In memoriam Daniel Kahneman (1934-2024)

The illusion that we understand the past fosters overconfidence in our ability to predict the future.

Daniel Kahneman

Daniel Kahneman was best known for his work on hedonistic psychology, the psychology of economic decision-making and also for debunking the notion of homo economicus or the economic man. Together with Vernon L. Smith (a member of the Academic Advisory Board of the ECAEF and namesake of ECAEF’s successful International Vernon Smith Prize), they were awarded the Nobel Prize in Economic Sciences in 2002. Although they started from very different philosophical principles and ideas, their empirical findings seriously contested the academic mainstream’s prevailing assumptions of human rationality. The founding of the new discipline of “behavioral economics” goes back to both researchers.

With the death of Daniel Kahneman, the social sciences and economics in particular have lost one of their most original thinkers. During the early 1950s, Kahneman began studying psychology and mathematics at the Hebrew University in Jerusalem and received his Bachelor of Science there in 1954. In 1958 he moved to the USA, continued his studies in applied psychology at UC Berkeley and was awarded his Ph.D. in psychology there in 1961. However he began his successful and influential academic career at the Hebrew University in Jerusalem where he initially focused on the problems of visual perception and the span of attention. Several visiting professorships took Kahneman among others, to the University of Michigan, to Harvard University and Stanford, where he worked intensively with Amos Tversky at the Center for Advanced Studies there on the groundbreaking essay “Toward a Positive Theory of Consumer Choice”. As a guest at Cambridge University (UK), Kahneman began to develop the so-called &”Rules of Counterfactual Thinking” and wrote his seminal essay “Analysis of Complex Correlation Structures”.

During the 1980s, Kahneman shifted the focus of his research to examining subjective experiences and to the distinction between multiple notions of utility. These works brought him closer to the theories of the Austrian school of economics in general, and the works of Carl Menger (1840-1921) or Franz Cuhel (1862-1914) in particular. Through the analysis of the so-called experienced utility (already mentioned by Jeremy Bentham (1748-1832)), Kahneman arrived at the concepts of remembered and predicted utility, which became known in Behavioral Economics as the affective forecast. This approach describes the conscious expectation of the experienced (remembered) benefit of an event or episode. For Kahneman, remembered utility is always the subjective evaluation of a past experience (about 30 years before him,
Friedrich A. von Hayek (1899-1992) reached similar conclusions in his badly neglected work The Sensory Order, 1952). In other words, Kahneman formalizes the experienced utility of an episode as a temporal integration of the current utility. Since Kahneman, one of the cognitive biases of remembered utility has become known as the peak-end rule.

In 1982 he published his book Judgment under Uncertainty: Heuristic and Biases (1982). His book Thinking, Fast and Slow (2011), in which he summarized his cognitive research, became a New York Times bestseller. Kahneman shows here not only how the intuitions that guide everyday thinking can fail, sometimes in rather boring ways,
however sometimes also quite spectacularly and alarmingly. He also emphasized the limits of human intuition when confronted with rare or unexpected phenomena. For him these blind spots are significant because everyday life often requires judging probabilities and assessing statistical trends – tasks in which intuition can be more
hindrance than any help. Due to the success of his work, Kahneman was included in the Foreign Policy’s list of the most original thinkers of our times. US President Obama
awarded him the Presidential Medal of Freedom, the highest civilian order in 2013 (interestingly enough his co-recipient of the Nobel Prize 2002 did not get this honor) and
in 2015 The Economist even ranked him among the most influential economists of our time. His important book Noise: A Flaw in Human Judgment was published at the
beginning of 2020. As recently as a few years ago, Kahneman served as Professor Emeritus of Psychology and Public Affairs at Princeton University.s School of Public and International Affairs.

He died there yesterday, March 27, 2024, at the age of ninety.