behavioral economics.

More generally, one can speak of social and behavioral science research before Daniel Kahneman and after Daniel Kahneman. He (again, often with his collaborators) helped changed their course, notably through the undermining of the very concept of homo economicus and its standard yet unrealistic characterization of real-world behaviors and outcomes.

Kahneman's seminal book, Thinking, Fast and Slow (2011), encapsulates his extensive research on our dual systems of thought — intuitive and deliberate — offering deep insights into human behavior for broader public audiences.

In recognition of his career-spanning achievements, Kahneman was awarded the Nobel Prize in Economic Sciences in 2002. The Nobel Prize Foundation cited Kahneman’s work, dating to the late 1960s, that “integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.”

In 2013, President Barack Obama awarded Kahneman the Presidential Medal of Freedom, the nation’s highest civilian honor.

Learn much more about Daniel Kahneman and the significance of his life and work in obituaries and tributes published by, among others, The New York Times, The Washington Post, The Wall Street Journal, BBC,  Financial Times, Nature, Princeton University, National Public Radio, The Atlantic,  Behavioral Scientist.

KAHNEMAN AND CASBS

Daniel Kahneman was a CASBS fellow during the 1977-78 academic year, occupying office (called “studies” at CASBS) #6. (Notably, this remarkable class included two other future Nobel Prize winners – Oliver Williamson (2009) and Robert B. Wilson (2020) – as well as future Supreme Court Justice Ruth Bader Ginsburg.)

Prospect Theory

Kahneman’s 1977-78 year is legendary for two reasons. First, it is here, at CASBS, where Kahneman and his principal collaborator of nearly a decade, Amos Tversky – who had a visiting appointment at Stanford University’s psychology department that year[1] – completed a paper they painstakingly had been working on for years: “Prospect Theory: An Analysis of Decision under Risk.” The paper, published in March 1979 in the journal Econometrica, is a landmark in the annals of the social sciences. The paper presents a direct challenge to standard expected utility theory through the concept of loss aversion, describing how economic agents assess prospective losses and gains in an asymmetric manner. In other words, people frame transactions or outcomes in their minds subjectively, affecting the value (or utility) they expect to receive.

The paper has been cited tens of thousands of times and, decades later, its empirical foundations replicate “beyond any reasonable thresholds.” In its 2002 citation,[2] the Nobel Prize Foundation specifically asserted that

Prospect theory and its extensions can be used to better explain behavioral patterns which appear to be anomalies from the perspective of traditional theory: the propensity to sign up for costly small-scale insurance for appliances; willingness to drive many miles for a few dollars’ discount on a minor purchase, but reluctance to do so in order to save the same amount on a more expensive good; or resistance to lowering consumption in response to bad news about lifetime income.

In his 1978 end-of-fellowship memo to then-CASBS director Gardner Lindzey, Kahneman confirmed, in his understated manner, completion of the prospect theory paper as “the most significant ‘tangible’ achievement of the year.”

He also noted that “while the year was not particularly notable for the amount of writing that got done, it was rather better in terms of the amount of thinking, and in preparing for future work.” 

Later in the memo, Kahneman noted: "What it tries to do, the Center does perfectly, and my worst complaint was that the lunch menu is too fattening!"

Behavioral Economics

The second legendary aspect of Daniel Kahneman’s 1977-78 CASBS fellowship is related and, by now, well known to CASBS followers and across wide swaths of social and behavioral science communities.

As Kahneman recounts in Thinking, Fast and Slow, in the mid-1970s, the young economist Richard Thaler obtained an early draft of the prospect theory paper at a conference through former Kahneman and Tversky students. Thaler discovered that the loss-averse value function of prospect theory could explain departures from economic rationality documented in a collection of examples he had accumulated and which illustrated what Thaler called the ‘endowment effect.’

This was the explanation of the endowment effect that Thaler had been searching for. And the first application of prospect theory to an economic puzzle now appears to have been a significant milestone in the development of behavioral economics.[3]

A milestone indeed. The spark of that intellectual connection set the stage for Richard Thaler’s now-infamous pilgrimage to CASBS in the fall of 1977, facilitated through his appointment at a National Bureau of Economic Research office that occupied the same hill that CASBS sits atop. Then came the first arranged meeting between Thaler and Kahneman and Tversky. Then came the regular Kahneman-Thaler walks in the hills surrounding CASBS throughout Kahneman’s fellowship year.

