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| Daniel Kahneman answered questions about his work from media representatives and the University community at a news conference Oct. 9. |
In its announcement, the Royal Swedish Academy of Sciences cited Kahneman "for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty." His work laid the foundation for a new field of research and "inspired a new generation of researchers in economics and finance to enrich economic theory using insights from cognitive psychology into intrinsic human motivation," the academy said.
Kahneman has been the Eugene Higgins Professor of Psychology and professor of public affairs in the Woodrow Wilson School of Public and International Affairs since 1993.
"It's not just that he did this psychological work and eventually economists caught on," said Deborah Prentice, chair of the psychology department. "He's worked hard to make them catch on and to demonstrate that his insights matter to what economists care about."
Kahneman is one of a handful of psychologists who have won the Nobel Prize in its 101-year history. That is likely to give the field of psychology a boost. "It's an opportunity to educate people about the contributions that psychological science can make in many disciplines and in many aspects of life," Prentice said.
But when Kahneman was doing his groundbreaking work in the 1970s, he had his share of detractors. "I think he certainly faced some resistance by some very fine people," said Alan Krueger, the Lynn Bendheim Thoman, Class of 1976, and Robert Bendheim, Class of 1937, Professor in Economics and Public Affairs in the Woodrow Wilson School. "But his approach to the world has been that people are entitled to disagree with him. He's very open-minded, and not critical of people who criticize him."
Kahneman was awarded the economics prize along with Vernon Smith, a professor of economics and law at George Mason University. Kahneman and Smith will share the $1 million prize money.
Shortly after the announcement, Kahneman was greeted in Robertson Hall by colleagues, students, reporters and staff who filled Dodds Auditorium and roared with applause as he was introduced. "We are honored to have Professor Kahneman on our faculty, and delighted that his work has gained this important international recognition," said President Tilghman.
Kahneman described how his landmark paper on decision-making, which contradicted the accepted thinking of the time, would not have been widely recognized had it not been published in a journal outside his field. "(Winning the Nobel Prize) would not have happened if exactly the same paper had been published in a psychological journal," he said. "Because it was published in an economics journal, it had a fair amount of influence on the profession and it sort of legitimized a certain approach to thinking about decision-making which eventually, through the work of other economists, became influential in economics itself."
But even today, that approach "is a minority movement" in economics, Kahneman said.
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| Dodds Auditorium in Robertson Hall was filled for a news conference, during which colleagues, students, reporters and staff roared with applause as President Tilghman introduced Kahneman. |
Challenging assumptions in economics
Kahneman's work has "challenged the microfoundations of economics," said Prentice. "He has documented the shortcuts people take and the biases they have in making decisions. When people don't have a systematic way of making a decision, they do what they can, and that was news to psychologists and economists."
Before Kahneman's work was published, economists had assumed humans were motivated by self-interest and made rational decisions. In addition, economics had been considered a nonexperimental science that relied on real-world observations.
"If people are not always capable of making rational decisions, then a lot of what economists had inferred on the basis of those assumptions really needed to be re-examined," Prentice said. "Nowadays there's a growing body of research called experimental economics that is testing economic assumptions in the laboratory, largely because of Danny's work." (For an example of Kahneman's work, see the article on page 7.)
"He's challenged the basic model of how individuals behave economically," said Gene Grossman, chair of Princeton's economics department. "The standard model is that everybody is rational, self- interested, calculating; he's suggested that more psychological motives determine people's behavior and that these motives are important for economic phenomena."
The paradigm of the rational actor has not been thrown out, said Grossman, "but I think there is now a broader range of thinking about certain issues, especially savings behavior and participation in the stock market. There are certain phenomena in macroeconomics, especially concerning equity markets, that are very hard to understand without relaxing the rational actor model and relying on some psychological influences."
Despite the enormous influence his work has had in the field of economics, Kahneman is loath to step too far out of his areas of expertise. When asked by reporters to comment on issues of monetary policy, he firmly declined, saying, "I'm happy to say that as a psychologist who never had a course in economics, I don't have to answer your question."
