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Heuristics)and)Biases)to)Behavioural+Economics:"A"Sociology(of(a(Psychology(of(

Error!Zara$Thokozani$Kamwendo$

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PhD$Science$and$Technology$Studies$$

The$University$of$Edinburgh$

2016

$ 3$

$

I$declare$that$this$thesis$has$been$composed$solely$by$myself$and$that$it$has$not$

been$submitted,$in$whole$or$in$part,$in$any$previous$application$for$a$degree.$

Except$where$states$otherwise$by$reference$or$acknowledgment,$the$work$

presented$is$entirely$my$own.$$

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Signature:$$ $ $ $ $ Date:$$ $ $

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$ 5$

Abstract!

This$ thesis$ is$ a$ sociological$ history$ of$ the$ making$ of$ behavioural$ economics.$

Behavioural$ economics$ is$ a$ discipline$ in$ which$ economists$ draw$ on$

psychological$ knowledge$ and$ approaches$ to$ understand$ economic$ behaviour.$

The$narrative$begins$with$the$lives$and$work$of$psychologists$Daniel$Kahneman$

and$Amos$Tversky$in$the$newly$established$state$of$ Israel.$ It$ then$moves$from$

the$making$of$ the$so$called$Heuristics$and$Biases$Programme$ in$ the$1970’s$ to$

the$privately$funded$Behavioural$Economics$Program$in$the$USA$in$the$1980’s.

Using$ a$ blend$ of$ analysis$ of$ archival$ documents,$ published$ material,$ and$

interviews$ I$ seek$ to$understand$ the$ formation$of$ the$discipline$of$behavioural$

economics$by$applying$the$notion$of$a$psychology)of)error$as$an$analytical$tool.$

The$small$number$of$historians$who$have$studied$behavioural$economics$have$

all$identified$a$concern$with$human$error$as$a$crucial$element$of$its$intellectual$

makeup.$ I$ take$ this$ observation$ further$ by$ arguing$ that$ both$ Kahneman$ and$

Tversky’s$ Heuristics$ and$ Biases$ Programme$ and$ behavioural$ economics$ are$

psychologies) of) error$ because$ the$ object$ to$ be$ explained$ in$ both$ fields$ was$

restricted$ to$ behavioural$ deviations$ from$ a$ normative$ core.$ In$ the$ case$ of$

Heuristics$and$Biases$that$normative$core$consisted$of$a$blend$of$statistical$and$

logical$norms$imported$from$traditional$decision$theory$about$what$constituted$

rational$ decision$making.$ In$ the$ case$ of$ behavioural$ economics$ the$normative$

core$was$made$up$of$assumptions$about$rational$economic$behaviour$developed$

by$neoTclassical$economists.

Understanding$ behavioural$ economics$ as$ a$ psychology$ of$ error$ allows$me$ to$

shed$light$on$the$complicated$relationship$between$behavioural$economics$and$

neoTclassical$ economics.$ Specifically$ it$ helps$ explain$ how$ behavioural$

economists$sought$to$strike$a$careful$balance$between$critiquing$the$descriptive$

claims$of$neoTclassical$economists$and$reinforcing$their$normative$ambitions.$

$

$ 7$

Acknowledgements!

As$is$the$case$with$all$processes$of$knowledgeTmaking,$this$thesis$is$a$result$of$

collective$ effort.$ My$ heartfelt$ thanks$ are$ due:$ To$ Jane% Calvert,$ for$ always$

understanding$me$ even$when$ I$ didn’t$make$ sense,$ and$ defending$my$whacky$

ideas$in$a$way$that$made$me$feel$that$she$trusted$they$would$make$sense$in$the$

end.$ To$ Steve% Sturdy,$ for$ encouraging$ me$ to$ be$ a$ historian,$ and$ for$ always$

elevating$my$half$baked$insights$to$a$level$worthy$of$a$doctoral$thesis.$To$Sarah%

Parry$ and$David% Bloor$ for$allowing$me$ to$progress$after$my$ first$year$board$

examination$despite$the$obvious$flaws$of$the$project,$for$steering$me$in$the$right$

direction,$ and$ for$ understanding$ that$ I$ was$ not$ a$ historian$ yet.$ To$ Gregory%

Clancey$who$heard$my$pleas$and$gave$me$a$place$to$call$home$in$Singapore.$To$

Axel%Gelfert,$who$steadfastly$supervised$me$during$my$time$away$from$home.$$

To$Daniel%Kahneman$and$Eric%Wanner$for$granting$me$interviews$and$being$

so$generous$with$the$information$they$were$willing$divulge.$To$the%staff%at%the%

Rockefeller%Archive%Center,$who$were$all$so$helpful$and$kind$to$the$amateur$

archival$ researcher$ that$ I$was.$ To$ the% boys% on% the% third% floor% of% Tembusu%

College,$who$reminded$me$everyday$ that$ their$home$was$also$mine.$To$Anna$

and$Kate$ who$ have$ both$ at$ different$ times$ had$ the$ experience$ of$ housing$ a$

sometimes$ tired$ and$ grumpy$ PhD$ student.$ To$ my$ family:$ my% mother,$ my%

father$and$my%brother$for$encouraging,$comforting,$scolding$and$loving$me$in$

unequal$ measure.$ A$ special$ thanks$ to$ my$ mother,$ who$ was$ one$ of$ the$ few$

people$ in$ this$ world$ to$ read$ my$ entire$ thesis$ before$ submission,$ ostensibly$

without$ complaint.$ Craig,$ there$ is$ not$ space$ on$ this$ page$ to$ express$ my$

gratitude$for$your$support,$but$here$at$least$is$the$mention$you$deserve.$And$last$

but$not$least$to$my$three$examiners$Matthias%Klaes,$Catelijne%Coopmans$and$

Steve% Yearley.$ Thank$you$ for$ engaging$with$me$and$my$work,$ I$ am$sincerely$

appreciative$of$you$both$your$time$and$your$energy.$In$short,$thank$you$all,$for$

having$provided$me$with$exactly$what$I$needed$when$I$needed$it.$$

$ 9$

Table&of&Contents!Abstract%.................................................................................................................................%5$

Acknowledgements%...........................................................................................................%7$

Table%of%Contents%...............................................................................................................%9$

List%of%Figures%and%Tables%............................................................................................%12$

CHAPTER%1:%THE%SCIENCE%OF%IRRATIONALITY?%...................................................%13$

The%Arrival%of%Homo$Irrationalis%......................................................................................%13$

Establishing% Heuristics% and% Biases% and% Behavioural% Economics% as% Object% of%

Study%..........................................................................................................................................%19$

Arriving%at%the%Psychology%of%Error%.................................................................................%25$

The$centrality$of$error$in$heuristics$and$biases$.....................................................................$25$

From$methodological$to$analytical$tool$....................................................................................$27$

Beyond$a$rhetorical$function$of$error$........................................................................................$31$

Why%a%Sociological%History%of%a%Discipline?%..................................................................%33$

Collection$and$use$of$archival$material$.....................................................................................$37$

Conducting$interviews$......................................................................................................................$40$

Thesis%Structure%.....................................................................................................................%46$

CHAPTER% 2:% KAHNEMAN% AND% TVERSKY% AND% THE% FORMATION% OF% A%

PSYCHOLOGY%OF%ERROR%IN%ISRAEL%..........................................................................%51$

Israeli%Institutions%Under%Construction:%Statistics%Versus%Common%Sense%.......%53$

The$logical,$the$psychoTlogical,$and$the$use$of$social$science$for$nationTbuilding$.$57$

Tversky%and%Decision%Theory%............................................................................................%66$

The$normative/descriptive$distinction$and$the$conservative$Bayesian$.....................$67$

Tversky$and$the$problem$of$the$human$as$instrument$......................................................$70$

Collaboration%at%the%Hebrew%University%of%Jerusalem%..............................................%75$

The$beginnings$of$a$new$approach$to$decision$making$.....................................................$79$

CHAPTER%3:%THE%MAKING%OF%THE%HEURISTICS%AND%BIASES%PROGRAMME%

(1971]1981)%.....................................................................................................................%83$

The%Core%Premise%...................................................................................................................%84$

Debunking$the$intuitive$statistician:$beginning$with$experts$.........................................$85$

Heuristics%and%Biases:%From%Expert%to%Lay%and%Back%Again%....................................%89$

$ 10$

Representativeness:$using$everyday$examples$.....................................................................$89$

Availability:$heuristics$at$work$in$various$stages$of$the$thought$process$.................$95$

Adjustment$and$Anchoring:$taking$the$relevance$out$of$relevance$..............................$96$

The$three$heuristics$working$in$tandem$..................................................................................$97$

Prospect%Theory:%Mobilising%Micro]Economics%........................................................%100$

Enrolling$economists$......................................................................................................................$107$

Framing$effects:$how$heuristics$affect$decision$making$on$several$levels$..............$111$

The% Relationship% Between% Heuristics,% Psychology% and% Normative% Decision%

Rules%........................................................................................................................................%114$

How$the$strength$of$the$heuristics$relates$to$the$strength$of$the$programme$......$115$

The$normative/descriptive$distinction$personified$..........................................................$118$

CHAPTER% 4:% THE% MAKING% OF% THE% BEHAVIORAL% ECONOMICS% PROGRAM%

(1984]1992)%...................................................................................................................%123$

The%Launch%of%the%Behavioral%Economics%Program%.................................................%125$

Populating$the$field:$Kahneman,$Tversky$and$Thaler$......................................................$128$

Rationality$principle$on$trial$.......................................................................................................$135$

Solicitation$using$requests$for$proposals$...............................................................................$140$

Move$to$Russell$Sage$and$becoming$a$joint$programme$.................................................$142$

Real$world$social$problems$and$the$concerns$of$the$Russell$Sage$Board$................$144$

The%Interdisciplinary%Challenge%.....................................................................................%146$

Working$groups$.................................................................................................................................$147$

Funding$the$core$set$........................................................................................................................$149$

From$shotgun$to$rifle$......................................................................................................................$152$

Ending$the$programme$in$1992$.................................................................................................$155$

After$ the$Behavioral$Economics$Program:$The$Behavioral$Economics$Roundtable$

and$the$Summer$Institute$.............................................................................................................$157$

CHAPTER% 5:% ESTABLISHING% BEHAVIOURAL% ECONOMICS% AS% A% SUB]

DISCIPLINE%OF%ECONOMICS%......................................................................................%161$

Avoiding$the$hybrid$.........................................................................................................................$162$

Getting$economists’$attention$.....................................................................................................$163$

Differentiating%Behavioural%Economics%from%Neighbouring%Fields%...................%165$

Economic$sociology$.........................................................................................................................$165$

Experimental$economics$...............................................................................................................$170$

Establishing%the%Lack%of%Descriptive%Validity%of%Neo]classical%Economics%.......%175$

$ 11$

Economists’$and$psychologists’$respective$deficit$.............................................................$175$

Finance$and$game$theory:$Hard$targets$of$neoTclassical$economic$theory$.............$176$

Accumulating$anomalies:$Early$behavioural$economics$as$"Kuhn$in$action"$........$177$

From%Descriptive]predictive%to%Normative]prescriptive%.......................................%184$

Laying$a$path$to$policy$....................................................................................................................$184$

NeoTclassical$economics$as$justification$for$the$normativeTprescriptive$agenda$187$

CHAPTER%6:%THE%ANALYTICAL%PURCHASE%OF%THE%PSYCHOLOGY%OF%ERROR191$

The%Purchase%of%Using%the%Psychology%of%Error%as%Analytical%Tool%.....................%191$

The$rationale$behind$the$sociology$of$error$and$its$consequences$............................$191$

Heuristics%and%Biases%as%the%Right%Sort%of%Promise%..................................................%196$

The$ Modus$ Operandi$ of$ Heuristics$ and$ Biases$ and$ the$ role$ of$ the$ ‘normative$

kernel’$....................................................................................................................................................$201$

CHAPTER% 7:% LESSONS% FROM%A% SOCIOLOGICAL%HISTORY%OF% THE%MAKING%

OF%A%PSYCHOLOGY%OF%ERROR%...................................................................................%211$

Summary:% The% Beginnings% of% the% Psychology% of% Error% in% the% Heuristics% and%

Biases%Programme%..............................................................................................................%212$

Summary:% The% Development% of% the% Psychology% of% Error% in% Behavioural%

Economics%...............................................................................................................................%214$

The$psychology$of$error$as$justification$for$a$behavioural$economics$......................$214$

Strengthening$the$error$approach$by$targeting$"rationality$strongholds"$.............$216$

Differentiation$from$economic$sociology$and$experimental$economics$..................$218$

The%Psychology%of%Error%and%the%Relationship%Between%Behavioural%Economics%

and%Neo]classical%Economics%...........................................................................................%221$

The$apparent$paradox$....................................................................................................................$221$

The$ psychology$ of$ error$ and$ the$ normativeTprescriptive$ agenda$ of$ behavioural$

economics$............................................................................................................................................$224$

A% different% Kind% of% Monster:% The% Creation% of% Homo$ Irrationalis% as% an%

Unintended%Consequence%of%the%Psychology%of%Error%.............................................%227$

The$normative$question:$Were$we$ever$rational,$and$should$we$be?$........................$234$

Bibliography%...................................................................................................................%239$

Un]published%sources%..................................................................................................%248$

Appendices%.............................................................................................................................%253$

$ 12$

Appendix$ 1:$ Rules$ Governing$ the$ Use$ of$ Archival$Material$ T$ Rockefeller$ Archive$

Center$....................................................................................................................................................$253$

Appendix$2:$Request$for$Copies$T$Rockefeller$Archive$Center$......................................$254$

Appendix$3:$Digital$Camera$Use$Policy$T$Rockefeller$Archive$Center$........................$255$

Appendix$4:$Permission$to$Publish$T$Rockefeller$Archive$Center$...............................$256$

Appendix$5:$Interview$Questions$for$Daniel$Kahneman$.................................................$257$

Appendix$6:$Interview$Questions$for$Eric$Wanner$............................................................$258$

List%of%Figures%and%Tables!Figure%1:%Graphic%representation%of%historiograph%using%VOS%viewer%.....................................%21$

Figure%2:%Citations%of%“Judgment%Under%Uncertainty”%(1974)%by%research%area%‘economics’%

and%‘psychology’%from%1975%to%2012,%using%citation%rate%information%from%Web%of%

Science.%.................................................................................................................................................%22$

Figure%3:%Citations%of%“Prospect%Theory”%(1979)%by%research%area%‘economics’%and%

‘psychology’%from%1979%to%2012,%using%citation%rate%information%from%Web%of%Science

%................................................................................................................................................................%23$

Figure%4:%Number%of%citations%per%year%in%behavioural%economics%and%decision%making%

from%1970%to%early%2013.%...............................................................................................................%24$

Figure%5:%“The%Bias%Model%in%Cognitive%Psychology”%from%(Bloor,%2010).%................................%29$

Figure%6:%“The%Bias%Model%in%the%Historiography%of%Science”%from%(Bloor,%2010).%...............%29$

Figure%7:%Hypothetical%Value%function%of%Prospect%Theory%from%(Kahneman%&%Tversky,%

1979,%p.%279).%..................................................................................................................................%104$

Figure%8:%Hypothetical%Weighting%function%from%(Kahneman%&%Tversky,%1979%p.%283)%..%105$

Figure%9:%Images%of%Kahneman%and%Tversky%from%Discover%Magazine%1985.%.....................%119$

Figure%10:%Distribution%between%psychologists%and%economists%of%projects%funded%by%the%

Behavioral%Economics%Program%1984]1990%........................................................................%151$

Figure%11:%The%psychology%of%error%in%heuristics%and%biases%and%behavioural%economics

%.............................................................................................................................................................%207$

$ 13$

CHAPTER(1:(THE(SCIENCE(OF(IRRATIONALITY?!!

We$ feel$ that$ the$wrong$ sort$ of$ promise$ is$ being$made$when$we$ are$ offered$ […]$

psychological$ explanations$of$ our$ correct$ estimations$of$ shape,$ size,$ illumination$

and$ speed.$ Let$ the$ psychologist$ tell$ us$ why$ we$ are$ deceived;$ but$ we$ can$ tell$

ourselves$and$him$why$we$are$not$deceived$(Ryle,$2009,$p.$299).$

The$Arrival$of$Homo$Irrationalis$

The$verdict$ is$ in$ –$humans$ are$ irrational.$The$ idea$ that$humans$ are$ generally$

rational$has$in$recent$years$met$with$significant$challenge.$Behind$this$challenge$

lies$ a$ group$ of$ social$ scientists$ who$ combine$ psychological$ knowledge$ with$

economic$ theory.$ Over$ the$ course$ of$ the$ past$ 40$ years,$ these$ social$ scientists$

have$formed$a$discipline$that$they$have$named$behavioural)economics.$$

With$the$formation$of$behavioural$economics$there$has$appeared$an$additional$

character$ to$play$ a$part$ in$ the$ longstanding$debate$over$ the$nature$of$ human$

reasoning.$ I$ call$ this$ character$Homo) Irrationalis.1$Homo) Irrationalis$ is$ a$ good$

example$of$Hacking’s$(2007)$observations$of$how$categories$of$humans$–$“kinds$

of$ people”$ –$ are$made$ and$manifested$ through$ the$work$of$ psychologists$ and$

others$whose$business$it$is$to$create$knowledge$about$humans.$This$particular$

character$is$manifested$from$the$accumulation$of$empirical$evidence$produced$

by$ behavioural$ economists$ that$ support$ the$ hypothesis$ that$ humans$ often$ do$

not$behave$according$the$dictates$of$economic$rationality.$

I$ first$ came$ across$ Homo) Irrationalis$ in$ Ben$ Goldacre’s$ Bad) science) (2008).$2$

Goldacre’s$ book$ is$ intended$ to$ aid$ layTpeople$ to$ differentiate$ between$ good,$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

1$Because$ the$ character$ was$ created$ as$ a$ counterpart$ to$Homo)Economicus$ I$ think$ he$ is$ best$

labelled$with$the$Latin$Homo)Irrationalis.)$

2$Goldacre$ was$ also$ the$ author$ of$ the$ “Bad$ Science”$ column$ for$ the$ British$ newspaper$ The)

Guardian)between$2003$and$2011$so$he$his$ideas$have$had$distribution$beyond$the$two$books:$

Bad)Science$(Goldacre,$2008)$and$Big)Pharma$(Goldacre,$2012).$

$ 14$

trustworthy$scientific$knowledge$and$the$kinds$of$knowledge$disseminated$by$

scientific$ pretenders.$ In$ it,$ Goldacre$ uses$ the$ characterisation$ of$ humans$ as$

generally$irrational$as$grounds$for$the$superiority$of$what$he$considers$genuine$

scientific$methods$over$human$intuition$and$common$sense.$It$is$simultaneously$

a$justification$for$his$project.$It$is$because$humans$are$irrational,$that$some$help$

distinguishing$between$good$scientific$knowledge$and$bad$scientific$knowledge$

is$in$order:$$

By$ now$ your$ head$ is$ hurting,$ because$ of$ all$ those$ mischievous,$ confusing$

homeopaths$ and$ their$ weird,$ labyrinthine$ defences:$ you$ need$ a$ lovely$ science$

massage.$ Why$ is$ evidence$ so$ complicated?$Why$ do$ we$ need$ all$ of$ these$ clever$

tricks,$these$special$research$paradigms?$The$answer$is$simple:$the$world$is$much$

more$complicated$than$simple$stories$about$pills$making$people$get$better.$We$are$

human,$ we$ are$ irrational,$ we$ have$ foibles,$ and$ the$ power$ of$ the$mind$ over$ the$

body$ is$ greater$ than$ anything$ you$ have$ previously$ imagined$ (Goldacre,$ 2008$ p.$

62).$

That$humans$are$irrational$is$a$matter$of$fact$for$Goldacre.$We$(the$readers)$are$

told$ simply$ that$ we$ are$ irrational$ because$ we$ are$ human$ and$ humans$ are$

irrational,$ the$ confusion$ that$ he$ assumes$ is$ felt$ by$ the$ irrational$ reader$ is$

allowed$ to$ speak$ for$ itself.$ Goldacre$ can$ make$ this$ assumption$ with$ some$

confidence,$ because$ he$ is$ familiar$ with$ the$ literature$ of$ what$ he$ calls$ “the$

science$ of$ irrationality”$ (Goldacre,$ 2008$ p.$ xii).$ The$ science$ of$ irrationality$ is$

what$Goldacre$ calls$ a$ collection$of$ psychological$ studies$ that$demonstrate$ the$

discrepancy$between$ the$ intuitive$rules$of$ thumb$that$humans$commonly$use,$

and$the$more$calculated$methods$of$statistics.$$

But$the$question$of$whether$humans$are$to$be$thought$of$as$generally$rational$

or$generally$ irrational$ is$not$only$a$ tool$of$ justification$ for$ science$evangelists$

like$ Goldacre.$ There$ is$ now$ a$ fair$ amount$ of$ popular$ factual$ books$ in$ which$

Homo)Irrationalis$is$the$protagonist.$Thomas$Gilovich’s$How)We)know)What)Isn’t)

So:)The)Fallibility)of)Human)Reason)in)Everyday)Life$published$in$1993$is$one$of$

the$earliest$example$ (Gilovich,$1993).$Two$decades$ later$ the$ list$of$books$ that$

popularise$the$new$science$of$irrationality$has$grown$exponentially.$$

$ 15$

Dan$ Ariely’s$ Predictably) Irrational:) the) hidden) forces) that) shape) our) decisions$

(Ariely,$ 2008),$ brothers$ Ori$ and$ Rom$ Brafman’s$ Sway:) The) Irresistible) Pull) of)

