The Economist talked to Nobel Prize-winning psychologist Daniel Kahneman about his new book Thinking, Fast and Slow and his research on decision-making, well-being and behavioral economics. During the course of the interview, Kahneman, a member of RSF's Behavioral Economics Roundtable, offers suggestions for more reading and cites Nudge, a popular book about behavioral economics co-authored by RSF trustee Richard Thaler. Here is a sample of the interview:
What do we need to know about applying psychology to economics?
The realisation that people do not always make the sensible decisions that they would wish to make has implications for policy. This is where the major success of “nudges” has been reported. In the domain of personal investing there is very clear evidence that individuals, unless they have access to illegal information, should not trade in stocks because following their judgement costs them money. To reduce the incidence of costly mistakes, the choices offered by institutions and governments should be structured by providing people with a reasonable option from which they can opt out. Another hotly debated issue that arises indirectly from psychological research is the use of measures of well-being to help guide policy. In the UK the intellectual leader of the movement is my friend Richard Layard, and he and I don’t quite agree on the direction this should take. He is much more of an optimist than I am, and he would favour measures that would improve the happiness of the population, whereas I am more of a pessimist and believe that it should be the objective of policy to reduce suffering, which is not the same thing.
Read the full interview.