A bat and a ball cost $1.10 together. If the bat costs $1 more than the ball, how much is the ball?
That was the question Daniel Kahneman (1934-2024), professor emeritus of psychology and public affairs at Princeton University, used to ask students at three prestigious U.S. universities, including Harvard.
To his shock, more than half of the students gave wrong answers.
A psychologist by profession, Kahneman analyzed the psyche of his students, which led him to the assumption that even those who gave the correct answer--“5 cents”--must have thought “10 cents” at first.
He concluded that humans err because they tend to rely solely on intuition, and that the students who got the answer right did so only because they somehow managed to self-correct.
Through his experiments and research from the psychological perspective, Kahneman co-founded behavioral economics.
He was initially treated as a heretic in academic circles.
Why does the pain of losing 100 dollars feel much stronger than the joy of gaining 100 dollars? This cannot be explained by one of the axioms of economics, which is that humans make decisions based on reason.
Eventually, Kahneman won high acclaim for his successful application of psychology and human emotions to economic analysis.
When he was co-awarded the 2002 Nobel Memorial Prize in Economic Sciences, people were surprised by the fact that he was a psychologist.
Kahneman challenged and greatly changed the traditional theories of economics. He died on March 27 at age 90.
As someone who studied economics with no knowledge of behavioral economics, I now find Kahneman’s books and papers immensely convincing.
At the time, I was getting sick and tired of complicated formulas and graphs, and I never thought they would be useful in real life.
Whether examining the lost three decades or the ultra-loose monetary policies that the Bank of Japan has finally ended, the economy in real life does not function as planned.
I wonder if the “heart” Kahneman was passionate about exists at all in the nation’s current economic policies.
--The Asahi Shimbun, March 29
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*Vox Populi, Vox Dei is a popular daily column that takes up a wide range of topics, including culture, arts and social trends and developments. Written by veteran Asahi Shimbun writers, the column provides useful perspectives on and insights into contemporary Japan and its culture.
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