Irrational)Behaviour)(Brafman$&$Brafman,$2008),$Malcolm$Gladwell’s$Blink:)the)

power)of)thinking)without)thinking$ (Gladwell,$ 2005),$Robert$ Shiller’s$ Irrational)

Exuberance$ (Shiller,$ 2000),$ and$ Kahneman’s$ Thinking,) Fast) and) Slow$

(Kahneman,$2011)$are$all$examples$of$books$written$for$a$lay$audience$with$the$

purpose$ of$ disseminating$ selected$ parts$ of$ the$ “new$ science$ of$ irrationality”.3$

These$ titles$ are$ just$ a$ few$ examples$ of$ many.$ The$ list$ of$ books$ about$

irrationality$and$its$effects$on$decision$making,$economic$and$otherwise,$is$now$

extensive.$$

In$ 2013$ I$ signed$ up$ for$ a$massive$ open$ online$ course$ or$ “MOOC”$ in$ order$ to$

experience$ for$ myself$ how$ the$ science$ of$ irrationality$ was$ taught$ to$ a$ lay$

audience.$I$also$suspected$it$would$be$a$fun$way$to$familiarise$myself$with$the$

substantive$ content$ of$ behavioural$ economics.$ The$ course$ was$ called) A)

Beginners)Guide)to)Irrational)Behavior$ given$by$Dan$Ariely$at$Duke$University.$

Being$a$student$of$behavioural$economics$for$a$time$was$both$entertaining$and$

eye$opening.$The$course$was$designed$to$be$engaging$in$a$humorous$way.$It$was$

presented$as$a$gleeful$exploration$of$less$than$rational$human$behaviour.$Those$

of$ us$ who$ participated$ and$ handed$ in$ our$ assignments$ on$ time$ were$

congratulated$for$having$followed$through$on$this$exploration$of$our$irrational$

selves.$I$am$now$the$proud$owner$of$a$statement$of$accomplishment$that$reads:$$

Receiving$this$statement$of$Accomplishment$is$an$incredible$achievement,$and$you$

should$show$ it$off$ to$all$your$ friends$and$hang$ it$ in$your$ living$room$next$ to$ the$

display$case$of$trophies$that$you$must$also$own.$The$bar$was$high,$and$you$leapt$

right$over$it.$Way$to$go!$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

3$Thinking,) Fast) and) Slow$ quickly$ became$ very$ popular$ when$ it$ was$ first$ published.$ It$ was$

selected$by$the$New)York)Times)Book)Review$as$one$of$the$best$books$of$2011,$was$a$Globe)and)

Mail$Best$Books$of$the$Year$2011$title,$one$of$The)Economist’s$2011$Books$of$the$Year,$one$of$The)

Wall)Street)Journal’s$Best$Nonfiction$Books$of$ the$Year$2011,$and$was$ the$winner$of$ the$2011$

Los)Angeles)Times$Book$Prize$for$Current$Interest.$

$ 16$

I$ irreverently$ opted$ not$ to$ follow$ orders$ to$ hang$ this$ statement$ in$my$ living$

room,$but$I$did$stick$a$copy$of$it$on$the$wall$next$to$my$desk.$It$serves$as$a$good$

reminder$of$both$the$spread$and$the$popularity$of$both$Homo)Irrationalis,$and$

the$new$science$of$irrationality.$$

Taking$part$in$the$course$not$only$gave$me$some$substantive$knowledge$about$

what$heuristics$and$biases$and$behavioural$economics$consists$of,$ it$also$drew$

my$attention$to$a$kind$of$ interplay$between$rationality$and$ irrationality$ in$the$

recruitment$process.$ It$highlighted$the$way$ in$which$the$ irrevocably$ irrational$

“me”$could$be$recruited$on$the$assumption$that$I$would$wish$to$do$better.$The$

course$ throughout$ (not$ just$ the$ title)$ oscillated$between$urging$ acceptance$ of$

irrationality$ as$ a$ general$ human$ condition$ and$ finding$ and$ applying$ tools$ for$

overcoming$ it.$ Those$ of$ us$ who$ had$ successfully$ completed$ the$ course$ did$

indeed$ seem$ to$ emerge$ as$ a$ group$ of$ people$ who$ were$ perhaps$ the$ most$

rational$possible$precisely$because$we$had$shown$both$a$willingness$to$accept$

our$irrational$nature$and$to$explore$the$limited$ways$available$to$resist$it.$In$the$

time$it$took$to$complete$the$course$what$struck$me$was$the$extent$to$which$the$

function$of$Homo)Irrationalis$was$not$just$to$justify$a$certain$kind$of$knowledge$

making,$ but$ also$ as$ justification$of$ its$dissemination,$ in$ this$ case,$ drawing$ the$

attention$of$the$interested$laity.$$

Perhaps$the$most$significant$impact$of$the$arrival$of$Homo)Irrationalis$to$date$on$

the$ lives$ of$ you$ and$ I$ has$ been$ through$ government$ policy.$ In$ 2010$ the$ UK$

government$under$the$leadership$of$the$prime$minister$David$Cameron$set$up$a$

self$ contained$ policy$ unit:$ the$ Behavioural$ Insights$ Team,$ colloquially$ the$

“Nudge$ Unit”,$ to$ develop$ and$ implement$ policies$ with$ this$ conception$ of$ the$

irrational$ human$ in$ mind.4$The$ nickname$ the$ “Nudge$ Unit”$ for$ this$ policy$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

4$On$May$1st$2013$it$was$announced$that$the$Behavioural$Insights$Team$would$become$a$jointT

venture$ company,$ owned$ in$ equal$ thirds$ by$ a$ private$ investor,$ the$members$ of$ staff$ and$ the$

government.$The$split$took$effect$on$the$5th$of$February$2014.$$

$ 17$

department$came$from$what$ is$perhaps$the$most$popular$and$ influential$book$

on$the$use$of$Homo)Irrationalis$in$public$policy$making:$Richard$Thaler$and$Cass$

Sunstein’s$ Nudge:) Improving) decisions) about) health,) wealth) and) happiness)

(Thaler$&$Sunstein,$2008).5$$

Sunstein$is$a$powerful$political$player.$Before$writing$the$book$with$Thaler,$he$

had$given$testimony$in$front$of$the$US$Congress$several$times,$acted$as$advisor$

to$former$President$Clinton,$and$consulted$the$governments$of$Albania,$Ukraine,$

China,$ and$ South$ Africa$ on$ judicial$ and$ constitutional$matters$ (Kusch,$ 2007).$

Sunstein$ was$ a$ colleague$ of$ Barack$ Obama$ at$ the$ University$ of$ Chicago$ Law$

School.$ He$ worked$ as$ a$ campaign$ advisor$ to$ Obama$ during$ his$ presidential$

campaign$ and$ continued$ to$ serve$ the$ Obama$ administration$ at$ the$ Office$ of$

Information$and$Regulatory$Affairs$between$2009$and$2012.$$

In$the$final$chapter$of$Nudge,$Thaler$and$Sunstein$elaborate$on$their$theories$to$

develop$ the$ political$ position$ they$ give$ the$ name$ “libertarian$ paternalism”.$

Libertarian$paternalism$is$essentially$the$idea$that$the$knowledge$produced$by$

behavioural$ economists$ can$ offer$ a$ way$ to$ both$ preserve$ freedom$ of$ choice$

while$gently$manipulating$ those$choices$ in$a$way$ that$ improves$people’s$ lives$

(Thaler$ &$ Sunstein,$ 2008).$ Thaler$ and$ Sunstein$ write$ that$ they$ hope$ that$

Libertarian$ Paternalism$ can$ offer$ a$ “real$ Third$Way”,$ a$ genuine$ compromise$

between$government$ intervention$ and$ the$preservation$of$ individual$ freedom$

of$choice$(Thaler$&$Sunstein,$2008,$p.$252).$Libertarian$Paternalism$then$is$an$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

In$2012$the$Behavioural$ Insights$Team$collaborated$with$Ben$Goldacre$to$produce$a$paper$on$

the$ uses$ of$ randomised$ controlled$ trials$ for$ the$ development$ of$ public$ policy.$ The$ paper$

confirms$ the$ relationship$ between$ ideas$ about$ correct$ scientific$ methods,$ ideas$ about$ the$

fallibility$ of$ human$ reasoning$ and$ policyTmaking.$ In$ the$ paper$ the$ authors$ argue$ that$

randomised$ controlled$ trials$ should$ be$ used$more$ systematically$ for$ policyTmaking$ than$ they$

are$currently,$and$set$out$nine$steps$for$successful$use$of$randomised$controlled$trials$(Haynes,$

Service,$Goldacre,$&$Torgerson,$2012)).$$

5$Thaler$was$awarded$the$Nobel$prize$in$Economic$Sciences$in$October,$2017.$The$award$was$in$

large$ part$motivated$ by$ the$work$ he$ has$ done$ to$ show$ "how$policies$ based$ on$ insights$ from$

behavioral$ economics$ can$ help$ people$ make$ better$ decisions"$ (Advanced$ Information.$ (n.d.).$

Retrieved$ October$ 29,$ 2017,$ from$ https://www.nobelprize.org/nobel_prizes/economicT

sciences/laureates/2017/advanced.html,$p.$24).$$

$ 18$

expression$ of$ the$ normativeTprescriptive$ agenda$ of$ behavioural$ economics$ in$

which$Homo)Irrationalis$plays$a$central$role.$$

My$thesis$is$a$sociological$history$of$the$formation$of$the$combination$of$fields$

that$ for$ better$ of$ worse$ helped$ usher$ in$ the$ notion$ of$ Homo) Irrationalis:$

heuristics$ and$ biases$ and$ behavioural$ economics.$ The$ thesis$ includes$ both$

heuristics$ and$ biases$ and$ behavioural$ economics$ because$ behavioural$

economics$was$built$by$applying$the$so$called$Heuristics$and$Biases$Programme$

to$ economic$ decision$ making$ (although,$ as$ will$ become$ apparent,$ this$ short$

description$of$behavioural$economics$is$a$somewhat$misleading$simplification).$$

As$ a$ disciplinary$ history$ the$ overarching$ goal$ of$ the$ thesis$ is$ to$ understand$

where,$when,$ how$and$why$ the$discipline$of$ behavioural$ economics$ emerged.$

Using$ a$ blend$ of$ analysis$ of$ archival$ documents,$ published$ material$ and$

interviews,$I$piece$together$a$narrative$of$the$making$of$behavioural$economics.$$

The$ few$ historians$ of$ behavioural$ economics$ that$ there$ are$ to$ date$ have$

identified$ a$ particular$ approach$ to$ human$ error$ as$ a$ crucial$ element$ of$ the$

intellectual$makeup$of$the$field.$I$take$the$notion$of$the$error$approach$further$

by$ arguing$ that$ both$ Kahneman$ and$ Tversky’s$ Heuristics$ and$ Biases$

Programme$and$behavioural$economics$are$psychologies$of$error$ in$ the$sense$

that$ the$ explanatory$ sphere$ in$ both$ fields$ is$ limited$ to$ descriptive$ deviations$

from$a$normative$core,$which$functions$as$a$benchmark.$I$argue$further$that$the$

psychology$ of$ error$ has$ been$ mobilised$ in$ various$ ways$ at$ several$ points$ in$

their$development.$

Mobilising$the$notion$of$a$psychology$of$error$as$an$analytical$tool$helps$explain$

how$ behavioural$ economists$ managed$ to$ simultaneously$ critique$ and$

strengthen$the$assumptions$of$neoTclassical$economics.$This$makes$sense$since$

the$ key$ to$ a$ psychology$ of$ error$ is$ that$ an$ analysis$ that$ restricts$ itself$ to$

deviations$from$a$norm,$by$virtue$of$the$restriction,$strengthens$the$normativity$

of$ that$ norm.$ The$ decision$ before$ contemporary$ behavioural$ economists$ is$

whether$maintaining$ the$ psychology$ of$ error$ approach$ remains$ legitimate$ in$

$ 19$

the$ face$ of$ mounting$ questions$ about$ the$ normativity$ of$ neoTclassical$

economics.$$

Establishing$ Heuristics$ and$ Biases$ and$ Behavioural$ Economics$ as$

Object$of$Study$$

When$I$began$working$on$the$thesis,$I$took$as$task$number$one$to$try$to$identify$

who$was$behind$the$empirical$study$of$rationality.$The$first$step$in$my$plan$of$

attack$was$a$ literature$search$around$key$search$terms.$ I$used$Boolean$search$

operators$in$the$Web)of)Science$database$to$attempt$to$get$as$specific$a$result$as$

possible,$while$ still$ keeping$ the$ search$wide$ enough$ so$ as$ not$ to$ exclude$ any$

relevant$ published$ material$ in$ my$ initial$ searches.$ My$ aim$ was$ to$ discern$

citation$ patterns$ in$ the$ literature$ about$ rationality,$ irrationality,$ decision$

making$and$cognitive$errors.$ I$hoped$to$ find$clusters$of$scholarship$ that$could$

serve$as$a$clue$to$where$to$begin$my$investigation.$I$also$hoped$it$would$help$me$

begin$‘mapping$the$field’$to$get$a$clearer$idea$of$the$object$of$my$thesis$i.e.$the$

key$scholars$that$I$should$be$focusing$on.$$

My$initial$searches$turned$out$to$be$too$blunt.6$A$review$of$the$abstracts$within$

the$ initial$ data$ set$ revealed$ that$work$ on$ irrationality$ and$ cognitive$ errors$ of$

decision$making$was$spread$widely$across$a$variety$of$loosely$defined$areas$of$

application.$These$included$the$development$of$models$of$cognitive$deficiency,$

social$ psychological$ bias$ theories$ (including$ cognitive$ dissonance,$ and$

attribution$ bias)$ educational$ psychology$ (critical$ skills$ and$ reasoning$ ability$

models)$ medicine,$ (mainly$ focused$ on$ the$ elimination$ of$ human$ error$ in$

diagnosis$and$other$medical$procedures)$and$ last$but$not$ least,$debates$about$

common$ errors$ in$ psychological$ research$ (erroneous$ statistical$ analysis$ and$

inferences$etc.).$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

6$For$ example$ the$ search$ (Psycholog*$ OR$ Cognit*)$ AND$ (error*$ OR$ Judgement$ OR$ “Decision$

making”$ OR$ Bias*$ OR$ Prejudice*)$ rendered$ over$ 17.000$ hits$ through$ the$ Web) Of) Science)

database.$$

$ 20$

Some$ intuitive$ refinement,$ which$ consisted$ of$ excluding$ all$ of$ the$ above$

mentioned$areas$ in$order$ to$hone$ in$on$psychological$ studies$ that$ focused$on$

human$ reasoning$ and$ cognition,$ reduced$ the$ number$ of$ relevant$ records$

significantly.$ To$ gain$ a$ clearer$ sense$ of$ key$ publications$ and$ core$ groups$ of$

academics,$ I$ applied$ the$ citations$ I$ had$ gathered$ from$ the$ Web) of) Science$

database$to$a$software$package$called$Histcite.)Histcite$ is$a$citation$package$for$

the$ analysis$ of$ bibliometric$ data$ that$ enables$ the$ user$ to$ see$ patterns$ in$

citations$over$time.$It$is$designed$to$allow$the$user$to$discern$the$development$

of$a$field$through$citation$patterns.$It$is$also$able$to$identify$highly$cited$articles$

that$may$not$be$captured$by$the$initial$key$word$search.$$

Histcite$ produces$ graphic$ visualisations$ of$ citations$ over$ time$ called$

“historiographs”.$These$ are$ graphic$ representations$of$ citation$patterns$ in$ the$

form$ of$ nodes$ representing$ individual$ publications,$ and$ lines$ that$ represent$

connections$between$publications.$The$kinds$of$dense$graphs$that$are$produced$

by$high$numbers$of$publications$are$quite$difficult$to$read.$To$enable$discussion,$

I$ therefore$ created$ a$ visual$ representation$ of$ the$ historiographs$ produced$ in$

Histcite$ using$ a$ bibliometric$ network$ visualisation$ tool$ called$ VOS) viewer$

(Figure$1,$below).7$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

7$The$observant$reader$will$notice$that$the$bibliographic$map$only$shows$Kahneman’s$name$and$

not$ Tversky’s.$ This$ is$ because$ Tversky$ died$ in$ 1996$ while$ Kahneman$ is$ still$ alive,$ and$ has$

therefore$been$significantly$more$prolific$in$relative$terms.$$

$

$ 21$

Figure$1:$Graphic$representation$of$historiograph$using$VOS$viewer$

$

This$ “map”$ produced$ through$ the$ VOS) viewer$ was$ based$ on$ coTcitation$ by$

authors$of$publications$generated$by$keyword$search.$In$other$words,$it$shows$

the$ names$ of$ the$ most$ highly$ cited$ authors$ in$ the$ specified$ field.$ The$ name$

Kahneman$appeared$ clearly$ at$ the$ apex$of$ the$ general$ field$ that$ I$was$ aiming$

for.$ A$ quick$ study$ of$ Kahneman’s$ work$ led$ to$ Tversky$ and$ the$ collaboration$

between$Kahneman$and$Tversky.$Most$of$ the$work$cited$on$ the$psychology$of$

decision$making$is$coTauthored$by$Kahneman$and$Tversky$and$makes$up$what$

is$called$the$Heuristics$and$Biases$Programme.8$$

To$summarise,$it$was$the$combination$of$these$Web)of)Science$searches$and$the$

historiographs$ produced$ in$ Histcite$ that$ revealed$ the$ work$ of$ psychologists$

Kahneman$ and$ Tversky$ to$ be$ a$ cornerstone$ of$ work$ published$ on$ cognitive$

errors$associated$with$human$reasoning.$The$next$step$in$my$exploration$of$the$

literature$on$heuristics$and$biases$and$behavioural$economics$was$ to$perform$

specific$searches$on$key$publications$by$Kahneman$and$Tversky.$My$goal$was$to$

see$ who$ had$ been$ citing$ their$ publications$ and$ how$ the$ citations$ for$ each$

publication$were$ distributed$ across$ psychology$ and$ economics.$ This$ could$ be$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

8$The$fact$that$Kahneman’s$name$appears$on$the$map$depicted$above$and$Tversky’s$does$not$is$

the$ result$ of$ combination$ between$ Kahneman’s$ name$ appearing$ first$ on$ a$ number$ of$ key$

publications$and$Tversky$passing$away$in$1996.$$

$ 22$

done$ with$ the$ use$ of$ citation$ rate$ information$ from$ the$Web) of) Science,$ and$

subsequently$illustrated$in$a$graph$using$graphTmaking$tools$in$Word$(Figure$2$

below).$$

Three$articles$in$particular$seemed$canonical$and$almost$obligatory$citations$for$

anyone$else$writing$on$the$psychology$of$cognitive$error:$Their$1974$“Judgment$

Under$Uncertainty”$ (Tversky$&$Kahneman,$1974),$ their$1984$ “Choices,$Values$

and$ Frames”)(Kahneman$&$Tversky,$ 1984),$ and$ their$ 1979$ “Prospect$ Theory:$

An$Analysis$of$Decisions$Under$Risk”$ (Kahneman$&$Tversky,$1979).$ “Prospect$

Theory”$was$overwhelmingly$the$most$cited$of$these$three$articles.$$

I$was$curious$as$to$what$field$the$authors$who$had$cited$key$articles$belonged$

to.$Dividing$the$citations$up$with$the$help$of$algorithms$that$divide$citations$by$

‘research$area’$ in$Web)of)Science$ allowed$me$ to$get$ a$ clearer$ idea$of$who$was$

citing$ what.$ Figure$ 2$ below$ illustrates$ citations$ of$ “Judgment$ Under$

Uncertainty”$using$citation$rates$ from$Web)of)Science.$These$kinds$of$ searches$

showed$ citations$ by$ two$ groups$ of$ scholars$ in$ particular:$ psychologists$ and$

economists.$The$ figure$shows$how$citation$rates$ in$ the$area$of$psychology$are$

only$slightly$higher$than$citation$rates$for$articles$published$in$economics.$$

Figure$2:$ Citations$of$ “Judgment$Under$Uncertainty”$ (1974)$by$ research$area$ ‘economics’$

and$‘psychology’$from$1975$to$2012,$using$citation$rate$information$from$Web$of$Science.$

$

$ 23$

Figure$ 3:$ Citations$ of$ “Prospect$ Theory”$ (1979)$ by$ research$ area$ ‘economics’$ and$

‘psychology’$from$1979$to$2012,$using$citation$rate$information$from$Web$of$Science)

$

A$comparison$between$Figure$2$and$Figure$3$illustrating$citations$of$“Prospect$

Theory”$that$“Judgement$Under$Uncertainty”$had$been$cited$much$more$evenly$

among$ psychologists$ and$ economists.$ This$ is$ not$ entirely$ surprising$ since$

“Prospect$ theory”$ is$ a$ reworking$ of$ expected$ utility$ theory$ and$ deals$ more$

specifically$ with$ the$ consequences$ of$ psychological$ phenomena$ on$ economic$

decision$ making.$ The$ relationship$ between$ psychology$ and$ economics$ is$ a$

central$ theme$ in$ the$making$of$behavioural$economics,$and$ is$ therefore$also$a$

recurring$theme$in$the$thesis.$As$became$apparent$throughout$the$writing$of$the$

thesis,$it$is$also$more$complicated$than$an$initial$look$at$citation$patterns$could$

convey.$I$return$to$the$issue$of$how$behavioural$economists$wished$their$field$to$

be$ understood$ in$ relation$ to$ psychology$ and$ economics$ in$ chapter$ 5$ on$

establishing$behavioural$economics$as$a$subTdiscipline$of$economics.$$

What$can$be$said$of$these$searches$is$that$they$established$a$bibliographic$link$

between$ Kahneman$ and$ Tversky’s$ Heuristics$ and$ Biases$ Programme$ and$ the$

field$ of$ research$ in$ which$ economists$ explore$ the$ psychology$ of$ economic$

decision$ making:$ behavioural$ economics.$ With$ this$ link$ established,$ I$ had$

arrived$ at$ a$ definition$ of$ my$ object$ of$ study$ T$ the$ making$ of$ Kahneman$ and$

