By DANIEL KAHNEMAN
Kahneman reflects on the assumptions of economic agents as rational and selfish with unchanging tastes, which starkly contrasts with psychological perspectives.
I. Selfishness
Advances in economics have challenged the assumption of selfishness, particularly through the ultimatum game and experiments showing people’s willingness to forgo personal gain to punish unfairness.
Brain-imaging studies support the significance of social motives beyond profit in games of trust and reciprocation.
II. Rationality
The assumption of rationality is seen as an approximation, with some economists questioning the impact of irrational behaviors and their persistence in the market.
Challenges to the standard of rationality include the Allais and Ellsberg paradoxes, and Simon’s concepts of satisficing and bounded rationality.
Kahneman and Tversky’s work on framing effects and invariance violations suggest that people’s decisions are predictably influenced by the presentation of choices, which is inconsistent with rationality.
III. Unchanging Tastes
The assumption of reference-independence in economics is questioned, with evidence suggesting that people’s preferences are influenced by their current endowment or reference point.
Prospect theory proposes that utility is carried not by states of wealth but by gains and losses relative to a reference point, with loss aversion being a key concept2.
IV. Future Directions
The gap between economics and psychology has narrowed, with behavioral economics introducing more psychologically plausible assumptions.
However, the methodological constraints of economics limit the integration of complex psychological models, suggesting that a complete convergence of the two disciplines is unlikely.
His document provides a critical examination of economic assumptions through a psychological lens, highlighting the progress made and the challenges that remain in bridging the gap between the two fields.
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