Daniel Kahneman on Information and Biases

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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In this week’s Masters in Business podcast, we chat with Danny Kahneman, behavioral and cognitive psychologist and winner of the 2002 Nobel Memorial Prize in Economic Sciences. He is also the author of the highly regarded "Thinking, Fast and Slow."

Kahneman discusses how he met Amos Tversky, who became his longtime research partner. He notes “we” won the Nobel Prize, referring to his sharing of the honor with Tversky, who died before the prize was awarded (it is not awarded posthumously).

Kahneman explains how he and Tversky first discovered the heuristics of representativeness, availability and anchoring. He tells why going first in a negotiation is -- contrary to popular opinion -- a huge advantage, as the human brain tries to make sense of the number it receives, regardless of how ridiculous it may be.

The availability heuristic -- “WYSIATI,” or what you see is all there is -- reveals how people are unaware of what they do not know, and use whatever limited information may be available to create a coherent narrative, even when there is none. Hence, “availability bias” allows people to use what looks to be salient info to fabricate narratives that seem to make sense.

 

You can hear the full interview, including the podcast extras, by downloading the podcast at iTunesSoundCloud or Bloomberg. All of our earlier podcasts are at iTunesSoundCloud and Bloomberg.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Barry Ritholtz at britholtz3@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net