Tversky’s$Heuristics$and$Biases$Programme$and$the$formation$of$the$discipline$

of$behavioural$economics.$$

$ 24$

I$ could$ now$ focus$ on$ how$ to$ collect$ the$ data$ that$ I$ needed.$ I$ performed$

additional$ literature$searches$more$specific$to$my$core$set$of$scholars,$and$the$

topic$ of$ behavioural$ economics$ and$ decision$ making$ science$ in$ the$Web) of)

Science$database$in$order$to$discern$increases$in$citations$over$time$of$articles$

within$ my$ already$ identified$ research$ area.$ My$ hope$ was$ that$ I$ would$ see$ a$

spike$ in$ the$number$of$ citations$ that$ could$ give$ clues$ as$ to$when$behavioural$

economics$ started$becoming$a$more$established$ field.$A$ search$of$ this$ kind$ in$

Web$ of$ Science9$rendered$ 5466$ results$ of$ published$ items$ between$ 1970$ and$

2013$represented$in$the$so$called$histogram$below:$10$

Figure$4:$Number$of$citations$per$year$in$behavioural$economics$and$decision$making$from$

1970$to$early$2013.$

$

The$ histogram$ showed$ a$ marked$ increase$ in$ publications$ in$ behavioural$

economics$and$decision$making$beginning$in$the$early$1990’s.$It$helped$give$an$

indication$as$to$when$the$field$started$to$become$more$established.$Still,$it$was$

difficult$ to$ deduce$ to$ what$ extent$ this$ was$ a$ reflection$ of$ an$ increase$ in$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

9 $I$ used$ the$ following$ Boolean$ search$ pathway$ on$ the$ 21st$ of$ February$ 2013:$

Topic=(“behavioural$ economics”)$ OR$ Topic=(“behavioral$ economics”)$ OR$ Topic=(“decision$

making$ theory”)$ OR$ Topic=(“decision$ science”)$ NOT$ Topic=(“moral”)$ OR$ Topic=(“decision$

theory”).$$

10$I$ performed$ the$ search$ early$ 2013.$ This$ is$ reflected$ in$ the$ very$ low$number$ of$ citations$ in$

2013.$$

$ 25$

academic$publications$generally.$Also,$of$course$this$kind$of$analysis$of$quantity$

of$publications$per$year,$gives$little$indication$of$the$content$of$the$publications,$

other$than$that$they$are$all$related$to$the$keywords$in$the$initial$search.$$

To$summarise,$my$process$of$delineating$the$scope$of$the$project$went$through$

roughly$ three$ stages.$ Searching$ for$ the$ science$ of$ irrationality$ led$ to$ the$

identification$of$Kahneman$and$Tversky’s$Heuristics$and$Biases$Programme$as$

the$source.$Tracing$citation$patterns$ for$ their$publications$ led$ to$ the$strand$of$

behavioural$ economics$ which$ was$ initially$ funded$ through$ the$ Behavioral$

Economics$ Program.$ With$ the$ link$ established$ between$ this$ strand$ of$

behavioural$economics$and$the$Behavioral$Economics$Program$the$decision$was$

made$ to$ make$ the$ archival$ documents$ of$ the$ programme$ (kept$ at$ the$

Rockefeller$Archive$Centre)$the$bulk$of$my$data.$Together,$this$helped$define$the$

scope$ of$ thesis$ to$ begin$ with$ the$ formation$ of$ the$ Heuristics$ and$ Biases$

Programme$ and$ end$ with$ the$ discontinuation$ of$ the$ Behavioral$ Economics$

Program.$

Arriving$at$the$Psychology$of$Error$

The$centrality$of$error$in$heuristics$and$biases$$

Because$ behavioural$ economics$ is$ a$ young$ discipline$ there$ are$ as$ yet$ few$

histories$ written$ about$ its$ disciplinary$ formation.$ The$ first$ and$ only$

comprehensive$history$of$ the$making$of$behavioural$economics$ is$historian$of$

economics$ Floris$ Heukelom’s$ recently$ published$ Behavioral) Economics:) A)

History$(2014).$The$monograph$is$based$on$his$thesis$(Heukelom,$2009)$and$a$

set$ of$ previously$ published$ articles$ (Heukelom,$ 2010,$ 2011,$ 2012a,$ 2012b).$

Heukelom’s$ is$primarily$ an$ intellectual$history$ that$ traces$ the$development$of$

behavioural$economics$from$the$incorporation$of$game$theory$in$economics$and$

psychology,$ to$ developments$ in$ experimental$ methods$ for$ economics$ and$

defining$ behavioural$ economics$ with$ the$ help$ of$ the$ Behavioral$ Economics$

Program.$

$ 26$

There$is$also$a$short$but$informative$article$by$another$historian$of$economics$

EstherTMirjam$ Sent$ (2004)$ in$ which$ she$ outlines$ the$ difference$ between$

Kahneman$ and$ Tversky$ style$ behavioural$ economics$ and$ Herbert$ Simon’s$

earlier$iteration$of$behavioural$economics$in$order$to$establish$why$the$former$

seems$to$have$been$successful$where$the$latter$failed$to$capture$the$attention$of$

economists$ and$ find$ a$ way$ to$ become$ at$ least$ partly$ assimilated$ into$ the$

mainstream$ of$ the$ discipline.$ In$ a$ similarly$ comparative$ vein$ Pooley$ and$

Solovey$ (2010)$ explore$ the$ question$ of$ why$ the$ behavioural$ sciences$ were$

largely$ ignored$ in$ the$ decade$ after$ WW2.$ Where$ Sent$ in$ effect$ sets$ out$ to$

answer$the$question$“if$not$then,$why$now?”$in$relation$to$the$application$of$the$

behavioural$sciences$to$economics,$Pooley$and$Solovey$turn$the$question$on$its$

head$ and$ ask:$ “if$ now,$ why$ not$ then?”$ (Pooley$ &$ Solovey,$ 2010,$ p.$ 199).$ By$

examining$ the$ reasons$ for$ the$ limited$ place$ of$ economics$ in$ the$ early$

developments$of$the$Ford$Foundation’s$Behavioral$Science$Program,$they$show$

how$developments$within$ the$ program$ reflected$ and$ reinforced$ the$ “growing$

postwar$hegemony$of$the$neoclassical$approach”$(p.$230)$which$ultimately$also$

served$to$keep$the$behavioural$and$the$economic$sciences$separate.$$

All$ of$ these$ explorations$ support$ the$ notion$ that$ the$ development$ of$

behavioural$ economics$of$ today$marks$ a$ shift$ in$ the$ relationship$between$ the$

behavioural$ and$ the$ economic$ sciences.$ Furthermore,$ although$ their$ projects$

are$ different$ in$ both$ scale$ and$ content,$ both$ Sent$ and$Heukelom$ identify$ and$

place$ considerable$ emphasis$ on$ the$ notion$ of$ error$ as$ a$ thread$ that$ weaves$

through$new$behavioural$economics.$In$relation$to$“error”$Sent$focuses$on$how$

the$ retention$ of$ neoTclassical$ economics$ as$ the$ normative$ core$ added$ to$ the$

appeal$ and$ acceptance$ of$ behavioural$ economics$ by$ mainstream$ economists,$

and$Heukelom$on$how$Kahneman’s$particular$approach$to$“error”$helped$solve$

an$ intellectual$ problem$ for$ Tversky$ that$ he$ inherited$ from$ formal$ decision$

theory.$$

The$ idea$ that$ error$was$ central$ to$ the$psychology$behind$what$Goldacre$ later$

labelled$“the$science$of$irrationality”$was$thus$confirmed$by$my$initial$readings$

of$ secondary$ sources$ on$ heuristics$ and$ biases$ and$ the$ kind$ of$ behavioural$

$ 27$

economics$that$mobilises$that$work.$The$interesting$thing$for$me$as$a$trainee$of$

the$sociology$of$science$was$that$the$notion$of$“error”$also$triggered$a$specific$

set$of$concepts$tied$to$what$sociologist$of$science$David$Bloor$had$dubbed$“the$

sociology$of$error”.$$

From$methodological$to$analytical$tool$

A$sociology$of$error,$the$way$that$Bloor$conceptualises$it,$is$a$sociology$in$which$

sociological)explanation) is)restricted) to)deviations) from)correctness$ (i.e.$ ‘error’).$

Bloor$famously$presented$the$project$of$the$Strong$Program$of$the$Sociology$of$

Scientific$ Knowledge$ (SSK)$ in$ the$ form$ of$ four$ tenets:$ Causality,$ Impartiality,$

Symmetry,$ and$ Reflexivity$ (Bloor,$ 1991).$ Impartiality$ and$ Symmetry$ are$

particularly$pertinent$to$the$understanding$of$Bloor’s$rejection$of$the$sociology$

of$ error.$ The$ impartiality$ tenet$ is$ precisely$ Bloor’s$ call$ for$ sociological$

investigation$ to$ pertain$ to$ both$ correct$ and$ incorrect$ knowledge,$ or,$ more$

accurately$in$sociological$terms,$to$both$successful$and$unsuccessful$knowledge$

claims.$The$symmetry$ tenet$ is$ the$ idea$ that$ the$same$kinds$of$causes$apply$ to$

both$ successful$ and$ unsuccessful$ knowledge$ claims.$ In$ other$ words,$ it$ is$ not$

enough$ for$ the$ sociologist$ to$ include$ both$ successful$ and$ unsuccessful$

knowledge$claims$in$their$analysis,$they$also$need$to$treat$them$symmetrically,$

attributing$ to$ them$ the$ same$ kinds$ of$ causes.$ Symmetry$ and$ Impartiality$ are$

closely$ related$ which$ is$ why$ they$ are$ sometimes$ referred$ to$ together$ as$ the$

symmetry$postulate$(Golinski,$1998).$

The$symmetry$postulate$(and$the$relativism$which$follows$from$it)$calls$for$the$

analyst$to$account$for$how$and$why$a$given$concept$is$employed,$and$to$refrain$

from$making$essentialist$ judgements$on$veracity.$The$symmetry$ tenet$and$the$

notion$ of$ the$ sociology$ of$ error$were$used$by$Bloor$ to$ set$ the$ agenda$ for$ the$

Sociology$of$Scientific$Knowledge$and$to$separate$it$from$traditional$history$and$

philosophy$ of$ science.$ His$ methodological$ point$ is$ that$ sociological$ factors$

should$not,$as$they$are$in$traditional$history$of$science,$only$be$used$to$explain$

episodes$of$science$that$history$has$deemed$erroneous.$

$ 28$

Early$2013$I$had$a$conversation$with$David$Bloor$after$a$lecture$he$gave$at$the$

department$here$in$Edinburgh$on$the$notion$of$relativism.$We$spoke$about$my$

thesis$project$and$it$jogged$his$memory$of$an$unpublished$article$he$had$written$

on$the$ topic$of$ the$relationship$between$the$Sociology$of$Scientific$Knowledge$

and$ psychologist$ Gerd$ Gigerenzer’s$ work$ on$ “bounded$ rationality”.$ He$

generously$shared$the$article$with$me,$and$it$set$me$on$course$for$the$analytical$

perspective$ that$ I$ take$ in$ my$ thesis.$ The$ article$ is$ a$ reply$ to$ a$ critique$ of$

Sociology$ of$ Scientific$ Knowledge$ that$ cognitive$ psychologist$ Gerd$Gigerenzer$

coTwrote$with$the$philosopher$Thomas$Sturm$(Sturm$&$Gigerenzer,$2006).$In$it$

Bloor’s$main$argument$is$that$proponents$of$bounded$rationality$and$Sociology$

of$Scientific$Knowledge$should$be$in$dialogue$with$each$other$by$virtue$of$what$

they$ have$ in$ common$ in$ the$way$ they$ approach$ their$ critique$ of$ behavioural$

economics$ on$ the$ one$ hand$ and$ ‘rationalistic$ approaches$ to$ the$ history$ of$

science’$on$the$other.$His$aim$is$thus$to$“increase$crossTdisciplinary$awareness$

by$focusing$on$the$relatively$neglected$boundary$between$cognitive$psychology$

and$the$sociology$of$knowledge”$(Bloor,$2010,$p.$1).$

In$ order$ to$ do$ this$ he$ begins$ by$ outlining$ the$ difference$ between$ the$

behavioural$ economics$ approach$ to$ rationality$ (which$ he$ calls$ ‘biased$

rationality’)$and$the$bounded$rationality$approach$to$rationality,$a$controversy$

that$he$locates$within$cognitive$psychology.$Bloor$illustrates$the$approach$both$

with$ the$ help$ of$ examples$ (mainly$ the$ Linda$ problem$ which$ I$ describe$ in$

chapter$3)$and$the$following$graph:$

$ 29$

Figure$5:$“The$Bias$Model$in$Cognitive$Psychology”$from$(Bloor,$2010).$

$

$

$

This$graph$particularly$highlights$the$‘rational$yardstick’$approach$of$the$biased$

rationality$ position.$ Bloor’s$ argument$ is$ that$ ‘the$ psychological’$ in$ the$ biased$

rationality$approach$is$banished$to$the$realm$of$the$sources$of$bias$–$hence$he$

calls$ it$ a$ ‘psychology$ of$ error’.$ The$ graph$ also$ becomes$ essential$ for$ Bloor’s$

major$ point$ –$ that$ the$ bounded$ rationality$ approach$ and$ SSK$ are$ similar$

because$the$two$approaches$are$fighting$similar$battles.$This$he$illustrates$by$a$

comparison$between$the$above$graph$and$the$following$graph$meant$to$depict$

the$‘rationalistic$approach$to$the$history$of$science’$that$SSK$is$critical$of.$

Figure$6:$“The$Bias$Model$in$the$Historiography$of$Science”$from$(Bloor,$2010).$

$

$

In$the$same$way$that$the$‘biased$rationality$approach’$restricts$the$possibility$of$

explanations$ in$ terms$of$ psychological$ causes$ to$ the$ realm$of$ deviations$ from$

‘rationality’,$ the$ ‘rationalistic$ approach$ to$ the$ history$ of$ science’$ restricts$ the$

possibility$ of$ explanations$ of$ scientific$ knowledge$ in$ terms$ of$ socioT

WRONG ANSWERS

SOURCES OF BIAS

RIGHT ANSWERS

IRRATIONAL DEVIATION

SOCIO-PSYCHOLOGICAL CAUSES

RATIONAL SCIENCE

$ 30$

psychological$ causes$ to$ the$ realm$ of$ deviations$ from$ ‘rational$ science’.$ Bloor$

puts$it$like$this:$

the$point$to$be$underlined$is$the$structural$and$methodological$similarity$between$

the$ bias$ model$ in$ cognitive$ psychology$ and$ the$ position$ against$ which$ the$

supporters$of$the$Strong$Program$were$protesting.$The)Strong)Program)was)simply)

the)rejection)of)a)philosophical)and)historiographical)version)of)the)bias)model.)The)

target) of) the) Strong) Program) was) nothing) other) than) the) bias) model) writ) large$

(Bloor,$2010,$p.$11,$emphasis$added).$

One$of$ the$ consequences$of$ both$ ‘bias$models’$ according$ to$Bloor$ is$ that$ they$

“generate$ the$misleading$ appearance$ of$ large$ amounts$ of$ irrationality.$ In$ one$

case$the$irrationality$is$said$to$infect$large$tracts$of$everyday$life;$in$the$other$it$

is$said$to$infect$large$tracts$of$science”$(Bloor,$2010,$p.$11).$

Receiving$this$article$from$Bloor$was$a$significant$turning$point$in$the$process$of$

defining$ the$ approach$ that$ I$ take$ in$ the$ thesis.$ In$ the$ article,$ Bloor$ makes$ a$

methodological$ point$ that$ bounded$ rationality$ and$ SSK$ should$ be$ allied,$ by$

pointing$ out$ that$ Gigerenzer’s$ bounded$ rationality$ and$ SSK$ share$ a$ common$

desire$not$to$be$sociologies$or$psychologies$of$error$respectively.$$

For$me,$the$significance$of$the$article$centred$on$two$points.$First,$it$suggested,$

and$this$was$ in$ line$with$my$own$thinking,$ that$heuristics$and$biases$could$be$

understood$ as$ a$ psychology$ of$ error.$11$Second,$ it$ strengthened$my$ conviction$

that$ a$ socioThistorical$ exploration$ of$ the$ field$ as$ a$ psychology$ of$ error$was$ a$

legitimate$thing$to$do.$In$other$words,$the$article$made$me$feel$more$confident$

that$ a$ sociological$ history$of$H&B$and$BE$as)psychologies)of)error$ could$prove$

productive.$ It$ lent$ support$ to$ the$ idea$ of$ using$ the$ psychology$ of$ error$ as$ an$

analytical$tool.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

11$After$receiving$the$paper$ I$wrote$an$email$ to$Bloor$ to$ thank$him$for$sharing$ it$with$me$and$

asking$if$I$could$cite$it,$writing:$“I$read$your$article$with$great$interest,$and$frankly,$fascination$at$

how$you$could$formulate$in$just$a$few$sentences,$some$of$the$arguments$that$it$has$taken$me$the$

better$part$of$a$year$to$arrive$at.$However,$instead$of$despairing$$(!)$I$have$decided$to$take$the$

existence$of$you$article$as$evidence$ that$ I$am$on$a$worthwhile$ track.”$ (Author,$email$ to$David$

Bloor,$11th$April,$2013).$$

$ 31$

It$ triggered$ my$ decision$ to$ shift$ the$ use$ of$ the$ sociology$ of$ error$ from$ a$

methodological$tool$that$I$was$familiar$with$from$my$own$field$(the$sociology$of$

science)$ to$ an$ analytical$ tool$ that$ I$ could$ apply$ in$my$ historical$ analysis$ of$ a$

different$ field$ (both$ heuristics$ and$ biases$ and$ behavioural$ economics).$ To$

summarize,$ the$ article$ helped$ me$ crystallize$ the$ difference$ between$ the$

sociology$of$error$as$a$concept$that$designates$the$methodological$approach$of$

only$attributing$sociological$explanation$to$"error"$(to$be$avoided$in$a$sociology$

of$ scientific$ knowledge),$ and$ the$ psychology$ of$ error$ as$ a$ style$ of$ knowledge$

making$in$which$psychological$explanation$is$attributed$to$error$as$a$matter$of$

course,$ and$ thus$ a$ concept$ that$ could$ provide$ a$ focus$ for$ tracing$ the$

development$ of$ a$ discipline.$ In$ this$ sense,$ the$ article$ helped$ provide$ a$

conceptual$scaffold$ from$which$I$could$build$my$research,$and$around$which$I$

could$hinge$my$historical$narrative.$$

Beyond$a$rhetorical$function$of$error$$

It$is$worth$clarifying$what$it$means$to$use$the$psychology$of$error$analytically$in$

a$sociological$history,$and$how$this$kind$of$history$differs$from$other$sociologies$

and$histories$of$knowledge$making$that$take$an$interest$in$error.$It$is$perfectly$

possible$ to$ study$ the$ mobilisation$ of$ error$ and$ correctness$ and$ their$ role$ in$

sustaining$ institutions.$ Sociological$ studies$ of$ asymmetrical$ accounts$ are$ not$

necessarily$themselves$asymmetrical$account.$The$proviso$is$that$a$symmetrical$

account$ of$ asymmetry$ requires$ the$ analyst$ to$maintain$ analytical$ distance$ to$

actors’$applications$of$correctness$and$incorrectness.$$$

Sociologists$of$science$have$understandably$shown$an$interest$in$how$notions$of$

error$and$correctness$are$applied$in$the$course$of$scientific$knowledge$making.$

In$ their$ “Accounting$ For$ Error:$ How$ Scientists$ Construct$ Their$ Social$ World$

When$ They$ Account$ For$ Correct$ and$ Incorrect$ Belief”$ (1982)$ Mulkay$ and$

Gilbert$show$how$applications$of$error$and$correctness$in$scientists’$speech$can$

function$as$a$social$device$to$relay$specific$ideas$about$rationality$and$scientific$

knowledge,$ and$ serve$ to$ sustain$ an$ image$ of$ the$ scientific$ community$ as)

scientific.$$

$ 32$

In$a$similar$vein,$historian$of$psychology$Peter$Lamont$(2010)$has$deployed$the$

notion$ of$ a$ ‘psychology$ of$ error’$ in$ an$ essay$ exploring$ examples$ of$ rhetorical$

devices$ used$ by$ past$ scholars$ of$ psychology$ in$ order$ to$ debunk$ belief$ in$ the$

paranormal.$His$case$studies$vary$across$time$and$context,$but$they$all$have$in$

common$the$kind$of$boundary$work$ that$separates$ ‘true$scientific’$belief$ from$

‘false$nonTscientific’$belief.$Lamont$(2010)$illustrates$how$psychologies$of$error$

have$ long$ been$ used$ to$ emphasise$ the$ importance$ of$ psychological$ expertise.$

His$main$argument$is$that$the$psychology$of$erroneous$belief$mobilised$in$these$

instances$is$simultaneously$statements$about$the$reality$of$certain$phenomena$

and$ an$ argument$ about$ the$ value$ of$ psychological$ expertise.$ This$ is$ because$

mobilising$a$psychology$of$ error$ to$debunk$ the$ scientific$knowledge$of$others$

implies$that$psychological$expertise$is$valuable$and$necessary$in$order$to$avoid$

the$kind$of$interference$that$‘distorts’$the$making$of$good$scientific$knowledge.$

