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Daniel Kahneman: The father of behavioural economics

To mark 50 years of MT, here's the second in a series looking back at the best business brains since 1966.

by Andrew Saunders
Last Updated: 16 Jun 2016

A psychologist by training who has never taken a class in 'the dismal science' in his life, Israeli-born Daniel Kahneman nevertheless won the Nobel Prize for Economics in 2002. It was the culmination of a career spent reconciling the vagaries of human behaviour with the rigid (and often entirely mistaken) assumptions of classical economics.

Human beings, it turns out, do not always behave as rational 'maximisers of utility' - on the contrary our choices are influenced by a whole set of biases.

We are loss averse, subject to peer pressure and susceptible to logical fallacies. We prefer mental shortcuts to reasoning things out. We are fickle and we just can't help it.

Shakespeare knew it instinctively 500 years ago but Kahneman and his followers brought some academic rigour to the insight - and created a new field of study, behavioural economics, in the process.

Read Five things every leader should know - lessons from behavioural economics

Happily for those of us too busy making bad decisions to read all the professional journals, his 2012 bestseller Thinking, Fast and Slow distils it all into 'only' 481 pages. It encouraged entrepreneurs by pointing out that statistically, failure is usually followed by success, and also spawned a raft of popular economics texts studying the psychology behind everything from gambling to the sex industry.

Critics might say that Kahneman doesn't have much to offer those studying organisations rather than individuals. Or that his real lightbulb moment was spotting that economics was a discipline desperately in need of help. But behavioural economics has become the most influential arena of business thought, and Kahneman its father. No bias there.

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