In countries where individuals must check the box TO donate, fewer than 20% do. In countries where individuals must check the box to NOT donate, over 80% choose to donate. A classic example is opt-in versus opt-out in organ donation, by checking a box on driver’s license applications. The chatty introduction of puzzles like this make the book a relatively easy and fun read certainly much more fun than an abstract discussion of utility theory versus decision theory versus prospect theory (prospect theory being Kahneman’s and Tversky’s modification of the simpler utility theory by integrating psychological elements dictated by experimental results such as the above).Īnother such psychological element is the framing effect, which is studied carefully by marketers, who have long been aware that different wordings of the same proposition can produce different effects. Results illustrate the certainty effect, showing that, when considering a 2% boost in the probability of winning, people valued the incremental 2% more when it moved you from uncertainty (albeit slight) to certainty, than when it merely boosted your chances slightly in a middling range. The above puzzle is one of a number of challenges to utility theory, and it arose out of the field of experimental economics. Utility is somewhat difficult to reduce to numbers, so in most cases of actual application, behavioral economists speak of money and its expected value.

Utility is a somewhat nebulous concept that reflects the fact that money means different things to different people, and that there is more to life than money.

However, in situation 2, nearly everyone chooses (B).įor many years, economists founded their theories on the precept that humans are rational beings, and act so as to maximize their utility. In each case, (B) offers a 2% boost in the probability of winning, but the expected value is higher for choice A in each case.

For example, in a discussion of utility theory, the following choices are presented to the reader:

The best feature of the book is the appearance, every few pages, of a puzzle-like choice for the reader. Kahneman’s 2011 classic, Thinking Fast and Slow, is a superbly-written non-technical summary of their fascinating research and its often counter-intuitive findings. Daniel Kahneman won a Nobel Prize in Economics for his work in behavioral economics, much of it with his colleague Amos Tversky, who died in 2006.

Thinking fast and slow book review