Lamont’s$use$of$the$notion$of$a$psychology$of$error$resonates$with$Bloor’s$in$so$

far$as$he$describes$instances$when$psychologists$give$psychological$reasons$for$

why$their$opponents$ insist$on$creating$flawed$science.$Because$the$goal$ in$the$

cases$ he$ refers$ to$ was$ to$ debunk$ the$ theories$ of$ their$ opponents,$ the$

psychological$causes$behind$correct$scientific$knowledge$making$were$ left$out$

of$the$equation.$They$were$simply$not$interesting.$However,$because$his$focus$is$

on$the$rhetoric$employed$in$debunking$paranormal$psychology$he$places$more$

emphasis$on$ the$act$of$psychologizing$erroneous$belief,$ than$on$ the$neglect$of$

psychologizing$correct$belief.$In$his$article,$Lamont$makes$references$to$Thomas$

Gieryn’s$(1983,$1995,$1999)$notion$of$‘boundary$work’$rather$than$in$analogy$to$

Bloor’s$concept$of$a$sociology$of$error.$$

These$studies$have$in$common$with$this$thesis$an$explicit$interest$in$how$error$

and$ correctness$ are$ strategically$ applied$ in$ specific$ practices$ of$ scientific$

knowledge$making.$$However,$my$use$of$the$psychology$of$error$as$an$analytical$

aid$ goes$ beyond$ the$ study$ of$ how$ scientists$ apply$ notions$ of$ error$ and$

correctness$in$the$course$of$their$own$and$others’$practices.$My$claim$is$that$the$

psychology$ of$ error$ is$ a$mode$ of$ knowledge$making$ constitutive$ of$ heuristics$

and$biases$and$behavioural$economics.$To$the$extent$that$the$thesis$focuses$on$

$ 33$

error,$ it$ is$ in$ the$ sense$ of$ understanding$ it$ as$ way$ of$ building$ knowledge$

enrolled$in$the$intellectual$programme$itself.$$

To$summarise,$Bloor,$Sent$and$Heukelom,$Gilbert$and$Mulkay$and$Lamont$all$in$

different$ways$helped$me$crystallize$ the$psychology$of$error$as$analytical$ tool$

and$thread$to$the$thesis.$Sent$and$Heukelom’s$respective$work$on$the$history$of$

behavioural$economics$helped$identify$error$as$central$to$heuristics$and$biases$

and$ behavioural$ economics.$ Bloor’s$ article$ aided$ in$ persuading$ me$ that$ the$

psychology$ of$ error$ could$ fruitfully$ be$ applied$ analytically$ to$ heuristics$ and$

biases$ (and$behavioural$ economics).$Gilbert$ and$Mulkay$and$Lamont$are$both$

studies$that$take$an$STS$approach$to$focus$on$error,$as$do$I.$However,$in$using$

the$psychology$of$error$as$analytical$tool$the$thesis$goes$beyond$analysing$the$

ways$ in$ which$ Kahneman$ and$ Tversky$ and$ behavioural$ economists$ applied$

notions$ of$ error$ and$ correctness$ to$ their$ own$ and$ other’s$ work.$ Instead$ the$

focus$ is$ on$ how$ error$ (deviation$ from$ a$ norm)$ came$ to$ be$ the$ very$modus)

operandi$of$a$research$programme$and$later$a$discipline.$The$confirmation$that$

my$chosen$objects$of$study$could$be$understood$as$a$psychologies$of$error,$also$

led$ me$ to$ the$ more$ refined$ research$ question.$ I$ use$ a$ methodological$ point$

analytically,$ to$ ask:$ if$ heuristics$ and$ biases$ and$ behavioural$ economics$ are$

psychologies$ of$ error,$ how$ could$ the$ making$ of$ that$ psychology$ of$ error$ be$

traced?$

Why$a$Sociological$History$of$a$Discipline?$$

Setting$out$to$trace$the$making$of$the$psychology$of$error$narrowed$the$options$

of$approaches$I$could$take$since$ it$seemed$to$me$that$answering$this$question$

would$ require$me$ to$write$ a$history.$My$aim$–$ to$ excavate$ sociologically$how$

heuristics$ and$ biases$ and$ behavioural$ economics$ came$ to$ be$ psychologies$ of$

error$–$led$me$to$the$decision$to$write$a$sociological$history$of$the$discipline$of$

behavioural$economics.$$

I$began$the$thesis$with$a$discussion$on$what$one$might$think$of$as$the$products$

of$that$psychology$of$error$(Homo)Irrationalis,$ libertarian$paternalism,$popular$

$ 34$

books),$$and$I$return$to$Homo)Irrationalis$in$the$conclusion.$However,$the$main$

focus$ is$ to$ trace$ the$ development$ of$ the$ research$ programme$ that$ paved$ the$

way$for$the$notion$of$humans$as$irrational$–$the$macro$and$micro$social$context$

that$ allowed$ for$ the$development$of$ this$ intellectual$ tradition$and$ this$way$of$

making$ knowledge$ about$ humans$ that$ began$ with$ the$ heuristics$ and$ biases$

programme$ and$ continued$ with$ the$ making$ of$ the$ discipline$ of$ behavioural$

economics.$The$simplest$way$to$describe$the$thesis$would$be$to$say$that$it$is$a$

venture$in$sociological$history$that$aims$to$explain$how$we$now$come$to$have$a$

psychology$of$error$in$the$world.$$

Disciplinary$ histories$ like$ the$ following$ are$ a$ reflection$ of$ a$ turn$ in$ the$

sociological$ history$ of$ science$ from$ grand$ scale$ accounts$ of$ the$ history$ of$

science,$ where$ science$ is$ viewed$ as$ a$ single$ unit,$ to$ histories$ that$ emphasise$

disunity$and$discontinuity$of$ science$ (Golinski,$1998).$Disciplines$are$ sites$ for$

the$organisation$of$knowledge$production,$ and$as$ such$ they$are$ sites$ for$both$

coToperation$and$antagonism$(Clarke,$1998).$$

Golinski$ (1998)$notes$ that$ the$ notion$ of$ a$ discipline$ is$ a$ particularly$ valuable$

avenue$for$the$constructivist$sociologist$by$virtue$of$its$ambiguity.$Discipline,$he$

reminds$us,$“refers$both$to$a$form$of$instruction$to$which$one$submits$and$to$a$

means$ of$ control”$ (p.$ 69).$ This$ duality$ of$ meaning$ helps$ remind$ us$ that$

disciplines,$ like$ forms$ of$ knowledge$ are$ both$ collections$ of$ people$who$ come$

together$as$a$result$of$a$consensus$about$a$certain$way$of$creating$knowledge,$

and$ to$ debate,$ at$ times$ with$ each$ other$ about$ what$ forms$ that$ knowledge$

should$take.$Adele$Clarke$makes$use$of$both$these$meanings$of$the$word$in$her$

history$of$the$formation$of$the$reproductive$sciences:$Disciplining)reproduction$

(Clarke,$1998).$“Disciplines$mark$territories”,$she$writes,$“and$usually$seek$to$do$

so$vividly.$They$are$simultaneously$constitutive$and$controlling”$(p.$7).$

This$ thesis$ reflects$ this$ duality$ of$ meaning$ of$ the$ notion$ of$ discipline.$ The$

boundaries$ of$ the$ subTdiscipline$ of$ behavioural$ economics$ were$ created$

through$ coToperation$between$psychologists,$ economists,$ and$ the$ foundations$

that$ funded$ their$ work.$ They$ were$ also$ created$ through$ deliberate$

$ 35$

differentiation$between$behavioural$and$neoTclassical$economics,$and$between$

behavioural$economists$and$other$economists$who$were$in$different$ways$also$

interested$ in$ challenging$ the$ neoTclassical$ approach$ (namely$ experimental$

economists$and$economic$sociologists).$$

Useful$ as$ the$ category$ of$ discipline$ is,$ it$ is$ important,$ particularly$ in$ light$ of$

previous$histories$of$disciplines,$for$the$sociologist$and$sociological$historian$to$

remember$ that$ disciplines,$ like$ all$ forms$ of$ institutions$ are$ collectively$ made.$

Potted$ histories$ of$ disciplines$ often$ postulate$ “a$ founding$ (usually)$ father”$ of$

the$ disciplines$ that$ they$ study.$ Although$ the$ story$ of$ the$ making$ of$ both$

heuristics$and$biases$and$behavioural$economics$certainly$has$a$few$core$actors$

at$ the$ apex$ (Kahneman,$ Tversky,$ Wanner$ and$ Thaler$ come$ to$ mind$

immediately),$this$discipline$was$made$with$the$collective$efforts$of$many$more$

constituents,$ including$ other$ psychologists$ and$ economists$ who$ were$ their$

teachers,$students,$and$sometimes$intellectual$adversaries,$but$also$importantly,$

the$subjects$of$their$experiments,$book$and$journal$editors,$funding$committees$

and$administrators,$to$name$a$few.$All$these$categories$of$people$played$a$part$

in$the$making$of$heuristics$and$biases$and$behavioural$economics,$and$therefore$

also$in$the$narrative$that$follows.$

As$a$history$of$knowledge,$ this$ thesis$ is$necessarily$about$ the$development$of$

ideas.$But$as$a$sociologist$and$sociological$historian$of$knowledge$I$have$learnt$

to$ always$ keep$ in$mind$ that$ ideas$ are$ developed$ by$ people.$ As$ a$ sociological$

history,$the$aim$of$my$thesis$is$to$contextualise$the$development$of$a$discipline$

by$ anchoring$ the$making$of$ heuristics$ and$biases$ and$ the$kind$of$ behavioural$

economics$ that$ emerged$ from$ it$ to$ specific$ institutional$ and$ disciplinary$

environments.$The$question$that$guides$the$thesis$throughout$is:$What$were$the$

social$elements$that$allowed$for$the$psychology$of$error$to$come$into$being?$Be$

it$ big$ social$ movements,$ institution$ building,$ civil$ society$ building,$ the$

particularities$of$the$ institutions$ in$which$the$scholars$worked,$their$decisions$

about$ how$ to$ test$ their$ theories,$ the$ kinds$ of$ subjects$ that$ they$ used,$ the$

country$where$the$work$was$carried$out,$the$people$that$funded$the$work,$and$

the$ expectations$ of$ those$ people$ of$ the$ potential$ for$ it,$ the$ interests$ of$ the$

$ 36$

individuals,$their$intellectual$backgrounds,$their$political$views,$their$academic$

and$intellectual$aspirations.$The$purchase$of$approaching$knowledge$as$a$social$

institution$is$that$the$“social”$of$knowledgeTmaking$can$refer$to$all$of$the$above.$

One$of$my$favourite$histories$of$science$is$Shapin$and$Schaffer’s$Leviathan)and)

The) AirSpump) (1985).$ Amongst$ its$ many$ virtues$ is$ that$ Shapin$ and$ Schaffer$

manage$ to$weave$ deftly$ between$micro$ and$macro$ social$ explanations$ of$ the$

knowledge$making$process,$between$small$decisions$about$knowledgeTmaking$

and$dissemination$and$larger$debates$about$truth$and$society.$$$$

This$ thesis,$ too,$ touches$ on$ both$ macro$ and$ micro$ social$ explanatory$

frameworks,$and$sets$up$all$of$them$as$collectively$having$made$the$psychology$

of$error$happen.$In$chapter$2,$ I$relate$the$origins$of$the$psychology$of$error$to$

building$ civil$ society$ in$ the$ newly$ established$ nation$ of$ Israel$ and$ to$ the$

diversity$of$psychology$as$a$discipline$reflected$at$the$department$of$psychology$

at$ the$Hebrew$University$of$ Israel.$ In$chapter$3,$ I$shift$ the$sociological$gaze$to$

zoom$in$on$the$decisions$that$Kahneman$and$Tversky$made$in$the$course$of$the$

making$ of$ the$ Heuristics$ and$ Biases$ Programme;$ decision$ that$ strengthened$

their$ programme$by$ shoring$ up$ the$ notion$ that$ psychological$ knowledge$was$

the$ best$ way$ to$ increase$ descriptive$ accuracy$ of$ normatively$ based$ decision$

science.$$

The$ focus$ of$ the$ thesis$ shifts$ again$ in$ chapter$ 4,$ to$ the$ formation$ of$ the$

‘Behavioral$ Economics$ Program’$ and$ its$ impact$ on$ shaping$ the$ strand$ of$

behavioural$ economics$ that$ grew$ from$ it.$ In$ chapter$ 5,$ I$ concentrate$ on$ the$

‘disciplining’$of$behavioural$economics,$or$perhaps$more$precisely$on$the$‘subT

disciplining’$of$the$field,$by$focusing$on$how$behavioural$economists$policed$the$

boundaries$ of$ their$ field$ to$ the$ exclusion$ of$ economic$ sociology$ and$

experimental$economics.$In$the$conclusion$I$highlight$the$ways$in$which$I$think$

$ 37$

the$ notion$ of$ a$ psychology$ of$ error$ contributes$ to$ an$ understanding$ of$ the$

history$of$heuristics$and$biases$and$behavioural$economics.12$$

Collection$and$use$of$archival$material$

The$ identification$ of$ heuristics$ and$ biases$ and$ Kahneman$ and$ Tversky$ as$

starting$ point$ for$ my$ sociology$ of$ the$ psychology$ of$ error$ quickly$ led$ to$ the$

identification$of$a$group$of$scholars$who$applied$their$psychological$research$to$

economic$ decision$ making,$ building$ a$ particular$ strand$ of$ behavioural$

economics$with$ the$ help$ of$ funding$ from$ the$ soTcalled$ ‘Behavioral$ Economics$

Program’.$ The$ programme$was$ funded$ first$ by$ the$ Alfred$ P.$ Sloan$ foundation$

between$ 1984$ and$ 1986$ and$ then$ jointly$ with$ the$ Russell$ Sage$ foundation$

between$ 1986$ until$ 1992$ when$ it$ was$ discontinued.$ Contact$ with$

representatives$from$the$two$foundations$confirmed$that$documents$relating$to$

the$programme$were$kept$as$part$of$a$ larger$collection$of$archived$documents$

pertaining$ to$ the$Russell$Sage$ foundation$at$ the$Rockefeller$Archive$Center,$ in$

Tarrytown,$ New$ York.$ This$ was$ the$ background$ to$ my$ decision$ to$ visit$ the$

archives$in$order$to$collect$the$documents$housed$there.$$

I$ spent$ three$ weeks$ from$ the$ 14th$ of$ April$ to$ the$ 2nd$ of$ May$ 2014$ at$ the$

Rockefeller$ Archive$ Centre$ consulting$ the$ Behavioral$ Economics$ Collection$ of$

the$Russell$ Sage$Foundation.$The$bulk$of$ the$Russell$ Sage$Foundation$ records$

date$from$1907T2000$and$consists$of$168.6$cubic$feet$of$material$relating$to$the$

foundation$ (M.$ Smith,$ Smith,$ Gratzel,$ &$ JaffeTDavis,$ 2014).$ The$ records$ were$

transferred$ to$ the$Rockefeller$Archive$Centre$ in$1986,$and$ the$ foundation$has$

continued$ to$ transfer$ records$ such$ as$ minutes$ of$ meetings$ of$ the$ Board$ of$

Trustees,$ project$ files$ and$ grant$ proposals$ to$ the$ centre$ at$ regular$ intervals$

since$ then$ (Foundation,$ n.$ d.).$ The$ Behavioral$ Economics$ Collection$ had$ been$

added$to$the$Russell$Sage$Foundation$records$by$the$previous$president$of$the$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

12$The$ “Thesis$ Structure”$ below$ contains$ a$ more$ detailed$ description$ of$ the$ contents$ of$ the$

thesis.$$$$

$

$ 38$

Russell$Sage$Foundation,$Eric$Wanner.$Wanner$held$the$post$between$1986$and$

2013$when$ he$ retired.$ He$ was$ the$ instigator$ and$ programme$ director$ of$ the$

Behavioral$ Economics$ Program.$ A$ large$ part$ of$ the$ Behavioral$ Economics$

Collection$ is$ therefore$ made$ up$ of$ Wanner’s$ personal$ papers,$ notes$ and$

correspondences.$$

The$Behavioral$Economics$Collection$consists$of$20$boxes$(Boxes$193$through$

212)$that$ in$ total$contain$upward$of$8000$documents.$Because$my$time$at$ the$

archive$ centre$ was$ limited,$ my$ strategy$ for$ collecting$ the$ material$ was$ take$

digital$images$of$the$entirety$of$the$collection$in$order$to$make$a$more$informed$

selection$ at$ a$ later$ stage,$ as$ opposed$ to$ attempting$ a$ closer$ reading$ of$ the$

material$and$making$a$selection$on$site.$$

Working$with$the$documents,$and$the$other$researchers$at$the$centre$was$an$allT$

round$pleasant$experience.$The$steeper$ learning$curve$came$when$it$was$time$

to$ find$a$way$ to$ familiarise$myself$with$ the$vast$ amount$of$ information$ that$ I$

now$ had$ on$my$ hands,$ and$ to$ use$ it$ to$ piece$ together$ a$ narrative$ about$ the$

activities$of$the$participants$of$the$Behavioral$Economics$Program$at$Sloan$and$

Russell$Sage.$Over$8000$documents$was$too$much$to$read$closely$in$the$amount$

of$ time$ I$had$allocated$ for$analysis.$Even$ just$dealing$with$ the$organisation$of$

8000$ images$ was$ a$ challenge$ and$ required$ some$ familiarisation$ with$ the$

technicalities$ of$ image$ processing$ software.$ This$ meant$ that$ before$ I$ could$

commence$ reading,$ I$ had$ to$ find$ a$ way$ of$ narrowing$ the$ data$ set$ to$ a$

manageable$size.$$

The$selection$process$proved$less$than$straight$forward.$As$always$some$of$the$

categorizing$ had$ already$ been$ done$ by$ the$ archivist$ who$ dealt$ with$ the$

collection$when$it$first$came$to$the$centre.$The$collection$was$organised$through$

a$mixture$ of$ chronology$ and$ type$ of$ document.$ The$ Russell$ Sage$ Foundation$

Collection$comprises$2$subgroups,$divided$into$a$total$of$25$series.$The$relevant$

series$ for$ my$ research$ was$ series$ 7$ of$ subgroup$ 2$ entitled:$ Behavioural)

Economics) 1975S1993.$ The$ series$ begins$ with$ 3$ boxes$ containing$ mainly$

$ 39$

minutes$ of$ the$ meetings$ of$ the$ behavioural$ economics$ advisory$ committee$

between$1986$and$1991$(boxes$193T196).$$

Box$ 198$ contained$ documents$ from$ an$ early$ conference$ at$ the$ university$ of$

Chicago:$ The) Behavioral) Foundations) of) Economic) Theory,$ which$ played$ an$

important$ role$ in$ the$ development$ of$ behavioural$ economics.$ Box$ 198$ also$

contains$ various$ correspondence$ between$ 1983$ and$ 1992.$ Boxes$ 199$ to$ 201$

contained$ some$ relevant$ documents$ including$ those$ relating$ to$ the$ various$

working$groups$of$the$programme,$correspondences$and$documents$relating$to$

the$shortTlived$working$group$on$Economic$Sociology.$$

Boxes$ 202T212$ are$ categorized$ by$ scholar$ and$ contain$ papers$ that$ pertain$ to$

their$particular$projects$(reports$and$published$articles).$I$made$the$decision$to$

focus$ on$ those$ boxes$ that$ contained$ unpublished$material$ such$ as$minutes$ of$

meetings,$letters,$and$proposals.$I$made$exceptions$for$boxes$relating$to$Richard$

Thaler’s$anomalies$column,$a$letter$sent$to$participants$of$the$programme$about$

Wanner’s$ transition$ from$ Sloan$ to$ Sage,$ and$ the$ box$ with$ work$ relating$ to$

Kahneman$ and$ Tversky,$ which$ contained$ some$ relevant$ material$ produced$

before$the$start$of$the$programme.$This$narrowed$the$documents$to$be$analysed$

down$to$precisely$2276$documents.$$

A$close$reading$of$the$various$letters,$proposals,$and$minutes$of$meetings$of$the$

different$boards$and$committees$was$time$consuming$but$rewarding.$Chapters$

4$ and$ 5$ are$ based$ on$ information$ that$ I$ found$ in$ the$ archival$ collection.$

Crucially,$the$collection$contained$a$set$of$“calls$for$proposals”$that$Eric$Wanner$

had$ put$ together$ in$ consultation$ with$ his$ advisory$ committee.$ These$ proved$

particularly$useful$for$gaining$information$about$the$direction$in$which$he$and$

the$ committee$ wished$ the$ field$ to$ go.$ Box$ 196$ also$ contained$ a$ vital$ set$ of$

documents$which$were$the$replies$to$a$request$sent$by$Wanner$near$the$end$of$

the$ programme$ in$ which$ he$ asks$ all$ previous$ participants$ to$ evaluate$ the$

progress$ of$ the$ programme$ and$ of$ the$ field$ of$ behavioural$ economics$ so$ far.$

