The human mind is filled with and run by cognitive biases. We are players in the game of life without even understanding its rules. We think we are in complete control though our own thinking is below our own awareness. Let me ask you a question.
You are in an electronics store. You see a calculator for Rs.300. The shop executive says their nearby branch is offering the same at Rs. 200. Will you buy there or go to the other store to save Rs. 100?
In experiments, a majority said they will go to the other store to save Rs. 100.
You are in a store to buy TV. It costs Rs. 39,800. The shop executive says their nearby branch is offering the same at Rs. 39,700. Will you buy there or go to the other store to save Rs. 100?
Majority, in experiments, said they would buy it in the first store itself.
The amount you save in both the cases are the same. Yet, the human mind acts differently in both cases. Thanks to the cache of cognitive biases that afflicts us. Here is one more…
You are in a theatre and realize you have lost some money. Will you still buy a ticket and watch the film?
In research, many said they will.
You are in a theatre and you realize you lost the ticket. Will you buy another ticket or go home?
Many said they would go home!
Dr. Daniel Kahneman and Amos Tversky, two Israeli-American psychologists, exposed such hard-wired mental biases in people’s economic behaviour. They proved human beings, left to themselves, are apt to engage in methodical fallacies and systematic errors.
Thanks to his work, Daniel Kahneman was awarded the Nobel Prize for Economics in 2002, ‘for having integrated insights from psychological research into economic science, especially concerning human judgement and decision-making under uncertainty’.
While many have won, Daniel Kahneman was the first psychologist to win the coveted prize in economics! He and Tversky helped establish the field of Behavioural Economics which applies psychological insights to the study of economic decision-making.
Dr. Kahneman spent a great deal of his career with fellow psychologist and friend, Amos Tversky. He always felt Tversky deserved more credit than he did. They even tossed a coin to find out whose names should appear first in their research work. Tversky would have shared the Nobel prize with Kahneman if only he had not died in 1996. Nobel is never awarded posthumously.
Dr. Daniel Kahneman, the man who made us realize the folly of the human mind and its cognitive conundrums, passed away yesterday. To go meet his long-lost friend, Amos Tversky!