Nobel Laureate Daniel Kahneman Explains Intuition

A reminder that never goes out of style:

The lone word “VOMIT” appeared on the screen as Nobel Prize-winning psychologist Daniel Kahneman described how audience members would involuntarily react to the stimulus, including raised hairs on the back of the neck, increased sweat gland activity, and heightened sensitivity to other unsettling words.

Kahneman, who is a professor emeritus at Princeton’s Woodrow Wilson School of Public and International Affairs, specializes in the psychological underpinnings of economic decision-making.

The exercise in priming was part of Kahneman’s talk on judgment and intuition yesterday in Yenching Auditorium.

Despite being a psychologist—and never having studied economics—Kahneman received the 2002 Nobel Prize in Economics for his work’s impact on the field. Tuesday’s presentation was the first of three talks to be given by Kahneman this week as part of the Mind/Brain/Behavior Interfaculty Initiative’s 2008 Distinguished Lecture Series.

Kahneman opened the evening by presenting a series of examples of persistent flaws in intuition. In his “Linda” scenario, for example, Kahneman revealed the tendency for people to misjudge probabilities.

Respondents frequently estimate that the likelihood of a woman named Linda being both a bank teller and active in the feminist movement was greater than the probability of her just being a bankteller, simply because of the way Linda is described. But base-rate probabilities make it impossible for this to be true.

In a later slide, Kahneman displayed two identical multiplication problems on the screen in reverse order and showed that a person’s estimate of the answer depends on whether the numbers are arranged in ascending or descending order, with higher estimates predicted when larger numbers come first.

Kahneman explained that much of the success of his work has come from its narrow focus. “We did not try to make a general model of what we found because much of its meaning would have been lost,” he said.

Although the work may be narrow in its focus, it has proved widely applicable, he said, especially in the fields of social psychology and economics.

“We did not anticipate a response to our work and certainly did not expect to be talking about it 35 years later,” Kahneman said, in reference to his work on rapid judgments based on available and salient information, which he began in 1969.

Economics professor David I. Laibson ’88 provided post-lecture commentary, describing the major impact of Kahneman and other psychologists on the field of economics. To prove his point, Laibson presented a 2006 issue of The Economist with a cover story on “Happiness” and a 10-page report about the brain.

“We’re losing on every dimension,” Laibson joked, referring to psychology’s gaining influence on economics. In a more serious tone, Laibson described Kahneman as unique even among other Nobel Laureates in the field of economics.

Instead of exporting ideas from economics to other fields like many of his fellow laureates, he exported ideas into economics, Laibson said.

Psychological concepts that Kahneman has applied to economics include prospect theory, heuristics and biases, hedonics, and the two-system theory of intuition and reasoning.

After the presentation, Laibson described Kahneman as “among the handful of most influential economic contributors in the 20th century.”

For the two remaining lectures, Kahneman will speak on decision-making and rationality this evening and on evolving notions of well-being tomorrow.

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