Large$parts$of$chapters$4$and$5$are$based$on$information$from$these$letters.$$

$ 40$

Conducting$interviews$

One$ of$ the$ benefits$ of$ writing$ a$ recent$ history$ was$ the$ possibility$ of$

interviewing$ some$ of$ the$more$ central$ actors$ in$ the$making$ of$ heuristics$ and$

biases$and$behavioural$economics.$While$in$New$York$City,$I$was$lucky$enough$

to$ interview$Eric$Wanner$at$his$home$on$ the$23rd$of$April,$2014.$Wanner$was$

President$of$the$Russell$Sage$foundation$for$26$years$between$1986$and$2012.$

Before$that$he$was$vice$president$and$programme$officer$of$the$Alfred$P.$Sloan$

Foundation.$It$was$while$he$was$at$the$Sloan$Foundation$that$Wanner$launched$

the$Behavioral$Economics$Program$which$he$then$took$with$him$in$the$move$to$

Russell$Sage.$Wanner$also$generously$helped$facilitate$an$interview$with$Daniel$

Kahneman$who$was$at$home$in$New$York$at$the$time.$Kahneman$and$I$met$in$a$

café$in$Manhattan$on$April$29th,$2014.$

My$interviews$were$semi$structured,$which$in$the$end$meant$that$I$asked$all$the$

questions$ on$ a$ list$ that$ I$ had$ prepared$ in$ advanced,$ but$ also$ asked$ followTup$

questions$ that$were$not$planned$depending$on$where$ the$ interview$went.$My$

general$ aim$ for$ the$ interviews$was$ to$use$ them$as$a$way$of$ asking$key$actors$

about$ their$ recollections$ of$ their$ motivations$ and$ what$ they$ considered$ key$

events$in$the$history$of$the$heuristics$and$biases$and$behavioural$economics.$13$

This$was$in$order$to$potentially$confirm$some$inferences$about$motivation$and$

to$potentially$ fill$ particular$ gaps$ in$ the$narrative$ that$ I$ could$ then$ triangulate$

with$the$information$from$the$documents$in$the$archives,$and$in$the$secondary$

literature.$$

Another$ underlying$ aim$ for$ the$ interviews,$ both$with$Wanner$ and$Kahneman$

was$to$interrogate$the$extent$to$which$they$might$corroborate$an$understanding$

of$heuristics$and$biases$and$behavioural$economics$as$psychologies$of$error.$By$

the$ time$ I$ conducted$ both$ these$ interviews$ I$ was$ already$ two$ years$ into$

working$ on$ the$ thesis.$ Of$ course,$ I$ was$ well$ aware$ that$ the$ notion$ of$ a$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

13$A$list$of$my$questions$for$both$Kahneman$and$Wanner$can$be$found$in$Appendix$5:$Interview$

Questions$ for$ Daniel$ Kahneman$ and$ Appendix$ 6:$ Interview$ Questions$ for$ Eric$ Wanner$

respectively.$$

$ 41$

psychology$ of$ error$ was$ not$ part$ of$ the$ vocabulary$ of$ either$ heuristics$ and$

biases$nor$behavioural$economics,$so$I$did$not$refer$to$it$in$those$terms,$nor$was$

I$ expecting$ them$ to$ do$ so.$ I$ was$ however,$ interested$ in$ how$ deliberate$

Kahneman$ might$ have$ been$ about$ creating$ heuristics$ and$ biases$ as$ what$ I$

interpret$ as$ a$ psychology$ of$ error,$ and$ the$ extent$ to$ which$ Wanner’s$

recollections$ would$ support$ what$ I$ had$ begun$ to$ see$ as$ the$ role$ of$ the$

psychology$ of$ error$ in$ the$ making$ of$ the$ Behavioral$ Economics$ Program.$ In$

other$words,$in$my$interviews$I$was$on$the$same$mission$as$I$had$been$since$my$

project$ took$shape$–$ to$assess$the$viability$of$using$the$psychology$of$error$as$

my$central$analytical$thread.$$

This$ is$why,$ in$my$ interview$with$Kahneman,$ I$ spent$ quite$ some$ time$ asking$

him$ about$ his$ time$ in$ Jerusalem,$ both$ at$ the$ psychology$ department$ at$ the$

Hebrew$ University$ and$ before.$ I$ also$ wanted$ to$ ask$ him$ specifically$ about$ a$

study$that$he$had$done$with$his$friend$and$colleague$Ozer$Schild$which$resulted$

in$ an$ article$ entitled$ “Training$ agents$ of$ social$ change$ in$ Israel:$ Definition$ of$

objectives$and$a$training$approach”$(Kahneman$&$Schild,$1966).$In$my$readings$

of$Kahneman’s$early$work,$this$article$had$stood$out$to$me$as$an$early$version$of$

the$ model$ of$ psychology$ of$ error$ that$ he$ eventually$ developed$ into$ the$

Heuristics$and$Biases$Programme$together$with$Amos$Tversky.$$

I$had$a$section$of$questions$for$Kahneman$related$to$institution$building$in$the$

newly$founded$State$of$Israel$following$a$line$of$enquiry$that$had$arisen$reading$

this$piece$of$work.$Specifically,$I$was$interested$in$how$interested$he$perceived$

the$ government$ and$ other$ institutions$ to$ be$ in$ having$ social$ scientists$ aid$ in$

institution$building.$I$wanted$to$ask$these$questions$because$I$was$working$on$a$

hypotheses$ that$ there$may$have$been$a$ link$between$ the$ idea$of$building$civil$

society$ “from$ scratch”$ in$ the$ newly$ established$ state$ of$ Israel$ and$ the$

emergence$of$the$psychology$of$error$as$a$way$of$doing$so$based$on$“how$people$

actually$ behave”$ in$ opposition$ to$ less$ empirically$ based$ knowledge$ about$

human$behaviour.$$

$ 42$

Probing$further,$I$asked$Kahneman$whether$he$thought$that$there$was$a$sense$

that$building$civil$society$could$or$should$depend$on$social$scientific$knowledge.$

On$this$ topic$he$stated$the$view$that$while$ intellectuals$are$generally$afforded$

more$respect$in$Israel$than$in$the$United$States,$in$his$experience$institutions$of$

civil$society$tend$to$be$built$by$governments$without$much$input$from$the$social$

sciences.$ However,$ he$ did$ engage$ with$ the$ more$ specific$ question$ about$

whether$ he$ himself$ had$ attempted$ to$ engage$ with$ institution$ building$ at$ the$

time$by$bringing$up$his$collaboration$with$Schild.$He$referred$to$this$work$as$an$

example$of$when$he$had$deliberately$attempted$to$engage$with$a$governmental$

institution$ by$ training$ government$ appointed$ leaders$ in$ principles$ of$ social$

science.$$$

Kahneman$seemed$quite$happy$ to$ talk$about$his$ early$work$ in$ Israel,$ and$ the$

beginnings$ of$ his$ collaboration$ with$ Tversky,$ although$ he$ mentioned$ several$

times$ during$ the$ interview$ that$ he$ felt$ that$ he$ had$ spoken$ about$ the$

collaborative$work$many$ times$before,$ and$ that$ the$ information$he$could$give$

could$ mostly$ be$ found$ in$ his$ autobiographical$ book$ Thinking,) Fast) and) Slow$

(Kahneman,$2011).$$

On$ the$ topic$of$ the$use$of$heuristics$ and$biases$ for$ the$making$of$behavioural$

economics,$he$ seemed$ to$want$ to$keep$a$ little$more$distance.$Both$Kahneman$

and$Tversky$were$involved$in$the$Behavioral$Economics$Program$from$the$start.$

However,$ in$ the$ interview$ he$ reiterated$ that$ the$ idea$ of$ building$ a$ research$

programme$ on$ the$ application$ of$ their$ psychological$ insights$ to$ economic$

decision$making$had$been$Wanner’s$and$ that$ the$driving$ force$of$ this$venture$

had$been$Richard$Thaler.$Answering$a$direct$question,$he$made$it$clear$that$he$

does$ not$ consider$ himself$ a$ behavioural$ economist,$ and$ that$ he$ and$ Tversky$

always$ thought$of$ themselves$as$psychologists.$On$questions$about$ rationality$

and$the$popularity$of$the$idea$of$humans$as$irrational,$he$was$very$candid$about$

his$dislike$of$ it$ as$ a$ “quick$ summary”$because$of$ the$negative$ connotations$of$

the$ word$ irrational.$ What$ was$ useful$ about$ this$ part$ of$ the$ conversation$ in$

particular$was$that$it$confirmed$that$the$creation$of$the$notion$that$people$that$

are$generally$irrational$was$unintended.$$$

$ 43$

My$ interview$with$ Kahneman$ lasted$ for$ about$ half$ an$ hour.$My$ conversation$

with$Eric$Wanner$was$much$longer$at$about$two$and$half$hours$in$total.$Wanner$

was$ a$ key$ actor$ in$ the$ making$ of$ behavioural$ economics.$ As$ instigator$ and$

director$of$ the$Behavioural$Economics$Program$he$played$a$crucial$role$ in$the$

establishment$ of$ the$ field,$ particularly$ when$ it$ came$ to$ managing$ the$

interdisciplinary$challenge$of$fostering$collaboration$between$psychologists$and$

economists$ (Heukelom,$2012a).$ Interviewing$him$made$a$ lot$of$ sense$because$

he$was$ in$ a$ position$ to$ provide$ a$ unique$ perspective$ on$ the$ programme$ that$

funded$ virtually$ all$ of$ the$ studies$ that$ made$ up$ early$ work$ in$ behavioural$

economics.$$

In$ the$ case$ of$Wanner,$my$ interest$ lay$mainly$ in$whether$ the$ creation$ of$ the$

Behavioral$Economics$Program$might$be$connected$to$the$political$situation$in$

the$ US$ at$ the$ time,$ as$ a$ reaction$ to$ trickleTdown$ ‘Reaganomics’.14$Wanner’s$

answer$ was$ that$ to$ his$ recollection,$ he$ and$ the$ group$ of$ psychologists$ and$

economists$that$the$Alfred$P.$Sloan$and$Russell$Sage$foundations$funded$to$take$

a$behavioural$approach$to$economics$were$not$consciously$working$to$criticise$

the$ economic$policies$ of$ the$US$ at$ the$ time,$ but$ that$ certainly$ those$were$ the$

politics$ of$ the$ time,$ and$ that$ there$ was$ an$ awareness$ of$ the$ potential$ for$

something$ like$behavioural$ economics$ to$ take$ the$wind$out$ of$ the$ sails$ of$ the$

idea$ that$ maximizing$ individual$ choice$ will$ necessarily$ lead$ to$ social$ welfare$

(considering$the$lack$of$empirical$evidence$for$rational$choice$theory).$$

Wanner$and$I$also$talked$about$his$recollections$of$when$he$first$had$the$idea$to$

fund$ the$ kind$ of$ work$ that$ eventually$ led$ to$ the$ discipline$ of$ behavioural$

economics,$ to$ what$ extent$ his$ intent$ had$ been$ to$ apply$ a$ social$ science$ to$

specifically) economics,)and$whether$ the$ decision$ to$ do$ that$was$motivated$ by$

him$having$identified$flaws$in$economic$theory.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

14$Some$of$ the$pillars$of$Reagan$era$economic$policies$were$decreased$social$ spending,$ across$

the$board$taxTcuts,$increased$defence$spending$and$various$measures$to$deregulate$US$domestic$

markets,$much$of$the$rationale$for$which$was$founded$on$rational$choice$economic$theory.$$

$ 44$

Interestingly,$ Wanner$ addressed$ this$ topic$ by$ discussing$ what$ has$ been$

successful$ in$ the$ sciences,$ which$ to$ his$ mind$ is$ reductionism,$ and$ how$

psychology$ and$ economics$ shared$ a$ methodological$ individualism,$ which$ for$

him$meant$ that$ as$ far$ as$ combining$ two$ social$ sciences$ goes,$ psychology$ and$

economics$ are$ a$ good$ match.$ In$ combination$ with$ an$ already$ established$

“theoretical$ structure”$ in$ economics.$ i.e.$ a$ fair$ amount$ of$ wellTarticulated$

economic$theory,$what$had$occurred$to$Wanner$(and$likeTminded$individuals,$in$

the$interview$Wanner$refers$to$“a$bunch$of$us”)$was$that$here$was$a$chance$to$

improve$on$the$psychological$foundations$of$an$already$fairly$reductionist$set$of$

economic$theories$and$models.$$

All$in$all,$the$interview$left$me$with$a$strong$impression$that$Wanner,$reflecting$

his$ role$ as$ programme$ officer% and$ later$ foundation$ director,$ and$ to$ the$ great$

benefit$of$the$group$of$scholars$under$his$wings,$had$been$very$focused$on$the$

success$ of$ the$ programme$ and$ its$ potential$ to$ launch$ a$ new$ field$ of$ study,$

possibly$over$and$above$the$potential$for$wider$implications$of$the$work$funded.$

In$our$ conversation$he$mentioned$Warren$Weaver15$as$ a$ role$model$of$his,$he$

spoke$ fondly$ and$ proudly$ of$ people$ funded$ by$ or$ otherwise$ involved$ in$ the$

Behavioral$Economics$Program$who$had$gone$on$to$win$Nobel$prizes$(then$five,$

now$six$ in$ total).16$His$honest$reaction$ to$my$question$about$milestones$ in$ the$

life$ of$ the$ Behavioural$ Economics$ Program$ was$ that$ for$ him$ they$ centred$

around$making$sure$it$kept$going:$“the$early$milestones$were$just$about$survival$

[...]$not$being$killed”$(Wanner,$Interview$with$the$author,$April$23rd,$2014).$$

It$ was$ a$ pleasure$ to$ converse$with$Wanner.$ I$ felt$ that$ the$ generosity$ that$ he$

showed$ throughout$ the$ process,$ from$ our$ first$ email$ contact$ to$ the$ actual$

conversation$ with$ him,$ gave$me$ some$ insight$ into$ the$ role$ he$ had$ played$ as$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

15$Warren$Weaver$was$director$of$ the$Natural$Sciences$division$of$ the$Rockefeller$Foundation$

between$1932$and$1955,$and$is$attributed$with$initiating$the$foundation$of$the$field$of$Molecular$

Biology.$I$briefly$discuss$the$parallels$between$Wanner$and$Weaver$in$chapter$5.$$

16$George$Akerlof$won$the$Nobel$Memorial$Prize$in$Economics$in$2001,$Vernon$Smith$and$Daniel$

Kahneman$in$2002,$Tom$Schelling$in$2005,$Robert$Shiller$in$2013,$and$Richard$Thaler$in$2017.$$$

$ 45$

connector$ and$ champion$ of$ the$ participants$ of$ the$ Behavioral$ Economics$

Program.$$

My$ run$ of$ interviews$ with$ core$ actors$ in$ the$ making$ of$ the$ behavioural$

economics$programme$is$marked$by$two$successes$and$one$failure.$I$had$been$

in$contact$with$Richard$Thaler,$one$of$the$most$prolific$behavioural$economists$

to$date,$who$had$kindly$agreed$to$an$interview$in$conjunction$with$a$conference$

in$Roskilde,$Denmark.$I$attended$the$conference,$but$Thaler$in$the$end$did$not.$

His$flight$to$Copenhagen$was$grounded$in$Iceland$because$of$bad$weather.$The$

conference$ attendees,$ including$ me$ of$ course,$ had$ to$ content$ ourselves$ with$

watching$Thaler$give$his$keynote$speech$and$answer$questions$projected$on$a$

big$screen$of$a$large$lecture$hall.$I$still$remember$the$event$as$a$significant$one.$

It$ was$ an$ interesting$ experience$ to$ see$ the$ unTanointed$ leader$ of$ the$

behavioural$ economics$ community,$ literally$ larger$ than$ life,$ addressing$ his$

disciples.$ Thaler$ has$ recently$ published$ an$ autobiographical$ account$ of$ the$

making$ of$ behavioural$ economics:$ Misbehaving) S) The) Making) of) Behavioral)

Economics$(Thaler,$2015).$It$goes$someway$to$compensate$for$not$achieving$an$

interview$with$Thaler;$still,$there$is$no$denying$that$it$was$a$setback.$$

I$use$the$information$from$the$interviews$quite$sparingly$in$the$thesis.$Mainly,$I$

refer$to$the$interviews$in$the$footnotes$where$my$statements$were$confirmed$or$

otherwise$ substantiated$ by$ something$ that$ featured$ in$ the$ interviews.$ Partly,$

this$is$a$reflection$of$the$fact$that$the$thesis$is$not$primarily$an$oral$history,$for$

which$ a$ substantially$ higher$ number$ of$ interviews$ would$ have$ needed$ to$ be$

conducted.$ Partly,$ it$ is$ a$ reflection$ of$my$ sensitivity$ to$ the$ fact$ that$ an$ overT

reliance$on$the$testimony$of$only$two$of$ the$many$actors$that$played$a$part$ in$

the$making$of$heuristics$and$biases$and$behavioural$economics$(central$though$

they$ may$ have$ been)$ runs$ the$ risk$ of$ unduly$ skewing$ the$ narrative.$

Nevertheless,$both$interviews$served$to$test$some$of$my$early$hypotheses$about$

the$ driving$ forces$ of$ heuristics$ and$ biases$ and$ the$ Behavioral$ Economics$

Program,$ and$ flagged$ up$ some$ interesting$ aspects$ of$ the$ narrative$ through$

Kahneman$and$Wanner’s$memories$of$what$had$appeared$crucial$to$them$in$the$

course$of$the$making$of$both$heuristics$and$biases$and$behavioural$economics.$

$ 46$

Thesis$Structure$

My$ history$ of$ behavioural$ economics$ begins$ in$ a$ newly$ established$ state$ of$

Israel$ with$ the$ lives$ and$ work$ of$ psychologists$ Daniel$ Kahneman$ and$ Amos$

Tversky.$Together$they$created$a$psychological$research$programme$of$decision$

making$ that$ they$ called$ the$ Heuristics$ and$ Biases$ Programme.$ The$ aim$ of$

chapter% 2$ is$ to$explain$how$ the$Heuristics$and$Biases$Programme$began$as$a$

psychology$of$error$by$showing$how$it$was$anchored$both$to$intellectual$trends$

in$the$science$of$decision$making$and$to$the$particular$institutional$environment$

of$the$new$state$of$Israel$and$the$Hebrew$University$of$Jerusalem.$It$was$in$the$

context$ of$ Israel$ and$ the$Hebrew$University$ of$ Jerusalem$ that$Kahneman$ and$

Tversky’s$ $ particular$ take$on$ the$psychology$of$ error$ took$ shape.$Kahneman’s$

early$ professionalization$ and$ swift$ career$ climb$ was$ a$ direct$ result$ of$ the$

immediate$ need$ for$ the$ Israeli$ government$ to$ build$ the$ civil$ society$ for$ the$

newly$established$state$effectively.$In$his$early$career,$particularly$working$for$

the$ Israeli$ Defense$ Forces$ (IDF),$ Kahneman$ acquired$ an$ appreciation$ for$ the$

difference$ between$ human$ intuition$ and$ more$ formal$ methods$ of$ analysis,$

particularly$statistics.$Some$of$Kahneman’s$work$before$his$collaboration$with$

Tversky$also$showcases$how$institutionTbuilding$ from$the$ground$up$could$be$

used$ as$ a$ justification$ for$making$ sure$ that$ those$ institutions$ reflected$ actual$

human$ traits$ as$ opposed$ to$ idealised$ abstract$models$ of$ behaviour.$ This$was$

particularly$ the$ case$ with$ regard$ to$ a$ study$ that$ he$ produced$ together$ with$

colleague$Ozer$Schild$on$training$agents$of$Kibbutzim$which$I$discuss$at$length$

in$ the$ chapter.$ The$ collaboration$ between$ Kahneman$ and$ Tversky$ was$ the$

result$ of$ a$ combination$ between$ Kahneman’s$ approach$ to$ the$ difference$

between$intuition$and$formal$reasoning$and$Tversky’s$training$in$the$tradition$

of$ decision$ research$ that$ conceptualised$ a$ tension$ between$ normative$ and$

descriptive$decision$theory.$$

In%Chapter%3$I$focus$on$the$narrative$of$the$making$of$the$Heuristics$and$Biases$

Programme,$ zooming$ in$ on$ a$ series$ of$ decisions$ that$ Kahneman$ and$ Tversky$

made$ that$ were$ designed$ to$ strengthen$ their$ programme.$ These$ decisions$

$ 47$

enabled$ them$to$provide$evidence$ for$ their$core$premise$ that$ informal$human$

reasoning$ is$ guided$ by$ deepTseated$ intuitions$ that$ differ$ from$ the$ rules$ of$

formal$ logical$ and$ statistical$ inference.$ In$ the$ chapter,$ I$ explain$ the$ different$

heuristics$developed$by$Kahneman$and$Tversky,$as$well$as$the$notion$of$framing)

effects$ and$ their$ development$ of$ prospect) theory$ which$ eventually$ earned$

Kahneman$the$Nobel$Prize$in$Economics.$$

The$ aim$ of$ the$ chapter$ is$ to$ show$ how$ Kahneman$ and$ Tversky’s$ moves$ to$

strengthen$ their$ core$ premise$ also$ strengthened$ the$ psychology$ of$ error$

approach,$because$they$served$to$establish$the$role$of$psychological$explanation$

to$ understand$ instances$ of$ deviation$ from$ formal$ decision$ rules.$ Those$

explanations$ could$ then$ be$ used$ to$ increase$ the$ descriptive$ accuracy$ of$

normative$decision$making$theory.$The$work$that$they$did$to$carve$out$a$role$for$

psychology$in$normative$decision$theory$was$what$laid$the$groundwork$for$the$

mobilisation$ of$ the$ Heuristics$ and$ Biases$ Programme$ into$ microTeconomics,$

which$in$turn$resulted$in$the$Behavioral$Economics$Program.$$$$$$$$

Chapter% 4% focuses$ on$ how$ the$ move$ to$ form$ a$ discipline$ around$ the$

psychological$ research$ programme$ developed$ by$ Kahneman$ and$ Tversky,$

began$with$ the$ soTcalled$Behavioral$ Economics$ Program,$ first$ funded$ only$ by$

the$ Alfred$ P.$ Sloan$ Foundation,$ and$ later$ jointly$ with$ the$ Russell$ Sage$

