From The New Republic via Edge:
The collaboration of Kahneman and Tversky produced one of the major intellectual accomplishments of the late twentieth century: a series of ingeniously designed experiments that raised uncomfortable questions about “utility maximization,” which was the major assumption of microeconomics. To wit: it makes no difference in theory whether you lose a ticket to a play or lose the $10 that the ticket cost, but when people lose the ticket they are far less likely to buy another one than when they lose the money. Kahneman and Tversky’s explanation is that we create a mental account such that it makes sense to us to pay $10 to see a play but not $20, even though the utility sacrificed by losing the ticket and the money is identical.
(Note: Picture on right shows Dressed skeleton of Jeremy Bentham with wax head, British Museum).
Tversky died of cancer in 1996. Kahneman won the Nobel Prize in economics in 2002, and is an emeritus professor at Princeton. Between them, they rattled the role of reason in the pantheon of human motives. They made clear that even if we think we know what is in our own best interest, we frequently make decisions based on misinformation, myopia, and plain quirkiness. The picture of human nature that they developed was–in contrast to the world of homo economicus— ironic, skeptical, almost wickedly complex.
More here.