A shadow over the joy
Kahneman learned that he had won the prize from a 9 a.m. phone call. "Someone with a very distinct Swedish accent called, and he read me a citation -- actually, I was a bit excited, I suppose I didn't really hear it. And then he said ... I will give you the chair of the committee, who happens to be someone I know, and so we verified that this was for real and not a particularly nasty crank call."
When asked what the prize meant to him, Kahneman said, "The work for which I'm honored is work I did collaboratively with a close friend and a very famous psychologist, Amos Tversky, who died in 1996. Certainly we would have gotten this together, and that's one of the things that this means to me today. There is that shadow over the joy I feel."
"Together we developed an approach to the study of judgment and decision-making that gained some influence in psychology and economics," Kahneman said. "Many others have contributed as well. The Nobel award in economic sciences is given in recognition of ideas that have been influential in some field of economics. In this case, the award reflects the remarkable success of an approach known as behavioral economics, which is pushing the frontiers of research by introducing psychologically realistic models of economic agents into economic theory."
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| Kahneman and his wife, Anne Treisman, also a Princeton faculty member, shared a celebratory glass of champagne at a reception following the news conference. |
Born in 1934 in Tel Aviv, Israel, Kahneman received his bachelor's degree in psychology and mathematics from Hebrew University and his Ph.D. from the University of California-Berkeley in 1961. He taught at Hebrew University from 1961 to 1978 and at the University of British Columbia from 1978 to 1986. From 1986 to 1994 he was a professor at the University of California-Berkeley.
He has won the Hilgard Award for Lifetime Contribution to General Psychology and the Warren Medal of the Society of Experimental Psychologists. The American Psychological Association recognized him with its Distinguished Scientific Contribution Award in 1982.
Kahneman has dual citizenship in the United States and Israel. He is married to Anne Treisman, the James McDonnell Distinguished University Professor of Psychology at Princeton.
Since 1993, the year he arrived at Princeton, Kahneman has co-taught "Introduction to Psychology," better known as "Psych 101." "He likes introducing students to the field," Prentice said. "And he has been a good mentor to colleagues, turning his attention in recent years to collaborations, especially interdisciplinary ones."
"It's been great to work with him," said Robert Morris, a senior who chose Kahneman as his thesis adviser after proposing research ideas to several faculty members last summer. "I knew my choice of an adviser would be one of the most important parts of my thesis. I could immediately tell that he was going to be very reachable and receptive."
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For a list of current faculty and research staff members who have won the Nobel Prize, see "By the numbers". A former Princeton faculty member, John Fenn, shared the 2002 Nobel Prize in chemistry. Fenn, a research professor in the Department of Chemistry at Virginia Commonwealth University, was a faculty member in Princeton's Department of Aerospace and Mechanical Sciences (now Mechanical and Aerospace Engineering) from 1959 to 1967. In addition, Riccardo Giacconi, a winner of this year's Nobel in physics, spent two years (1958-59) as a full-time postdoctoral research associate in Princeton's Department of Physics working with Professor Emeritus George Reynolds. Giacconi currently is president of Associated Universities Inc. and a research professor at Johns Hopkins University. |
That initial impression has been borne out, said Morris, whose thesis involves conducting an experiment to examine how emotions affect decision- making. "It's surprising, given his prestige, but he's been eager to work with me and is the easiest person to reach. If he's five minutes late, he's extremely apologetic -- just a very nice person."
Kahneman was the first psychologist with a joint appointment in the Woodrow Wilson School, and he was involved in developing a psychology class requirement for graduate students in the school. "Danny convinced me that it would be a very good idea to have much more psychology in the Woodrow Wilson School," said Michael Rothschild, the former dean.
"We at the Woodrow Wilson School could not be more pleased and proud, not only of Danny but of the superb work he has done," said the school's current dean, Anne-Marie Slaughter. "He has married psychology and economics in ways that enrich both academic theory and policy practice."
As a Nobel Laureate, Kahneman plans to continue those collaborations. When it comes to spending his award money, which he will receive with his prize in ceremonies Dec. 10 in Stockholm, the 68-year-old will be putting his findings on economic decision-making to good use. "One thing that I do know is that sensible financial decisions are a function of age," he said, "and my age is going to have a great deal to do with it."
Staff Writer Steven Schultz also contributed to this story.
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