Foundation.$The$Behavioral$Economics$Program$played$an$essential$role$in$the$

formation$of$behavioural$economics$as$a$discipline.$This$ is$why$this$chapter$ is$

largely$dedicated$to$showing$how$the$workings$of$the$programme$shaped$and$

were$shaped$by$the$group$of$psychologists$and$economists$who$worked$to$form$

the$ discipline.$ I$ tell$ the$ story$ of$ how$ the$ emerging$ field$ of$ behavioural$

economics$ was$ populated$ through$ recruitment$ to$ the$ Behavioral$ Economics$

Program,$ and$ how$participants$ and$ advisors$ to$ the$ programme$ chose$ to$ deal$

with$ the$ particular$ challenges$ posed$ by$ attempting$ to$ develop$ studies$ at$ the$

intersection$of$two$disciplines.$Chapter$4$is$the$first$part$of$the$story$about$how$

the$psychology$of$error$turned$into$a$discipline.$$$

$ 48$

In% chapter% 5$ I$ continue$ with$ the$ story$ of$ how$ this$ strand$ of$ behavioural$

economics$ was$ disciplined$ by$ focusing$ specifically$ on$ how$ and$ why$ it$ was$

turned$ into$ a$ subSdiscipline$ of$ the$ economic$ sciences.$ I$ do$ this$ by$ paying$

particular$ attention$ to$ the$boundaries$ that$were$ created$between$behavioural$

economics$ and$ two$ closely$ affiliated$ fields:$ economic$ sociology$ and$

experimental$economics.$I$argue$that$efforts$to$include$economic$sociology$into$

the$ Behavioral$ Economics$ Program$were$ unsuccessful$ because$ it$ would$ have$

meant$ a$ potential$ loss$ of$ the$ individual$ as$ unit$ of$ analysis.$ When$ it$ came$ to$

experimental$ economics,$ although$ like$ economic$ sociologists,$ experimental$

economists$too$saw$a$problem$with$a$narrow$focus$on$the$individual$as$unit$of$

analysis,$ the$ problem$ of$ integration$ lay$ mainly$ in$ experimental$ economists’$

insistence$that$the$objective$of$experimental$research$in$the$economic$sciences$

should$be$to$explain$the$processes$that$allow$for$the$existence$of$a$stable$market$

despite$deviation$ from$rational$principles$of$decision$making$on$an$ individual$

level.$$

I$also$argue$in$this$chapter$that$the$existence$of$descriptive$deviations$from$neoT

classical$models$ of$ economic$decision$making$was$ taken$ for$ granted$by$ those$

who$received$funding$from$the$Behavioural$Economics$Program,$and$that$much$

of$ the$ focus$ of$ the$ programme$ lay$ on$ establishing$ this$ lack$ of$ descriptive$

validity$of$neoTclassical$models$of$behaviour.$This$meant,$ among$other$ things,$

that$ programme$ participants$ engaged$ mainly$ in$ producing$ a$ collection$ of$

instances$ where$ decision$ making$ deviated$ from$ the$ dictates$ of$ neoTclassical$

theory.$An$exemplar$of$this$strategy$was$Thaler’s$“Anomalies$column”,$which$I$

discuss$at$length.$The$historical$narrative$ends$with$chapter$5.$Chapters$6$and$7$

are$dedicated$to$spelling$out$what$is$accomplished$by$the$telling$the$story$of$the$

making$ of$ heuristics$ and$ biases$ and$ behavioural$ economics$ as$ a$ story$ of$ the$

making$of$a$psychology$of$error.$$$

The$aim$of%Chapter%6%is$to$clarify$the$purchase$of$using$the$psychology$of$error$

as$ an$ analytical$ tool.$ I$ begin$ the$ chapter$with$ an$ exploration$ of$ the$ rationale$

behind$Bloor’s$rejection$of$the$sociology$of$error$with$the$purpose$of$explaining$

that$ the$ notion$ of$ the$ psychology$ of$ error$ finds$ its$ analytical$ purchase$ in$ the$

$ 49$

consequences$of$restricting$psychological$explanation$to$deviations$from$a$norm,$

and$that$those$consequences$lie$not$so$much$in$what$is$inferred$about$deviation$

but$in$what$is$implied$about$the$character$of$the$norm.$$

The$chapter$continues$with$a$discussion$of$the$role$of$the$psychology$of$error$in$

heuristics$ and$ biases$ in$ order$ to$ make$ the$ point$ that$ the$ consequence$ of$$

Kahneman$and$Tversky$confining$their$psychological$explanations$to$deviations$

from$a$normative$ core$ (what$ I$ call$ the$normative$ kernel),$was$ that$ it$ implied$

that$ normative$ decision$ rules$ need$ not$ be$ explained.$ This$ strengthened$ the$

normativity$ of$ those$ rules,$ and$ thereby$ inadvertently$ the$ notion$ that$ humans$

were$generally$to$be$considered$irrational.$$$

The$aim$of$chapter%7$ is$ to$show$what$analysing$heuristics$and$biases$and$the$

subTdiscipline$of$behavioural$economics$as$a$psychologies$of$error$contributes$

to$ our$ understanding$ of$ the$ way$ in$ which$ they$ were$ made.$ I$ begin$ with$ a$

summary$of$ the$way$ that$Kahneman$and$Tversky$proceeded$ in$ strengthening$

their$central$tenet,$which$played$a$vital$role$in$establishing$heuristics$and$biases$

as$ a$ psychology$ of$ error.$ The$ shoring$ up$ of$ the$ psychology$ of$ error$ in$ the$

Heuristics$ and$ Biases$ Programme$ in$ turn$ helps$ explain$ the$ effect$ that$ the$

psychology$of$error$had$on$building$the$discipline$of$behavioural$economics$and$

on$the$debate$about$human$rationality.$

I$ then$move$on$ to$ a$discussion$of$how$ this$ analytical$ lens$ sheds$ light$on$how$

behavioural$ economics$ as$ a$ subTdiscipline$ of$ economics$was$ shaped,$ through$

the$ various$ stages$ of$ the$ Behavioral$ Economics$ Program.$ More$ specifically$ I$

argue$that$understanding$Behavioural$Economics$as$a$psychology$of$error$sheds$

light$on$three$characteristics$in$the$course$of$the$formation$of$the$discipline:$the$

focus$ on$ identifying$ anomalies,$ the$ focus$ on$ targeting$what$ I$ call$ “rationality$

strongholds”$ and$ the$ reasons$ for$ drawing$ a$ boundary$ between$ behavioural$

economics,$economic$sociology$and$experimental$economics.$$

Finally,$ I$ argue$ that$ the$ psychology$ of$ error$ was$ an$ indispensable$ tool$ for$

behavioural$economists$ in$their$quest$to$both$critique$neoTclassical$economics$

$ 50$

and$secure$a$place$for$behavioural$economics$as$a$part$of$the$economic$sciences.$

I$ go$ on$ to$ explain$ how$ an$ understanding$ of$ behavioural$ economics$ as$ a$

psychology$ of$ error$ can$ shed$ light$ on$what$might$ appear$ to$ be$ a$ paradoxical$

relationship$ between$ behavioural$ economics$ and$ neoTclassical$ economics;$

paradoxical$ because$ neoTclassical$ theory$ is$ both$ criticised$ and$ praised$ by$

behavioural$ economists.$ I$ argue$ that$by$ applying$ a$psychology$of$ error$ to$ the$

rationalistic$ models$ of$ neoTclassical$ economics,$ behavioural$ economists$ were$

able$to$critique$the$descriptive$validity$of$those$models$while$maintaining$their$

normative$validity.$I$end$by$suggesting$that$the$consequences$of$maintaining$the$

normative$validity$of$neoTclassical$norms,$both$ in$ terms$of$ its$ implications$ for$

economic$ knowledge$ making$ and$ its$ implication$ for$ the$ way$ in$ which$ it$

conceptualises$human$reasoning,$are$fruitful$avenues$for$further$study.$$$

$

$ 51$

CHAPTER(2:"KAHNEMAN"AND"TVERSKY"AND$THE$FORMATION$OF$A$PSYCHOLOGY)OF)ERROR)IN)ISRAEL!

The$collaboration$between$Kahneman$and$Tversky$that$produced$the$so$called$

Heuristics$and$Biases$Programme$began$with$a$disagreement$between$the$two$

as$ to$whether$or$not$humans$can$be$said$ to$be$ intuitive$statisticians.$The$way$

the$argument$was$settled$was$to$become$the$modus)operandi$of$ the$Heuristics$

and$Biases$Programme,$as$well$as$the$grounds$upon$which$their$psychological$

programme$can$be$said$to$be$a$psychology$of$error.$$

The$ two$ Israeli$ psychologists$worked$ in$ close$ collaboration.$ It$ is$ justifiable$ to$

describe$Kahneman$and$Tversky’s$connection$as$a$meeting$of$minds.$Kahneman$

goes$ so$ far$ as$ to$ describe$ it$ as$ “magical”$ in$ his$ Nobel$ biography,$ and$ writes$

warmly$about$how$they$used$to$make$each$other$laugh$and$finish$each$others’$

sentences$ (Kahneman,$ 2002). 17 $Kahneman$ and$ Tversky$ avoided$ explicit$

divisions$ of$ labour$ and$ kept$ a$ deliberate$ balance$ in$ the$ accreditation$ of$ their$

joint$publications.$For$example,$they$initially$took$turns$as$first$author$of$their$

joint$publications,$having$settled$ the$problem$of$who$should$be$ first$author$of$

their$debut$publication$“Belief$in$the$Law$of$Small$Numbers”$(1971)$with$a$coinT

toss$ that$ Tversky$ won.$ In$ other$ words,$ Kahneman$ and$ Tversky$ saw$ the$

Heuristics$and$Biases$Programme$as$a$truly$joint$effort.$The$programme$was$a$

strand$ of$ research$ into$ judgment$ and$ decision$ making,$ an$ area$ familiar$ to$

Tversky,$ but$ largely$ unfamiliar$ to$ Kahneman.$ Still,$ it$ was$ in$ their$ view,$ a$

programme$ that$ could$ not$ have$ come$ about$ from$ either$ of$ them$ in$ isolation.$

This$provokes$a$number$of$questions.$What$were$the$ intellectual$ tools$of$each$

that$ in$ combination$ took$ the$ shape$ of$ the$ Heuristics$ and$ Biases$ Programme?$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

17 $American$ journalist$ and$ nonTfiction$ author$ journalist$ Michael$ Lewis$ has$ very$ recently$

published$a$book$called$The)Undoing)Project)S)A)Friendship)that)Changed)Our)Minds$that$focuses$

on$the$intense$relationship$between$Kahneman$and$Tversky,$and$the$impact$that$it$had$on$their$

work$(Lewis,$2016).$$

$ 52$

What$was$it$that$allowed$for$the$combination$of$their$respective$expertise$to$be$

made$ into$ a$ research$ programme$ distinct$ from$ previous$ research$ on$ human$

decision$making?$$

In$ this$ chapter$ I$present$ the$ intellectual$and$social$backgrounds$of$ the$pair$ in$

order$to$explain$what$ led$to$ this$ intriguing$question$and$what$ facilitated$their$

eventual$ collaboration.$ Both$ Tversky$ and$ Kahneman$ began$ their$ careers$ in$

higher$education$in$a$newly$independent$Israel,$and$their$collaboration$has$its$

beginning$ in$ a$ young$ but$ thriving$ psychology$ department$ at$ the$ Hebrew$

University$of$Jerusalem.$My$aim$in$this$chapter$is$to$trace$the$intellectual$puzzle$

pieces$ of$ the$ Heuristics$ and$ Biases$ Programme$ and$ to$ show$ how$ they$ relate$

both$ to$ the$ intellectual$ contexts$ of$ experimental$ psychology$ and$ the$

normative/descriptive$distinction$of$traditional$decision$theory.$$

I$argue$that$the$birth$of$this$particular$strand$of$the$psychology$of$error$relates$

to$ the$process$of$nation$building$ in$ the$newly$ formed$State$of$ Israel.$ I$explain$

the$ role$ of$ the$ army,$ and$ of$ the$ challenges$ of$ supporting$ collaboration$ in$ a$

heterogeneous$ population$ as$ a$ result$ of$ massTimmigration$ in$ forging$ in$

Kahneman$an$appreciation$for$the$predictive$powers$of$statistical$analysis$over$

common$sense$intuition.$I$also$explain$the$intellectual$traditions$in$the$study$of$

human$ decision$ making$ that$ led$ Tversky$ to$ a$ notion$ of$ human$ beings$ as$

‘conservative$Bayesians’,$a$part$of$the$story$that$Heukelom$(2014)$deals$with$in$

some$ detail.$ I$ situate$ this$ intellectual$ conundrum$ by$ explaining$ how$ I$

understand$ the$ character$ of$ the$ then$ recently$ established$ psychology$

department$at$the$University$of$Jerusalem$to$have$helped$pave$the$way$for$the$

collaboration$between$Kahneman$and$Tversky.$$

Kahneman$(2002,$2011)$traces$the$origin$of$his$collaboration$with$Tversky$to$a$

seminar$at$the$Hebrew$University$of$Jerusalem$in$1969.$There$he$and$Tversky$

began$debating$the$question$of$whether$humans$can$be$said$to$be$good$intuitive$

statisticians$ the$ same$way$ they$ can$ be$ said$ to$ be$ for$ example,$ good$ intuitive$

grammarians$(Kahneman,$2011).$It$was$a$combination$of$elements$of$Tversky’s$

intellectual$ journey$ that$ had$ led$ him$ to$ this$ question,$ and$ it$was$Kahneman’s$

$ 53$

attitude$to$ the$capacity$of$human$ intuition$translated$ into$ laboratory$research$

on$vision$and$attention$that$eventually$steered$the$pair$to$a$qualified$ ‘no’,$and$

ultimately$to$the$creation$of$their$version$of$a$psychology$of$error.$$

Israeli$ Institutions$ Under$ Construction:$ Statistics$ Versus$ Common$

Sense$$

Kahneman$was$born$ in$Tel$Aviv$ in$1934,$but$ lived$with$his$ family$ in$Paris$ for$

the$ first$ eight$ years$ of$ his$ life.$His$ father,$who$had$been$ chief$ researcher$ at$ a$

French$chemical$factory,$died$of$untreated$diabetes,$just$six$weeks$before$DTday$

while$ the$ family$were$ in$ hiding$ from$ the$ Nazi$ regime$ in$ rural$ France.$ In$ the$

wake$of$the$second$world$war$his$mother$took$Kahneman$and$his$sister$to$live$

in$Palestine$where$she$had$extended$family$(Kahneman,$2002).$$

It$is$evident$from$Kahneman’s$autobiographical$writings$that$the$Israeli$context$

was$ crucial$ in$ making$ him$ feel$ both$ valued$ and$ valuable$ in$ his$ academic$

pursuits.$It$was$also$what$facilitated$Kahneman’s$early$exposure$to$professional$

psychological$work.$The$move$ to$Palestine$spelt$a$positive$change$ for$him.$He$

was$held$back$a$year$at$school,$and$began$to$feel$less$inferior$to$his$classmates$

than$ he$ had$ during$ his$ brief$ experience$ with$ the$ French$ educational$ system$

(Kahneman,$2002).$

Kahneman$ earned$ his$ bachelor’s$ degree$ from$ the$ Hebrew$ University$ of$

Jerusalem$ in$ 1954,$ where$ he$ had$ majored$ in$ psychology$ with$ a$ minor$ in$

mathematics.$Between$1954$and$1958$he$ joined$ the$psychology$branch$of$ the$

Israeli$Defense$Forces$(IDF),$having$deferred$his$military$service$on$the$promise$

that$ he$ would$ do$ part$ of$ his$ service$ working$ as$ a$ professional$ psychologist$

(Kahneman,$ 2002).$ This$ meant$ that$ Kahneman’s$ first$ experience$ as$ a$

professional$psychologist$was$working$for$the$especially$appointed$Psychology$

Section$of$the$IDF.$$

The$ IDF$ has$ since$ its$ establishment$ played$ an$ important$ role$ for$ the$

development$of$psychology$in$Israel$because$it$created$a$professional$space$for$

$ 54$

Israeli$ psychologists,$ either$ as$ in$ the$ case$ of$ Kahneman,$ for$ recruitment$ and$

allocation$of$posts$with$the$use$of$psychometric$testing$pre$military$service,$or$

for$therapy$and$reTassimilation$of$injured$soldiers$post$military$service$(BenTAri$

&$Amir,$1986).$There$was,$just$after$statehood,$a$sense$of$urgency$to$maximize$

the$efficacy$of$the$Israeli$military,$which$resulted$in$the$use$and$development$of$

a$ variety$ of$ aptitude$ testing$ and$ leadership$ training$ techniques.$ Psychologists$

BenTAri$ and$ Amir$ (1986)$ also$ tie$ the$ particular$ needs$ of$ the$ IDF$ to$ the$

heterogeneity$of$the$Israeli$population:$$

psychological$ services$ were$ needed$ because$ the$ multiethnic$ population$ in$ the$

armed$ forces$ demanded$ special$ solutions$ to$ the$ problems$ of$ selection,$ training,$

living$under$army$discipline,$building$up$an$esprit$de$corps$for$combat$conditions,$

and$eliminating$prejudice$ for$ the$ smooth$working$of$ the$defense$machine.$Thus,$

professional$services$and$guidance$by$psychologists$were$early$deemed$necessary$

and$proved$to$be$a$critical$factor$in$the$IDF$complex,$respected$and$appreciated$by$

headquarters$and$utilized$to$the$maximum$(BenTAri$&$Amir,$1986$p.$32).$

These$professional$psychological$ services$were$organized$ in$ special$units$ that$

acted$as$advisors$ to$ the$various$ command$ levels$of$ the$army.$These$were$not$

always$ psychologically$ trained$ professionals.$ For$ instance,$ Kahneman$ recalls$

how$his$first$immediate$supervisor$at$the$IDF$was$a$chemist,$and$entirely$selfT

taught$in$statistics$and$psychology$(Kahneman,$2002).$$

It$was$in$this$context$that$Kahneman$first$encountered$psychology$in$action.$His$

unit$ was$ tasked$ with$ selecting$ officers$ based$ a$ combination$ of$ field$ tests,$

psychometric$tests,$and$interviews.$Kahneman$and$the$others$in$his$unit$would$

rate$candidates’$potential$and$general$fitness$for$combat,$as$well$as$assign$them$

to$the$various$branches$of$the$military$(Kahneman,$2011).$At$regular$ intervals$

the$ officer$ school$ would$ also$ inform$ them$ of$ the$ accuracy$ of$ these$ ratings$

against$ performance.$ This$ onTgoing$ process$ of$ assessment$ and$ comparison$

between$ assessment$ and$ actual$ performance$was$ eyeTopening$ for$ Kahneman,$

mainly$because$the$ability$of$ the$unit$ to$accurately$predict$performance$ levels$

seemed$to$him$to$be$severely$lacking$(Kahneman,$2002).$$

$ 55$

In$1955,$only$a$year$in$to$his$service$with$the$IDF,$Kahneman$was$assigned$the$

task$of$developing$a$new$and$more$scientifically$rigorous$ format$ for$assessing$

new$recruits.$At$the$time$the$initial$assessment$and$interviewing$was$performed$

by$ mostly$ female,$ recent$ high$ school$ students$ who$ had$ themselves$ been$

selected$ for$ the$ job$ based$ on$ psychometric$ testing,$ and$ had$ expressed$ an$

interest$in$psychology.$They$would$then$provide$a$rating$of$the$expected$quality$

of$the$recruit$based$on$their$general$impressions$(Kahneman,$2002).$

Kahneman$was$tasked$with$producing$a$scheme$that$both$identified$personality$

traits$ that$ corresponded$ to$ type$ of$ combat,$ and$ to$ write$ the$ interview$

guidelines$ that$would$establish$ those$personality$ traits$ in$ the$recruit.$The$ fact$

that$ Kahneman,$ as$ a$ 21$ year$ old$with$ a$ bachelor’s$ degree$ in$ psychology$was$

assigned$ this$ task$ at$ all$ is$ directly$ traceable$ to$ rapid$ institutionTbuilding$ in$ a$

newly$independent$Israel.$Kahneman$has$commented$on$this$himself$writing:$$

If$you$wonder$why$such$a$responsibility$would$be$forced$upon$someone$so$young,$

bear$in$mind$that$the$state$of$Israel$itself$was$only$seven$years$old$at$the$time;$all$

its$institutions$were$under$construction,$and$someone$had$to$build$them$[…]$From$

the$perspective$of$a$serious$professional,$I$was$no$more$qualified$for$the$task$than$

I$was$to$build$a$bridge$across$the$Amazon$(Kahneman,$2011$p.$229T230).$

In$his$2002$Nobel$biographical$he$adds$$

improvisation$was$the$norm,$and$that$professionalism$did$not$exist$[…]$with$a$B.$A.$

in$ the$ appropriate$ field,$ I$ was$ the$ best$ trained$ professional$ psychologist$ in$ the$

military$(Kahneman,$2002).$$

In$ order$ to$ fulfil$ his$ assignment,$ Kahneman$ did$ fieldwork$ with$ the$ different$

units$of$the$IDF.$He$also$collated$evaluations$and$ratings$of$personality$traits$of$

past$ recruits.$ Kahneman$ had$ just$ read$ and$ was$ impressed$ by$ Paul$ Meehl’s$

(1920T2003)$ recently$ published$ Clinical) versus) statistical) prediction:) A)

theoretical)analysis)and)a)review)of)the)evidence$ (1954),)in$which$he$argued$for$

the$ superior$ predictive$ power$ of$ statistical$ analysis$ over$ the$ judgments$ of$

expert$clinicians.$Based$on$Meehl’s$assertions,$he$therefore$had$some$faith$that$

