In more pragmatic than psychology, but economists nevertheless

In
the podcast  “The Men Who Started a
Thinking Revolution,” Stephen J. Dubner speaks to Michael Lewis, author of
novels such as Moneyball, The Big Short, and The Undoing Project. The Undoing
project centers around the story and work of Amos Tversky and Danny Kahneman.
Tversky and Kahneman were both Israeli psychologists that taught psychology at
Hebrew University, in Jerusalem. It was very apparent to those who knew the two
that their academic partnership was rather odd. Tversky veered toward the
mathematical side of psychology where he relied heavily on formal models to
explain human behavior (which ultimately proved to be beneficial when applying they’re
work to economics), while Kahneman was not a mathematician in any sense, but
was rather intuitive (Sunstein). Despite their contrasting personalities and
methods of psychology, the dynamic partners revolutionized the fields of
psychology and economics. They both, in fact, did lots of research on how
people process information. Prior to Tversky and Kahneman economics was based
off the idea that people made decisions and were motivated by incentives. This
idea is called the rationality assumption. Tversky and Kahneman created the
idea of behavioral economics. They argued that prior economic methods and
assumptions didn’t explain the how people actually make decisions. Having both
seen bad outcomes in their life Tversky and Kahneman held value in the decisions
people made when there was a possibility of a bad outcome. Their most
influential paper was the Prospect Theory: An Analysis of Decision Under Risk.
In this they redefine how humans think and how they make decisions. In their
paper they focused on risk and why we place more focus on negative outcomes
than we do the positive. Tversky and Kahneman discovered that people make
choices based on the description of things rather than things themselves. These
descriptions are called heuristics and act as rules of thumb or shortcuts.
Tversky and Kahneman explored the biases in the human mind that lead people to
make misjudgments. Some of the heuristics explored include anchoring and the
availability heuristic. Together Tversky and Kahneman eradicated and rebuilt
the models that social scientists use to make sense of human behavior.

Over
time their work crossed over into economics. Economics, while still a social
science, is much more pragmatic than psychology, but economists nevertheless
adopted their methodology. Their peculiar
partnership laid groundwork for the field of behavioral economics and created
new approaches to the practice of sports management, health
care, and education (Engber). Tversky and
Kahneman’s ideas have crossed into government as well. How things are
described, or heuristics, have a major effect on the decisions made within the
government. Parts of Tversky and Kahnemans’s work can be seen in the U.S.
government, the British Government, the Australian government, the German
government, and the Scandinavian government. Kahnemann ended up winning a nobel
prize for all this work. Unfortunately Tversky had passed away, so was not eligible
for the prize as well. Economics can be defined as the study of how people make
choices, and because of Tversky and Kahneman we now have a greater
understanding of that. 

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