Daniel Kahneman

Daniel Kahneman was an Israeli-American psychologist whose work fundamentally transformed the understanding of human judgement, decision-making, and rationality. He is best known for developing behavioural economics in collaboration with Amos Tversky and for demonstrating that human reasoning is systematically shaped by cognitive biases and heuristics. Kahneman’s research challenged classical economic models of rational choice and has had wide-ranging influence across psychology, economics, public policy, and behavioural sciences.
Daniel Kahneman’s ideas revealed that human decision-making often deviates from logical and statistical norms, particularly under conditions of uncertainty. His work bridged psychology and economics, reshaping how scholars and institutions understand risk, choice, and welfare.

Background and Intellectual Context

Daniel Kahneman was born in 1934 in Tel Aviv, then part of Mandatory Palestine, and spent part of his childhood in France during the Second World War. These early experiences of uncertainty and threat later influenced his academic interest in judgement under risk. He studied psychology and mathematics at the Hebrew University of Jerusalem and later completed his doctoral studies in psychology in the United States.
Kahneman’s academic career developed during a period when psychology was increasingly focused on cognitive processes rather than behaviour alone. Classical economics at the time assumed that individuals act rationally to maximise utility. Kahneman’s work emerged as a critical response to this assumption, grounded in empirical psychological research.
He held academic positions in Israel and the United States and later became a prominent public intellectual through his research and writing.

Heuristics and Biases Programme

Kahneman’s most influential contribution is the heuristics and biases research programme, developed jointly with Amos Tversky. This programme examined how people make judgements when faced with complexity and uncertainty.
Heuristics are mental shortcuts that simplify decision-making. While often useful, they can also lead to systematic errors, or biases. Kahneman and Tversky demonstrated that these biases are predictable and widespread rather than random mistakes.
Key biases identified in this work include:

• Availability heuristic, where people judge likelihood based on how easily examples come to mind.
• Representativeness heuristic, where people assess probability based on similarity rather than statistical reasoning.
• Anchoring, where initial information unduly influences subsequent judgements.

These findings challenged the idea that human reasoning naturally follows the rules of logic and probability.

Prospect Theory

Another major contribution by Kahneman is prospect theory, which provided a descriptive alternative to traditional expected utility theory. Prospect theory explains how people actually evaluate gains and losses rather than how they should do so according to rational models.
According to prospect theory, individuals evaluate outcomes relative to a reference point rather than in absolute terms. Losses are experienced more intensely than equivalent gains, a phenomenon known as loss aversion. As a result, people tend to be risk-averse when facing gains and risk-seeking when facing losses.
Prospect theory demonstrated that preferences are context-dependent and unstable, undermining the assumption of consistent rational choice in economics.

Two-System Model of Thinking

Kahneman popularised the two-system model of cognition, which distinguishes between two modes of thought:

• System 1, which is fast, automatic, intuitive, and emotionally driven.
• System 2, which is slow, deliberate, analytical, and effortful.

Most everyday judgements are governed by System 1, which operates quickly but is prone to error. System 2 can correct these errors but requires attention and cognitive effort, which people often avoid.
This framework provided a powerful explanatory model for understanding why biases persist even when individuals are aware of them.

Judgement, Decision-Making, and Rationality

Kahneman’s work fundamentally redefined rationality in the social sciences. Rather than viewing irrationality as deviation from an ideal norm, he treated it as a natural consequence of cognitive architecture and environmental constraints.
He argued that humans possess bounded rationality, meaning that decision-making is limited by cognitive capacity, time, and information. These limits shape judgement in predictable ways, leading to patterns of overconfidence, framing effects, and misperception of risk.
This perspective has been influential in fields such as behavioural finance, organisational behaviour, and public administration.

Well-being and the Psychology of Happiness

In his later work, Kahneman turned his attention to subjective well-being and the measurement of happiness. He distinguished between the experiencing self, which lives in the present moment, and the remembering self, which constructs narratives about past experiences.
Kahneman showed that people’s evaluations of their lives are often shaped more by memory and peak moments than by overall duration or average experience. This insight challenged traditional measures of welfare and informed debates about quality of life and public policy.
His research contributed to the development of more psychologically informed approaches to measuring social progress beyond economic indicators alone.

Influence on Public Policy and Economics

Kahneman’s ideas have had significant practical impact, particularly in public policy. Insights from behavioural economics have informed policies designed to improve decision-making through choice architecture, such as default options in pension enrolment and health decisions.
By demonstrating that small changes in how choices are presented can influence behaviour, Kahneman’s work helped reshape policy design in areas including finance, health, and consumer protection.
His influence extended beyond academia into government institutions and international organisations.