$ 56$

he$could$produce$an$algorithm$that$would$yield$more$accurate$predictions$than$

the$interview$schemes$in$place.$The$assignment$resulted$in$a$detailed$exposé$of$

the$psychological$requirements$of$the$various$army$units,$as$well$as$a$complex$

statistical$ technique$ for$ identifying$ them$ in$ recruits.$ Kahneman$ was$ later$

modest$ about$ the$ success$ of$ the$ scheme$ despite$ it$ having$ been$ accepted$ and$

kept$in$place$for$decades$after$it$was$made$(Kahneman,$2002).$18$$

The$superiority$of$his$statistical$technique$over$common$sense$was$not$a$clear$

cut$eitherTor$for$Kahneman.$The$high$school$students,$who$felt$the$loss$of$their$

previous$ analytical$ role,$ complained$about$ their$new$more$mechanical$ role$ in$

the$data$collection$and$analysis$process.$Kahneman$gave$ in,$and$allowed$ for$a$

“global$ assessment”$ to$ be$made$ at$ the$ end$ of$ the$ structured$ interview$ to$ be$

added$ to$ the$overall$analysis.$As$ it$ turned$out,$ the$best$predictive$ fidelity$was$

achieved$ with$ a$ combination$ of$ a$ calculation$ of$ the$ structured$ interview$

answers$using$the$algorithm$and$the$final$“global$evaluation”$(Kahneman,$2002,$

2011).$Still,$his$time$at$the$IDF$marked$for$Kahneman$the$beginning$of$a$loss$of$

faith$in$common$sense$intuitions,$and$the$beginning$of$an$intuition$of$his$own:$

that$statistical$methods$were$more$reliable$than$common$sense$intuitions$when$

it$came$to$making$predictions$about$the$future.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

18$It$also$resulted$in$his$first$publication$coTauthored$with$industrial$psychologist$Edwin$Ghiselli$

(Kahneman$&$Ghiselli,$1962).$$

$ 57$

The$logical,$the$psycho>logical,$and$the$use$of$social$science$for$nation>building$

Once$ his$ military$ service$ was$ done$ Kahneman$ moved$ to$ the$ USA$ for$

postgraduate$ study.$ He$ obtained$ his$ PhD$ from$ the$ University$ of$ California$

Berkeley$in$1961$supervised$by$psychologist$Susan$ErvinTTripp$(b.$1927),$with$

a$dissertation$on$the$topic$of$semantic$differentials$in$cognitive$linguistics.$19$$

The$body$of$work$that$Kahneman$produced$in$the$ten$years$between$1961$and$

1971$converges$on$three$areas$of$psychology:$the$study$of$semantic)differentials$

(Kahneman,$ 1963),$ research$ on$ vision) and) optometry$ (Flom,$ Kahneman,$ &$

Weymouth,$ 1963;$ Kahneman,$ 1964,$ 1965;$ Kahneman$ &$ Norman,$ 1964;$

Kahneman,$ Norman,$ &$ Kubovy,$ 1967;$ Kahneman$ &$ Wolman,$ 1970),$ and$

research$ on$ the$ psychology$ of$ attention,)with$ a$ particular$ focus$ on$ selective$

attention$ tasks$ (Gopher$ &$ Kahneman,$ 1971;$ Kahneman,$ Benishai,$ &$ Lotan,$

1973;$ Kahneman$ &$ Peavler,$ 1969;$ Kahneman,$ Peavler,$ &$ Onuska,$ 1968;$

Kahneman,$Tursky,$Shapiro,$&$Crider,$1969;$Ninio$&$Kahneman,$1974).$$

Kahneman$ worked$ on$ these$ three$ areas$ in$ more$ or$ less$ chronological$

progression,$ from$ semantic$ differentials$ to$ attention.$ His$ publications$ bear$

witness$ to$his$strong$appreciation$of$statistics.$He$quickly$ fell$out$of$ love$with$

the$study$of$semantic$differentials.$ In$the$only$article$that$he$published$on$the$

topic,$ Kahneman$ (1963)$ focused$ on$ problems$ with$ the$ use$ of$ the$ statistical$

models$used$in$the$measurement$of$semantic$differentials.$More$specifically$his$

aims$ were$ to$ expose$ problems$ with$ variance$ in$ the$ statistical$ analysis$ of$

existing$ models$ and$ to$ develop$ a$ more$ “precise$ algebraic$ model”$ for$

understanding$ correlation$ (Kahneman,$ 1963$ p.$ 554).$ His$ first$ ever$ published$

article,$coTauthored$with$industrial$psychologist$Edwin$Ghiselli$(1907T1980)$at$

the$University$of$Berkeley$and$based$on$his$ statistical$ technique$developed$at$

the$IDF,$is$likewise$a$study$of$the$best$validity$test$to$use,$in$this$case$applied$to$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

19$Summarised,$ the$ study$of$ semantic$differentials$ is$ the$ study$of$ individual$differences$ in$ the$

attribution$ of$meaning$ to$ a$ concept$ or$ object.$Meaning$ is$measured$ by$ subjects$ choices$ on$ a$

sevenTpoint$(T3$to$+3)$bipolar$rating$scale.$So$ for$example,$subjects$could$be$asked$to$rate$the$

concept$‘nurse’$according$to$the$following$scale:$good$–$bad,$active$–$passive,$strong$–$weak.$$

$ 58$

the$ relationship$ between$ the$ prediction$ of$ criteria$ from$ test$ scores$ and$ job$

success$or$failure.$$

All$of$Kahneman’s$publications$joint$and$otherwise$in$the$period$between$1961$

and$ 1971$ were$ based$ on$ laboratory$ research.$ All,$ that$ is,$ but$ one;$ a$ joint$

publication$ entitled$ Training) Agents) of) Social) Change) in) Israel:) Definition) of)

Objectives) and) a) Training) Approach$ (Kahneman$ &$ Schild,$ 1966).$ The$ work$

remains$ relatively$unknown$ in$comparison$ to$his$other$ studies$ (to$date$ it$has$

only$been$cited$twice,$both$times$in$1968).$The$interesting$thing$about$the$study$

is$that$it$was$simultaneously$an$example$of$Kahneman’s$belief$in$social$scientific$

knowledge$ above$ common$ sense$ and$ the$ application$ of$ psychological$

knowledge$to$social$change,$justified$by$the$specific$context$of$Israel$as$a$newly$

formed$nation$state.$It$begins$like$this:$$

Many$sectors$of$Israeli$life$are$characterized,$not$only$by$a$rapid$rate$of$change$but$

also$ by$ the$ relative$ prevalence$ of$ planned$ social$ change.$ In$ response$ to$ the$

economic$and$social$problems$ultimately$related$to$the$achievement$of$statehood$

and$ the$absorption$of$mass$ immigration,$most$public$ institutions$are$engaged$ in$

inducing$ and/or$ controlling$ change$ in$ many$ spheres$ of$ behavior.$ Recent$ years$

have$witnessed$an$increase$in$the$awareness$on$the$part$of$such$institutions,$that$

they$may$profit$from$a$closer$acquaintance$with$modern$social$science.$In$addition$

to$ the$ utilization$ of$ sociological$ research$ and$ counseling,$ requests$ are$made$ for$

training;$many$ individuals$who$ have$ been$ agents$ of$ social$ change$ for$ years$ are$

now$ prepared$ to$ take$ some$ time$ (usually$ very$ little$ time)$ to$ hear$ what$ social$

psychology$has$to$offer$(Kahneman$&$Schild,$1966$p.$71).$

As$was$the$case$with$the$IDF,$the$local$circumstances$of$massTimmigration$and$

institutionTbuilding$ from$ the$ground$up$ in$a$newly$established$state$ impacted$

not$just$Kahneman$but$the$development$of$psychology$in$Israel$generally.$Israel$

has$for$a$ long$time$had$a$strong$community$of$professional$psychologists.$ In$a$

1982$review$of$the$profession$for$the$International)Journal)of)Psychology,$Mark$

Rosenzweig$estimated$ Israel$ to$have$ the$4th$highest$ ratio$of$psychologists$per$

capita$in$the$world$(Rosenzweig,$1982).$$

Israeli$ psychologists$ BenTAri$ and$ Amir$ (1986)$ provide$ a$ survey$ of$ the$

development$of$psychology$ in$ Israel,$ in$which$ they$ tie$ the$development$of$ the$

$ 59$

discipline$in$Israel$to$waves$of$immigration.$They$argue$convincingly$that$there$

were$trends$in$the$kinds$of$psychology$practiced$in$Israel$that$correspond$to$the$

ideological$ leanings$of$ these$groups$of$ immigrants,$as$well$as$ to$the$particular$

challenges$ that$ they$ presented.$ Writing$ the$ history$ of$ Israel$ in$ terms$ of$

migration$patterns$is$common,$and$has$considerable$merit.$As$sociologist$Yinon$

Cohen$(Cohen,$2002)$observes:$$

Israeli$ historiography$ of$ the$ preTstate$ years$ employs$ periodization$ that$ follows$

five,$wellTdefined$migration$waves$from$1882$to$1983,$and$an$additional$wave$for$

those$ arriving$ illegally$ between$ 1939$ and$ 1948.$ During$ statehood,$ immigration$

continued$ to$ be$ a$ major$ source$ of$ Jewish$ population$ growth$ […]$ Surely$ the$

demographic$ history$ –$ and$ to$ a$ large$ extent$ the$ social,$ cultural,$ political$ and$

economic$ history$ –$ of$ Israel$ has$ been$ shaped$ by$ its$ migration$ patterns$ (Cohen,$

2002).$$

Jewish$ immigration$ was$ massive$ in$ the$ first$ three$ years$ of$ Israeli$ statehood$

which$ brought$ approximately$ 700$ 000$ Jews$ to$ Israel,$ doubling$ the$ Jewish$

population$base$which$was$at$around$650$000$at$ the$ time$of$ independence.$ It$

was$aided$by$the$establishment$of$Israeli$statehood$which$effectively$lifted$the$

restrictions$ on$ immigration$ that$ had$ been$ in$ place$ in$ British$ Mandatory$

Palestine$(1922T1948),$and$by$the$Law)of)Return$passed$by$the$Knesset$in$1950$

to$allow$Jewish$immigrants$to$settle$in$Israel.$$

PreTstate$ Jewish$ immigrants$ came$ predominantly$ from$ preTrevolutionary$

Russia,$infusing$their$socialist$or$Marxist$ideologies$into$their$goals$of$forming$a$

Jewish$state,$and$a$new$Jewish$identity$(Winnik,$1977).$It$was$with$these$aims$

in$mind$that$that$coToperatives$and$Kibbutzim$were$formed.$To$some$extent$this$

would$have$been$an$elitist$and$highly$idealistic$group$of$people,$a$large$portion$

of$which$came$of$their$own$volition$(BenTAri$&$Amir,$1986).$$

Psychoanalysis$gained$a$little$bit$of$a$foothold$in$preTstate$Palestine$with$early$

Kibbutzim$ settlers$ who,$ like$ the$ leftist$ communities$ around$ Freud,$ saw$

psychoanalysis$ and$ Marxism$ as$ relating$ to$ different$ aspects$ of$ ‘the$ social$

$ 60$

revolution’$ (Winnik,$ 1977).$20$It$ was$ not,$ however$ until$ after$ statehood$ that$

psychology$began$to$grow$in$earnest$in$Israel.$$

BenTAri$and$Amir$(1986)$in$their$history$of$psychology$in$Israel,$ask$themselves$

the$intriguing$question$of$why$it$should$be$that$the$development$of$psychology$

was$ at$ a$ virtual$ standstill$ in$ Israel$ in$ the$ 1940’s$ when$ its$ Jewish$ inhabitants$

were$largely$of$wellTeducated$European$descent,$most$likely$quite$familiar$with$

the$ European$ psychological$ movement,$ but$ came$ dramatically$ alive$ in$ the$

1950’s$just$after$the$establishment$of$Israeli$statehood,$when$its$inhabitants$had$

doubled$with$mainly$middleTeastern$ Jews,$ or$ Jews$who$ had$ gone$ uneducated$

under$ NaziTrule.$ The$ answer,$ they$ conclude,$ once$ again,$ lies$ in$ civil$ nationT

building$ (BenTAri$ &$ Amir,$ 1986).$ The$ Russian$ Jewish$ communities$ that$

influenced$ civil$ life$ in$preTstatehood$ Israel$differed$markedly$ from$ the$ second$

significant$wave$of$Jewish$immigrants,$namely,$those$who$came$(some$illegally)$

just$ before$ and$ during$ the$ second$ world$ war,$ and$ those$ who$ came$ after$ the$

state$of$Israel$was$established.$$

The$pressures$for$this$latter$group$of$Jews$to$adjust$to$a$sometimes$drastically$

different$ way$ of$ life$ and$ of$ attempting$ to$ integrate$ with$ each$ other$ were$

demanding,$ as$ were$ the$ pressures$ on$ the$ newly$ established$ state$ to$

accommodate$ this$ heterogeneous$ population.$ The$ scale$ of$ the$ population$

expansion$ alone$ put$ pressure$ on$ institutions.$ The$ influx$ of$ immigrants$ with$

different$ ideas$ about$ the$ meaning$ of$ civil$ society,$ and$ the$ need$ to$ find$ an$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

20$Freud$was$a$governor$of$the$Hebrew$University$of$Jerusalem$and$a$supporter$of$Max$Eitingon$

(1881T1943)$to$carve$a$space$for$psychoanalysis$in$Israel.$Eitingon$had$come$to$Israel$in$1910,$

and$again$in$1930’s,$when$he$founded$the$Palestine$Psychoanalytic$Society$in$1933.$The$society$

lay$ the$groundwork$ for$ the$Psychoanalytic$ Institute$of$ Israel,$a$ teaching$ institute$modelled$on$

Eitingon’s$ Berlin$ Psychoanalytic$ Polyclinic.$ The$ development$ of$ psychoanalysis$ in$ Israel$ was$

stunted$in$part$by$the$refusal$of$the$leadership$of$the$Hebrew$University$of$Jerusalem$to$allow$

the$ establishment$ of$ a$ chair$ of$ psychoanalysis,$ and$ to$ appoint$ Eitingon$ to$ it,$ despite$ a$

recommendation$from$Freud.$The$committee$appointed$by$the$Ministry$of$Culture$and$Science$

to$ asses$ the$ chair$ turned$ the$ petition$ down$ on$ the$ grounds$ that$ “psychoanalysis$ is$ an$

amalgamation$ of$ brilliant$ scientific$ ideas$ and$ excessive$ dogmatism$ as$ well$ as$ insufficiently$

empirical$methods$of$ inquiry”$ (verdict$of$ the$ committee$appointed$by$ the$Ministry$of$Culture$

and$ Science,$ quoted$ in$ Algon$ and$ Luccio$ ).$ For$ an$ interesting$ chronology$ on$ the$ early$

developments$ of$ psychoanalysis$ in$ Israel$ see$ Winnik,$ H.$ Z.$ (1977).$ Milestones$ in$ the$

development$of$psychoanalysis$in$Israel.$The)Israeli)Annals)of)Psychiatry)and)Related)Disciplines,)

15,$85T91.$

$ 61$

effective$ way$ of$ building$ civil$ society,$ provided$ a$ resource$ for$ scholars$ like$

Kahneman$ to$ make$ the$ claim$ that$ social$ science$ could$ be$ of$ use$ in$ this$

endeavour.$This$point$is$well$illustrated$in$Kahneman’s$1966$article.$$

The$article$was$the$result$of$a$collaboration$between$Kahneman$and$his$friend$

psychologist$ and$ sociologist$ Ozer$ Schild$ (1930T2006).$ It$ was$ written$ while$

Kahneman$ was$ visiting$ at$ the$ University$ of$ Michigan,$ and$ Schild$ was$ doing$

some$ postdoctoral$ work$ at$ the$ Department$ of$ social$ relations$ at$ the$ Johns$

Hopkins$University.$The$task$that$the$authors$set$themselves$is$to$help$those$in$

charge$ of$ implementing$ change$ in$ agricultural$ practices$ to$ identify$ the$

problems$ and$ plan$ the$ changes$ needed.$ The$ method$ was$ developed$ by$ the$

authors$ through$ seminars,$ some$ of$ which$ were$ sponsored$ by$ the$ Extension$

Service$ of$ the$ Israel$ Ministry$ of$ Agriculture$ and$ by$ Kibbutz$ organisations$

through$ the$ Ruppin$ Adult$ Agricultural$ College.$ It$ was$ targeted$ mainly$ at$

functionaries$ who$ had$ been$ tasked$ to$ train$ immigrants$ from$ developing$

countries$(Kahneman,$2002).$$

The$ “agents$of$ change”$ that$ the$authors$ refer$ to$were$ the$ functionaries$ in$ the$

field$who$were$ also$ the$workshop$ attendees.$ The$ seminars$ themselves,$when$

described,$ sound$ like$ something$ that$ we$ might$ call$ a$ workshop$ today,$ with$

some$ lecturing,$ some$ tasks$ to$ perform$ and$ workbooks$ to$ complete$ all$

interspersed$ by$ group$ discussions.$ The$ authors$ focussed$ on$ the$ issue$ of$

planning)a)strategy)for)change,$not$really$on$how$to$implement$the$strategy.$$

The$ study$ follows$ on$ from$ a$ tradition$ developed$ early$ in$ the$ Kibbutzim$ of$

making$ use$ of$ psychological$ knowledge$ for$ the$ improvement$ of$ both$

community$and$individual.$Here$is$how$BenTAri$and$Amir$(1986)$describe$it:$$

The$ Kibbutz$ […]$ has$ always$ comprised$ a$ small$ percentage$ of$ the$ country’s$

population.$ Still,$ its$ cultural$ influence$ on$ society$ was$ much$ stronger$ than$ its$

numerical$ representation,$ partly$ because$ of$ the$ elitist$ nature$ of$ its$membership.$

[…]$the$Kibbutz$made$a$most$interesting$and$important$experiment$in$the$attempt$

to$ use$ psychoanalytic$ knowledge$ for$ the$ attainment$ of$ improved$ educational$

methods,$ healthy$ emotional$ development$ in$ children,$ and$ better$ human$

relationships$ in$ general.$ Educational$ leaders$ of$ the$ Kibbutz$ believed$ that$

$ 62$

coeducation,$ conducted$ on$ scientific$ lines$ in$ the$ collective$ framework$ of$ living,$

would$help$produce$a$better$type$of$human$being,$and$thus$a$better$humanity$ in$

general$($p.$24).$$

The$early$Kibbutz$movement$was$quite$stringent$with$the$use$of$psychoanalysis$

only.$ It$was$ not$ until$ the$ late$ 1960’s$ that$ the$ kinds$ of$ psychology$ allowed$ to$

inform$ kibbutz$ education$ widened$ in$ scope.$ Again,$ this$ relates$ to$ postT

statehood$waves$of$immigration:$$

The$ mass$ immigration$ following$ the$ establishment$ of$ Israel$ produced$ major$

difficulties$ in$ the$ personal$ adjustment$ of$ the$ newcomers$ and,$ consequently,$

negative$ group$ phenomena$ emerged$ related$ to$ ethnicity,$ social$ class,$

disadvantaged$ groups,$ etc.$ Thus,$ the$ need$ arose$ for$ some$ psychological$ help$ to$

adults$ and$ their$ children$ and$ for$ the$ involvement$ in$ group$ and$ community$

problems.$ Consequently,$ clinical,$ educational$ and$ later$ on$ social$ psychology$

flourished$(BenTAri$&$Amir,$1986$p.$25).$$

The$ kinds$ of$ psychology$ that$ focused$ on$ individual$ clients,$ was$ largely$

abandoned$ by$ psychologists$ in$ Israel$ in$ favour$ of$ psychological$methods$ that$

focused$ on$ community$ involvement$ and$ that$ often$made$ use$ of$ agents$ in$ the$

form$ of$ teachers$ and$ social$ workers$ (BenTAri$ &$ Amir,$ 1986).$ This$ was$ the$

context$within$which$Training)Agents)of)Social)Change$should$be$understood.$$

From$ the$ beginning$ of$ his$ life$ as$ a$ professional$ psychologist$ Kahneman$ had$

been$ confronted$ with$ the$ inadequacies$ of$ human$ intuition$ in$ comparison$ to$

more$ formal$ modes$ of$ measurement,$ including$ statistical$ measurement.$ His$

interpretation$of$ the$discrepancy$during$his$ service$with$ the$ IDF$was$ that$ the$

beliefs$ of$ the$ assessment$ team$ in$ their$ own$ capacities$ were$ misguided.$ For$

Kahneman$ they$ were$ simply$ too$ willing$ to$ make$ predictions$ which$ included$

character$and$leadership$abilities$based$on$too$little$information.$$

Training)Agents)of)Social)Change$was$ an$ expression$of$ this$ conclusion,$ now$ in$

the$ context$ of$ expert$ trainers$ of$ agricultural$ practices.$ The$ article$ embodied$

