If you only read one Nobel Prize Acceptance Speech this week…

…you could do worse than to make it this one:

http://www.nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman-lecture.html

Economist Daniel Kahneman at his most accessible (not particularly) and relevant (very). You can also watch it.

“people rely on a limited number of heuristic principles which reduce the complex tasks of assessing probabilities and predicting values to simpler judgemental operations. In general, these heuristics are quite useful, but sometimes they lead to severe and systematic errors.” Tversky & Kahneman, 1974: 1124

If you prefer your behavioural economics a little less dry, you could try instead, Dan Ariely’s book, Predictably Irrational – apparently there’s an expanded edition coming out in May, but I suspect that as a behavioural economist  he’s pulling a fast one on us. “Expanded? Must be even better!!”

http://www.predictablyirrational.com

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6 thoughts on “If you only read one Nobel Prize Acceptance Speech this week…

  1. It’s an interesting read, to be sure, but not a vision of human decisionmaking that fits well with culture theory. Mary Douglas would say–did say– that Kahneman et al. are far too quick to apply the “irrational” label to behavioral and cognitive phenomena that reflect influence of culture. Big difference, in other words, between cultural bias of Douglas and cognitive bias of Kahneman.

    1. Thanks for making me think more about this. It’s true that Kahneman’s approach to heuristics is quite different from that of grid-group cultural theory. In particular, as you point out, Kahneman seems to regard the heuristics he describes as forms of irrationality, comparing unfavourably with the high ground of rational choice economics. In other words he uncovers a world in which we systematically act against our own best interests. In contrast, Grid-group cultural theory seeks to show that rationality is not singular but plural. Therefore what seems irrational to one form of rationality will be perfectly rational behaviour in another context. A piece written here a while back about the economics of pirates was attempting to show how rational choice theorists fail to recognise this and therefore produce incomplete or even distorted accounts of economic behaviour.
      That said, Kahneman’s approach is still highly suggestive. It shows that heuristics are not an exception to economic behaviour but the norm. An account that doesn’t include them somewhere is necessarily incomplete. This is a really significant insight in itself.
      What are we then to make of it? I want to read Kahneman perversely, seeing these heuristics (well, some of them, anyway) as an asset to decision making under conditions of uncertainty, not necessarily a hindrance. In doing so I am following the path of Gigerenzer (and Polya before him). The extent to which the four cultures of grid-group cultural theory can be seen as heuristics is something that interests me. Perhaps GGCT can be located somewhere between Kahneman (heuristics are regrettable) and Gigerenzer (heuristics are adaptive). It might go like this: the unconscious operation of the four cultures is regrettable, for instance: “I don’t know whether Global Warming is a problem for me, but I do know we need strong government with clear leadership and I’m sure they’ll sort it out”; however, the conscious operation of the four cultures is adaptive, for instance “The leadership obviously knows best about Global Warming, but aren’t there some other paradigms that might be considered and incorporated make a better solution? Not everyone thinks like us.”

  2. I like the idea that people just think that expanded is better — but in reality I will add some ideas about the relationship between behavioral economics and the market fiasco — I hope it will really be better 😉

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