10 Questions for Daniel Kahneman

Psychologist and Nobel-winning economist Daniel Kahneman on why people don't make rational choices

By Belinda Luscombe Monday, Nov. 28, 2011
    • Erik Tanner for TIME

    David Kahneman for 10q

    In your book Thinking, Fast and Slow, you frame the way we think as two different systems. What are they?

    Slow thinking has the feeling of something you do. It's deliberate. It gives you a sense of agency. That's not at all the way it happens when fast thinking operates, like when you brake a car suddenly.

    You say we often believe we're thinking slow when we're not. What are the biggest mistakes we make as a result?

    We are normally blind about our own blindness. We're generally overconfident in our opinions and our impressions and judgments. We exaggerate how knowable the world is.

    What's your favorite experiment that demonstrates our blindness to our own blindness?

    It's one someone else did. During [the '90s] when there was terrorist activity in Thailand, people were asked how much they'd pay for a travel-insurance policy that pays $100,000 in case of death for any reason. Others were asked how much they'd pay for a policy that pays $100,000 for death in a terrorist act. And people will pay more for the second, even though it's less likely.

    What about experts? Shouldn't we trust their instincts?

    There are domains in which expertise is not possible. Stock picking is a good example. And in long-term political strategic forecasting, it's been shown that experts are just not better than a dice-throwing monkey.

    Does behavioral economics explain the financial crisis?

    Overconfident optimism on the part of people who were speculating or buying houses that they couldn't afford played a role. But [regular] economics actually gives a very good explanation: there were people who had incentives to take very large risks for their company, risks that they haven't been punished for.

    You endorse a kind of libertarian paternalism that gives people freedom of choice but frames the choice so they are nudged toward the option that's better for them. Are you worried that experts will misuse that?

    What psychology and behavioral economics have shown is that people don't think very carefully. They're influenced by all sorts of superficial things in their decisionmaking, and they procrastinate and don't read the small print. You've got to create situations so they'll make better decisions for themselves.

    Such as?

    You'd certainly want to reframe decisions about savings. People should have to opt out [of automatic payroll savings plans] instead of opt in.

    Has your research changed the way you live?

    When you analyze happiness, it turns out that the way you spend your time is extremely important. Decisions that affect how much time you spend with people you like are going to have a very large effect on how happy you are--not necessarily satisfied with your life but happy. So yes, I've learned things.

    You're a psychologist who won a Nobel in economics. Which Nobel are you going for next?

    I don't think I'm a candidate for any others.

    Physics? I hear that one's easy.

    Maybe. One could start.

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