In short, in applying cognitive psychology to economic analysis, Kahneman and Tversky laid the foundation for a new field of research – eventually named behavioral economics – that Thaler is widely credited for establishing.

Thaler affirms that “1977-78 was the most important year of my life. I decided I was going to do this – this thing that didn’t exist.”[4]

And CASBS was the point of origin. Though Kahneman himself had expressed it in various ways over the years, he put it crisply in 2016:

CASBS is where behavioral economics took shape. When Richard Thaler heard that Amos Tversky and I would be in Stanford, he finagled a visiting appointment down the hill to spend time with us. We spent a lot of time walking around the Center and became lifelong friends. Those long conversations that Dick had with Amos and me helped him construct his then heretical (and now well-established) view of economics, by using psychological observations to explain violations of standard economic theory.[5]

For more on these momentous events, read an article about CASBS’s role in establishing behavioral economics in 1977-78 (and in propelling it forward exactly two decades later, in 1997-98).

Sage-CASBS Award

In 2013, CASBS partnered with SAGE Publishing (now Sage) to establish the Sage-CASBS Award, recognizing outstanding achievement in the behavioral and social sciences as well as underscoring the role of the social and behavioral sciences in enriching and enhancing public discourse and good governance. Daniel Kahneman was selected as the award’s inaugural winner.

Kahneman’s award lecture served as the keynote of the 2013 Social and Behavioral Sciences Summit hosted by CASBS on the Stanford University campus. In his talk, he summarized many key insights that he and Amos Tversky generated and which he chronicled in Thinking, Fast and Slow. At the time, two years after its publication, the book remained a sensation.

View Daniel Kahneman's 2013 Sage-CASBS talk on CASBS's YouTube page.

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Enduring Aura of Number Six

Since 1977-78, scores of CASBS fellows have acknowledged and spoken of Kahneman’s towering influence. Many of them have sought (even competed) to occupy Kahneman’s study, #6, on the Center’s campus, to take in the same view that the Nobel Prize winner took in, and to absorb any inspiration or aura that the study’s redwood-paneled walls may emit. One recent occupant, 2021-22 fellow Piyush Tantia, the chief innovation officer of ideas42, a nonprofit that applies behavioral science insights to real world problems, wrote early in his fellowship:

My present work in applying the behavioral sciences for inventing new solutions to social problems and issues is possible in large part because behavioral economics emerged as a popular new “technology” in the private and public sector. The foundations of that field were laid by Daniel Kahneman and Amos Tversky with their Nobel Prize-winning work on prospect theory and various other decision-making heuristics and biases. When I learned that some of that work happened where Daniel Kahneman was a fellow at CASBS in 1977-78, I immediately knew that I wanted to work in the same study that he occupied – #6 – more than 40 years ago.[6]

More recently, in an appreciation published in Project Syndicate following Kahneman’s passing, 2020-21 CASBS fellow Antara Haldar cited the Kahneman and Tversky breakthroughs, including prospect theory, as motivation for choosing study #6.

It’s not only CASBS fellows and visiting scholars who seek out study #6. Acclaimed author Michael Lewis may be most known for books such as Moneyball, Liar’s Poker, Flash Boys, The Big Short, The Fifth Risk, Going Infinite, and others. But for many in the social and behavioral sciences community – and certainly among most CASBS affiliates – the favorite is The Undoing Project, his 2016 book about the Daniel Kahneman-Amos Tversky friendship and collaboration, perhaps one of the greatest partnerships in the history of science – at least while it lasted.

Lewis, too, paid respects to Kahneman and his 1977-78 study during a visit to CASBS on May 22, 2024.

[1] Tversky himself was a CASBS fellow during the 1970-71 academic year.

[2] Incidentally, the other winner of the 2002 Nobel Prize in Economic Sciences, Vernon Smith, was a CASBS fellow during the 1972-73 academic year.

[3] Kahneman, Daniel (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux, pp.292-294. Richard Thaler chronicles the episode in his own book, Misbehaving: The Making of Behavioral Economics (W.W. Norton, 2015).

[4] CASBS phone interview with Richard Thaler, 3 April 2018.

[5] Daniel Kahneman email communication with Margaret Levi (CASBS director, 2014-2022), 20 May 2016.

[6] CASBS post on X, 22 October 2021: https://x.com/CASBSStanford/status/1451587401818595330