© Nathan Mandell
Memorial Lecture brings Nobel Laureate to Kellogg
Deborah Leigh Wood
always acted rationally, the field of behavioral economics
probably wouldn't exist. And Daniel Kahneman might not have
been named the 2002 Nobel Prize Laureate for integrating "insights
from psychological research into economic science."
the Eugene Higgins Professor of Psychology and professor of
public affairs in the Woodrow Wilson School of Public and
International Affairs at Princeton University, presented his
theories on "Psychology and Behavioral Economics" at this
year's Nancy L. Schwartz Memorial Lecture on May 19.
irrationally isn't the same thing as acting stupidly, Kahneman
told a capacity crowd in the Kellogg School's Owen L. Coon
who favor intuitive and emotional thinking over slower "rational"
thinking, we're "adequately successful," Kahneman said.
still irrational. Consider the case of "Bernoulli's error":
In 1738, Daniel Bernoulli, a Swiss mathematician, theorized
about the decision-making process behind sending a spice ship
from Amsterdam to St. Petersburg. The decision to do so (favored
by Bernoulli) weighted the endeavor's expected profit more
highly than its potential risks. Bernoulli's logic departed
from what Kahneman says drives most human behavior: namely,
concerns about short-term gains and losses, rather than long-term
theory of finance is based on this [flawed] model of risky
investment," said Kahneman. "This is bizarre."
decisions crop up in more mundane circumstances too. People
will tend to buy ice cream that's advertised as 90 percent
fat-free, Kahneman said, but not when it's advertised as having
10-percent fat. Same product, different psychology. Kahneman's
contention is that people are not poor reasoners, but prone
to acting impulsively.
strongest, irrationality encourages people to take a chance,
based on intuition and optimism, and become entrepreneurs,
despite knowing the dismal survival rate of start-up firms.
the audience with a few provocative points, Kahneman asked,
"Does behavioral economics still need psychology?" And, more
fundamentally, how can demonstrable, meaningful theories about
psychology and economics be put to good use?
even suggested that much of this theorizing might boil down
to good old common sense.
in 1983, the annual lecture series, which focuses on issues
of current economic theory, honors Schwartz, who was Morrison
Professor of Decision Sciences and the first woman faculty
member appointed to an endowed chair at the Kellogg School.