We have very little idea of how little we know. We’re not designed to know how little we know
– Daniel Kahneman (1934-2024), Princeton University economist, co-recipient of the Nobel Prize for Economics Science in 2002.
Okay, so it wasn’t just the two of us – there were a few hundred others involved. Still, it was a memorable evening that I think is worth sharing.
The day began innocently enough. I was heading out to Yale University for a guest lecture in the Advanced Calculus class, a routine I’d been following for several months during my first year at Columbia University.
I particularly enjoyed these trips as they allowed me to catch up with my friends in the Department of Economics. One of them was Wayne Frederick, so I shot him an email to see if he was around.
He replied, asking if I was attending Kahneman’s lecture. I had no idea the godfather of behavioural economics, Daniel Kahneman, was giving a lecture there. Suddenly, the day was looking up!
I quickly changed my train ticket to a later time and told Wayne I would come by his office so we could walk over.
My guest lecture went off very well with the students asking plenty of interesting questions. Then I had lunch with Joey Chance who was doing some interesting work with leading Wall Street banks, applying ideas from behavioural economics.
After a couple more meetings, I went to see Wayne and we walked over early knowing there would be a big crowd. And we were glad we did, as the auditorium was overflowing by the time the lecture started.
Kahneman was introduced to the audience by none other than Yale economist Robert Shiller, the 2013 Nobel Prize winner. Shiller talked about the widespread impact of Kahneman’s work, especially after the publication of his best-seller Thinking, Fast & Slow.
After that, it was time for Kahneman to speak. His humility, thoughtfulness and eloquence came through pretty much from the first few words.
He started by saying that he no longer engaged in university speeches as he wasn’t actively involved in research anymore. However, he couldn’t turn down Shiller’s invitation, eliciting laughter from the audience. Most of his recent speeches had been about his book, and there had been so many that as a consequence he seemed to have forgotten everything else he ever did.
And that, he said, makes sense because we humans tend to gravitate towards the familiar.
Kahneman’s primary theme revolves around human irrationality, essentially examining the ways people exhibit irrational behaviours and decision-making processes.
Acknowledging a common critique the book often encounters, he conceded, “Economists have theories, psychologists have lists.” It’s a fair point, he admitted, noting the absence of a comprehensive psychological model of human behaviour, only an ever-expanding catalogue of situations where humans deviate from a strict rational model.
If you are curious to explore further, keep an eye out for the book review tomorrow.
He also shared the difficulty he had in writing a book that summarised four decades of research and recognised that he deliberately used an artificial mechanism to make the explanation easier. Readers familiar with the book know that the title refers to the two Systems (one and two) that govern our behaviour.
Additionally, Kahneman candidly discussed how his worldview wasn’t universally embraced. To the audience’s amusement, he confessed that despite extensive research and the publication of an entire book on the subject, he still grappled with biases in his daily life.
His personality came through admirably during the question & answer session. He repeatedly refused to comment on areas that he felt fell outside his domain.
So many “I don’t know” responses coming from such an accomplished economist was refreshing. But he also subtly showed how he was applying his research in answering questions.
One student brought up how a friend had been feeling extremely anxious after reading the book, always second-guessing himself.
Rather than apologise or attempt to prescribe a solution, Kahneman said that most of the people who had read the book didn’t experience such intense doubt and suggested that perhaps the friend already tended self-doubt before reading it.
It appeared that he was reiterating what he had expressed in the book – how people often jump to conclusions based on isolated incidents rather than considering the broader behaviour of the population.
When questioned about the future of behavioural economics, a field he co-founded with his close friend, Chicago University economist Richard Thaler, who also won the Nobel Prize in 2017, he hoped that one day the term “behavioural” would fall away and that economics would naturally imbibe those ideas as part of its fundamental models.
In my view, though the field has achieved success and popularity, it still primarily focuses on individuals and their behaviour rather than on markets as a whole.
Therefore, when people inquire about applying behavioural economics, it’s not a straightforward task because the questioner often has the market in mind rather than the individual.
The evening wrapped up sooner than I’d have preferred. I had hoped to greet Kahneman, even if just for a couple of minutes. But having hosted him the previous evening and knowing there was a reception later; Wayne and I were keen on leaving the overcrowded auditorium.
However, fate had other plans. As luck would have it, I found myself seated at the same table as Kahneman during the Bloomberg New Economy Forum in China, where I couldn’t resist asking a somewhat silly question — a story I’ll save for the next column.
Nevertheless, witnessing the brilliance of Daniel Kahneman in person was truly a once-in-a-lifetime experience, one I’m grateful for.
As if that weren’t enough, upon arriving at the parking lot in Philadelphia, the door was held open for me by the famous chef Jose Garces who operates a restaurant there. Sharing the events with my children, they were more impressed by my encounter with the Iron Chef than the Nobel Laureates. Perhaps one day, they’ll appreciate Kahneman’s insights as much as I do.
Sadly, news of Kahneman’s passing reached me on March 27, 2024, just three weeks after celebrating his 90th birthday. Adios Danny.
The views expressed here are those of the columnist and do not necessarily represent the views of New Sarawak Tribune.