Kahneman’s$approach$to$psychology$as$a$way$of$identifying$errors$and$sources$

of$ errors$ in$ behaviour$ that$ were$ a$ hindrance$ to$ a$ desired$ outcome,$ effective$

planning:$$

$ 63$

In$ attempting$ to$ improve$ the$ planning$ approach$ of$ practitioners,$ the$ social$

scientist$ must$ ask$ himself:$ what$ can$ presentTday$ knowledge$ offer$ the$ agent$ of$

change$that$is$at$one$time$scientifically$sound,$novel$to$an$audience$of$experienced$

practitioners,$and$relevant$to$the$planning$activities$of$agents$of$change$in$realTlife$

situations?$(Kahneman$&$Schild,$1966$p.$7)$

The$ identification$of$errors$and$the$sources$of$ those$errors$was$an$articulated$

one.$ The$ justification$ for$ the$ need$ for$ psychological$ knowledge$ hinged$ on$ an$

assumed$difference$between$the$assumptions$of$people$and$accepted$scientific$

opinion.$The$echoes$of$Kahneman’s$experience$with$misguided$assumptions$in$

the$army$reverberate$through$the$objectives:$

While$ the$planning$of$most$practitioners$ is$neither$ systematic$nor$explicit,$ some$

implicit$ theory$ of$ factors$ of$ change$ is$ by$ necessity$ implied$ in$ the$ activities$ of$

practitioners.$Training$for$adequate$planning$will$therefore$have$two$objectives:$

1)$ Correcting$ those$ psychological$ or$ sociological$ assumptions$ held$ by$

practitioners$that$diverge$most$seriously$from$accepted$scientific$opinion.$

2)$Providing$a$systematic$approach$ to$analysis$and$decisionTmaking,$designed$ to$

highlight$ the$most$ important$ features$ in$ concrete$ situations$ of$ change.$ The$ aim$

here$is$not$merely$to$present$such$an$approach$to$trainees$but$to$achieve$positive$

acceptance$and$some$degree$of$commitment$to$application$in$the$field$(Kahneman$

&$Schild,$1966$p.$7).$

The$ authors$ drew$ on$ various$ social$ scientific$ fields$ and$ subfields$ including$

sociology,$ social$ psychology$ and$ cognitive$ psychology$ to$ identify$ these$ errors$

and$ their$ sources.$ The$ common$ thread$ was$ the$ identification$ of$ erroneous$

assumptions$of$agents$of$change$in$relation$to$the$scientific$knowledge$available$

in$ those$ fields.$ Table$ 2$ (p.$ 75)$ of$ the$ article$ is$ entitled$ ‘Typical$ errors$ in$

practitioners$ plans’$ listing$ ‘Errors’$ on$ one$ side$ and$ ‘Sources$ of$ Error’$ on$ the$

other:$$

$ 64$

Table$1:$Typical$Errors$in$Practitioner’s$Plans$(Kahneman$&$Schild,$1966,$p.$75)$

Corrections$of$ the$ rightThand$column$were$hypothesised$ to$help$ the$agents$of$

change$ avoid$ the$ errors$ of$ the$ leftThand$ column.$ Kahneman$ and$ Schild$

identified$ two$ areas$ where$ “common$ sense$ psychology”$ diverged$ from$

“scientific$ opinion”:$ Social) determinants) of) behavior$ and$ determinants) of)

cognitions) and) attitudes.$ Their$ point$ is$ that$ assumptions,$ expectations$ and$

$ 65$

attitudes,$ far$ from$ presenting$ a$ correct$ perception$ of$ behaviour,$ impact$ on$

perception$in$a$way$that$distorts$it:$

It$ appears$ to$ be$ a$ basic$ assumption$ of$ the$ common$ sense$ theory$ of$ human$

behavior$that$perception$ is$ inherently$veridical$and$that$cognitions$and$attitudes$

are$controllable$by$rational$arguments.$Behavior$and$attitudes$are$ thus$assumed$

to$be$closely$attuned$to$objective$reality.$Social$scientists,$on$the$other$hand,$stress$

the$ functional$ character$ of$ attitudes$ and$ the$ importance$ of$ assumptions$ and$

expectations$ in$ determining$ perception.$ Moreover,$ the$ prevalence$ of$ psychoT

logical,$ rather$ than$ logical,$ consistencies$ is$ emphasized$ in$ recent$ psychological$

works$(Kahneman$&$Schild,$1966p.$74).$

The$reference$to$psychoTlogical$as$opposed$to$ logical$ thinking$was$a$reference$

to$Abelson$and$Rosenberg$(1958)$Symbolic)PsychoSlogic:)A)model)of)Attitudinal)

Cognition,$a$presentation$of$a$mathematical$model$for$experimental$analysis$of$

the$ impact$ of$ attitudes$ on$ cognition$which$ rests$ precisely$ on$ the$ notion$ that$

people$rarely,$if$ever,$follow$the$laws$of$formal$logic$in$their$thinking.$$

The$ premise$ visible$ in$ Training) Agents) of) Social) Change$ was$ that$ civil$

institutions$needed$to$be$built$on$a$foundation$of$knowledge$about$how$actual$

people$actually$behave$in$order$for$them$to$work$effectively.$The$thrust$behind$

the$work$was$to$find$a$way$for$people$to$accept$that$their$exaggerated$belief$in$

their$ own$ expertise$ may$ carry$ with$ it$ real$ problems$ that$ get$ in$ the$ way$ of$

building$ a$ new$ society.$ NationTbuilding$ in$ the$ Israeli$ context$ functioned$ as$

explicit$ justification$ for$ social$ scientific$ knowledge$ to$ be$ prioritised$ over$

common$sense$intuitions.$$

$ 66$

Tversky$and$Decision$Theory$

Tversky$was$born$ into$a$middle$class$ Israeli$ family$of$PolishTBelarusian$origin$

on$March$16th$of$1937$ in$Haifa$Mandatory$Palestine.$His$ father$Yosef$Tversky$

was$ a$ veterinarian$ and$ his$ mother$ Jenia$ Tversky$ was$ a$ social$ worker$ and$

member$of$the$Israeli$Parliament,$as$a$representative$for$Mapai,$predecessor$to$

the$Israeli$Labour$Party$from$1951$to$1964$when$she$passed$away$(Colman$&$

Shafir).21$

Tversky$ earned$ his$ Bachelor’s$ degree$ in$ philosophy$ and$ psychology$ in$ 1961$

from$the$Hebrew$University$of$Jerusalem.$He$belonged$to$the$very$first$cohort$of$

students$to$begin$studying$psychology$in$Kugelmass’$psychology$department$in$

1957.$ Both$ Kahneman$ and$ Tversky$ were$ part$ of$ an$ arrangement$ where$ the$

graduate$planners$of$the$Hebrew$University$of$Jerusalem$would$select$their$best$

and$ brightest$ students$ to$ be$ sent$ for$ graduate$ study$ abroad,$ on$ the$

understanding$that$they$would$spend$a$certain$amount$of$time$teaching$at$the$

University$to$compensate$for$the$expenses.$$

Tversky$completed$his$PhD$at$the$University$of$Michigan$in$1965$where$he$had$

been$ coTsupervised$ by$mathematical$ psychologist$ Clyde$ Coombs$ (1912T1988)$

and$behavioural$decision$researcher$Ward$Edwards$(1927T2005).$His$doctoral$

dissertation$ combined$ Edwards’$ interest$ in$ the$ study$ of$ the$ empirical$

foundations$for$normative$rules$of$rational$behaviour$with$Coombs’$interest$in$

mathematical$theories$of$measurement$by$providing$a$mathematical$analysis$of$

psychological$measurement$and$an$experimental$test$of$expected$utility$theory$

(Colman$&$Shafir).22$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

21 $Coleman$ and$ Shafir$ write$ that$ Jenia$ Tversky$ was$ a$ member$ of$ parliament$ from$ the$

establishment$of$Knesset$in$1948.$That$is$most$likely$wrong$considering$the$first$elections$were$

not$held$until$1949.$A$number$of$sources$also$seem$to$agree$that$she$failed$to$gain$a$seat$in$the$

1949$elections,$and$only$eventually$took$a$seat$on$the$First$Knesset$(1949T1951)$on$the$5th$of$

February$ as$ a$ replacement$ for$Heshel$ Frumkin$ (See$ e.g.$ the$English$ gateway$ to$ the$Knesset’s$

official$website$https://www.knesset.gov.il/mk/eng/mkindexByKnesset_eng.asp?knesset=1).$$

22$More$specifically$this$was$a$mathematical$analysis$of$the)conditions)necessary)to)satisfy)a)set)of)

requirements$of$psychological$measurement.$

$ 67$

Tversky$ joined$ the$ faculty$ of$ the$ psychology$ department$ at$ the$ University$ of$

Jerusalem$ in$ 1966.$ The$ kind$ of$ work$ that$ Tversky$ did$ in$ the$ short$ period$

between$his$doctorate$and$his$collaboration$with$Kahneman$followed$on$in$the$

vein$ of$ his$ doctoral$ dissertation.$ He$ continued$ to$ contribute$ both$ to$ Coombs’$

project$to$develop$mathematical$psychology$and$Edwards’$work$on$behavioural$

decision$ research,$ and$he$ rose$ quickly$ through$ the$ ranks$ of$ his$ chosen$ fields.$

The$ publication$ of$ Decision) making:) selected) readings$ (1967),$ a$ collection$ of$

behavioural$ decision$ research$ that$ he$ coTedited$with$ Edwards,$was$ published$

just$a$few$years$after$he$had$finished$his$PhD.$He$was$at$that$same$time$also$one$

of$ four$ authors$ of$ the$ three$ volume$ Foundations) of) Measurement$ (David$ H.$

Krantz,$ R.$ Duncan$ Luce,$ Patrick$ Suppes,$ &$ Amos$ Tversky,$ 1971;$ David$ H.$$

Krantz,$R.$Duncan$Luce,$Patrick$Suppes,$&$Amos$Tversky,$1971;$Suppes,$Krantz,$

Luce,$&$Tversky,$1971)$which$became$a$classic$text$in$mathematical$psychology,$

outlining$the$so$called$representational$theory$of$measurement.23$$

The$normative/descriptive$distinction$and$the$conservative$Bayesian$

The$ question$ of$ the$ intuitive$ statistician$ which$ served$ as$ Kahneman$ and$

Tversky’s$conceptual$ launchTpad$had$as$ its$progeny$a$distinction$in$traditional$

decision$ research$ between$ normative$ (formal,$ deductive)$ and$ descriptive$

(empirical)$decision$making.$The$normative/descriptive$distinction$in$decision$

research$was$ introduced$ into$ the$ study$ of$ decision$making$ by$mathematician$

and$ statistician$ Leonard$ Savage$ (1917T1971)$ in$ The) Foundations) of) Statistics$

(1954).$In$his$introductory$chapter$Savage$distinguishes$between$what$he$calls$

normative$and$empirical$ interpretations$of$decisions$(Savage,$1954$pp.$19T20).$

The)Foundations) of) Statistics$ is$ an$ ambitious$ text$ in$which$ Savage$ sets$ out$ to$

clarify$ the$ relationship$ between$ probability$ and$ statistical$ inference.$ His$

feelings$on$the$severity$of$the$confusion$about$this$relationship$are$made$clear$

in$the$first$few$pages$of$the$book:$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

23$His$ coTauthors$ were$ David$ H.$ Krantz$ (b.$ 1938),$ R.$ Duncan$ Luce$ (1925T2012)$ and$ Patrick$

Suppes$(1922T2014).$

$ 68$

It$is$unanimously$agreed$that$statistics$depends$somehow$on$probability.$But,$as$to$

what$probability$is$and$how$it$is$connected$with$statistics,$there$has$seldom$been$

such$complete$disagreement$and$break$down$of$communication$since$ the$Tower$

of$Babel$(Savage,$1954$p.$2).$

The$ result$ of$ his$ work$ was$ a$ set$ of$ proposed$ axioms$ for$ rational$ decision$

making$ in$ the$ face$ of$ uncertainty$where$ “rational”$was$ equated$with$ “logical”$

(Savage,$ 1954).$ Savage$ was$ aware$ that$ his$ theory$ was,$ as$ he$ put$ it$ “highly$

idealized”$(p.$7).$He$was$also$aware$that$the$way$he$extended$the$rules$of$logic$

to$probability$was$novel$and$unverified.$Because$of$the$novelty$of$his$approach,$

Savage$ kindly$ urged$ his$ readers$ to$ evaluate$ the$ rationality$ of$ his$ axioms$ for$

themselves.$For$Savage,$this$meant$assessing$whether$the$axioms$would$in$fact$

lead$to$the$kinds$of$decisions$you$T$the$reader$T$would$make,$assuming$of$course$

that$you$are$a$rational$person:$

I$ am$ about$ to$ build$ up$ a$ highly$ idealized$ theory$ of$ the$ behavior$ of$ a$ “rational”$

person$with$respect$ to$decisions.$ In$doing$so$ I$will,$of$course,$have$ to$ask$you$ to$

agree$with$me$that$such$and$such$maxims$of$behavior$are$“rational”.$ In$so$ far$as$

rational$means$“logical”$there$is$no$live$question;$and,$ if$ I$ask$your$leave$there$at$

all,$it$is$only$a$matter$of$form.$But$our$person$is$going$to$have$to$make$up$his$mind$

in$situations$in$which$criteria$beyond$the$ordinary$ones$of$logic$will$be$necessary.$

So,$ when$ certain$ maxims$ are$ presented$ for$ your$ consideration,$ you$ must$ ask$

yourself$ whether$ you$ try$ to$ behave$ in$ accordance$ with$ them,$ or,$ to$ put$ it$

differently,$ how$ you$would$ react$ if$ you$ noticed$ yourself$ violating$ them$ [Savage$

(1954),$p.7].$

It$ is$ important$ to$ distinguish$ Savage’s$ call$ for$ introspective$ verification$ from$

claims$ that$ people$ actually$ behave$ according$ to$ the$ axioms$ proposed$

(Heukelom,$2009).$Savage$made$no$claim$that$his$theory$was$empirically$valid$

in$ the$sense$of$ it$being$able$ to$predict$ the$behaviour$of$actual$ individuals.$For$

Savage,$ whether$ or$ not$ people$ in) general$ behaved$ according$ to$ the$ axioms$

proposed$remained$an$empirical$question$ that$could$only$be$verified$once$ the$

normative$validity$of$the$axioms$had$been$established.$Nevertheless,$the$extract$

clarifies$ how$ Savage$ understood$ that$ verification$ process.$ The$ normativity$ of$

his$axioms$could$only$be$verified$with$the$introspection$of$the$rational$person,$

$ 69$

the$proverbial$you.$This$made$the$creation$and$verification$of$normative$rules$a$

reflexive$process$which$itself$required$judgment.$$

The$extract$also$importantly$reflects$Savage’s$view$that$humans$were$generally$

rational.$ For$ Savage,$ empirical$ investigations$ of$ decision$ making$ of$ actual$

human$beings$would$prove$only$that$human$decision$making$abilities$could$do$

with$ some$ improvement,$ not$ that$ humans$were$ not$ intrinsically$ rational$ and$

logical$(in$his$case$Bayesian)$decision$makers.$He$did$however,$and$this$ is$ the$

important$conceptual$puzzleTpiece$for$the$continuation$of$the$story,$conceive$of$

a$clear$difference$between$normative$and$empirical$decision$making:$$

Logic$ itself$admits$an$empirical$as$well$as$a$normative$ interpretation.$Thus,$ if$an$

experimental$subject$believes$certain$propositions,$it$is$to$be$expected$that$he$will$

also$ believe$ their$ logical$ consequences$ and$ disbelieve$ the$ negations$ of$ these$

consequences.$This$theory$of$human$psychology$has$some$validity$and$is$of$great$

practical$utility$in$our$everyday$dealings$with$other$people,$though$it$is$very$crude$

and$ approximate.$ For$ one$ thing,$ people$ often$ do$ make$ elementary$ mistakes$ in$

logic;$ more$ refined$ theories$ would$ attribute$ these$ mistakes$ to$ such$ things$ as$

accident$or$subconscious$motivation$[…]$To$summarize,$logic$can$be$interpreted$as$

a$crude$but$sometimes$handy$empirical$psychological$theory$(Savage,$1954$p.$20).$$

Savage$ intended$ a$ division$ of$ labour$ where$ mathematicians,$ economists$ and$

philosophers$ would$ preside$ over$ the$ normative$ interpretations$ of$ statistical$

inference$ and$ experimental$ psychologists$ over$ the$ empirical,$ descriptive$

domain$(Savage,$1954).$$

Experimental$ behavioural$ decision$ research$ began$ in$ earnest$ when$ another$

dedicated$Bayesian,$Ward$Edwards,$ set$himself$ the$ task$of$ taking$up$Savage’s$

call$ to$ investigate$ the$ empirical$ realm$ of$ decision$ making$ using$ Bayesian$

statistical$ norms$ as$ a$ benchmark$ for$ rational$ (normative)$ decision$making$ in$

uncertain$ conditions,$ and$ to$ ‘engineer’$ formal$ decision$ rules$ into$ the$ world$

through$new$or$existing$‘decision$systems’$(Fryback,$2005).$Edwards,$who$was$

trained$ in$ experimental$ psychology$ at$ Harvard,$ set$ up$ a$ laboratory$ that$ he$

dubbed$The)Engineering)Psychology)Laboratory$at$the$University$of$Michigan$in$

1958$(Fryback,$2005).$$

$ 70$

His$work$in$the$laboratory$centred$on$the$question$of$whether$humans$could$be$

said$ to$be$Bayesian$ information$processors.$ In$extension$he$was$concerned$ to$

help$humans$become$this$whenever$they$were$found$not$to$be$(Fryback,$2005).$

Edwards’$approach$to$behavioural$decision$theory,$in$summary,$was$a$blend$of$

normative$ and$ descriptive$ elements$ made$ up$ of$ an$ iterative$ process$ of$

deduction.$ It$ involved$both$philosophical$and$moral$ considerations$ in$ relation$

to$ the$ idea$ of$ utility$ and$ the$ development$ of$ mathematical$ axioms$ based$ on$

results$from$psychological$experiments$on$human$subjects.$$

It$was$this$iterative$process$that$in$the$1960’s$gave$rise$to$a$growth$of$evidence$

of$ substantial$ descriptive$ deviations$ from$ the$ models$ of$ normative$ decision$

theory,$particularly$evident$in$the$work$of$Ward$Edwards.$These$were$added$to$

those$that$had$already$been$identified$and$described$by$French$economist$and$

decision$theorist$Maurice$Allais$(Allais,$1953a,$1953b,$1953c).$In$different$ways,$

both$ Allais$ and$ Edwards$ cultivated$ an$ interest$ in$ the$ descriptive$ fidelity$ of$

theories$ of$ preference$ and$ decisions$ under$ risk,$ especially$ the$ behavioural$

axioms$of$Savage$(1954)$and$Neumann$and$Morgenstern’s$(1944)$game$theory$.$$

Tversky$and$the$problem$of$the$human$as$instrument$$

It$ was$ at$ the$ University$ of$ Michigan$ from$ 1962T1965$ that$ Tversky$ came$ in$

contact$with$Edwards,$ acting$as$one$of$Tversky’s$doctoral$ supervisors.$During$

his$ PhD$ he$ cultivated$ the$ Edward’s$methods$ of$ experimental$ investigation$ of$

human$decision$making.$However,$as$mentioned$above,$Tversky$trained$in$two$

neighbouring$but$distinct$ fields:$Edwards’$experimental$decision$research$and$

Coombs’$mathematical$psychology.$$

The$ field$ of$mathematical$ psychology$was$ first$ labelled$ by$ psychologist$ Louis$

Leon$Thurstone$(1887T1955)$in$the$1930’s.$The$field$grew$significantly$with$the$

creation$of$the$Mathematical$Psychology$Program$in$1949,$founded$by$Coombs$

at$the$University$of$Michigan$(Heukelom,$2014).$The$1952$seminar$series$“The$

design$ of$ Experiments$ in$ Decision$ Processes”,$ an$ eight$ week$ long$ series$ of$

seminars$ on$ issues$ facing$ decision$ science$ generally$ allowed$ mathematical$

$ 71$

psychology$ to$ gain$ even$ more$ momentum. 24 $The$ journal) Mathematical)

Psychology$was$founded$in$1964$while$Tversky$was$still$at$Michigan.$$

The$ psychologists$ of$ the$Mathematical$ Psychology$ Program$ at$Michigan$were$

influenced$by$the$measurement$theories$of$Thurstone$and$Harvard$psychologist$

S.$S.$Stevens$(1906T1973)$among$others,$but$focused$heavily$on$developing$the)

representational) theory) of) measurement$ that$ Stevens$ had$ adopted$ from$

philosopher$and$mathematician$Bertrand$Russell$ (1872T1970)$as$ it$ applied$ to$

the$ experimental$ study$ of$ psychological$ phenomena.$ The$ representational$

theory$ of$ measurement$ stems$ from$ Russell’s$ logicism) and$ is$ concerned$ with$

“the$ correlation,$ with$ numbers,$ of$ entities$ which$ are$ not$ numbers”$ (Russell,$

1903,$p.$158).$In$other$words$it$is$concerned$with$the$question$of$the$nature$of$

measurement.$25$$

One$of$the$key$elements$of$the$representational$theory$of$measurement$is$that$

the$ characteristics$ of$ the$mathematical$ system$ used$ for$measurement$ should$

match$ the$ characteristics$ of$ the$ natural$ phenomenon$ to$ be$ measured,$ or,$ as$

mathematical$ psychologists$ would$ put$ it,$ the$ numerical$ structure$ should$

represent$ the$ empirical$ structure.$ For$ instance,$ if$ say,$ transitivity$ (e.g.$ If$ A>B$

and$B>C,$then$also$A>C)$is$a$necessary$property$of$the$system$of$measurement$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

24$The$ seminar$ series$ was$ held$ at$ the$ RAND$ (Research$ and$ Development)$ corporation$ in$

California,$ because$ of$ the$ general$ interest$ at$ RAND$ at$ the$ time$ in$ anything$ “decision$ related”$

(Thrall,$ Robert,$&$Mcdowell,$ 1954$ p.$ v).$Mathematical$ Psychology$ did$ gain$momentum$ in$ the$

early$ 1950’s$ but$ it$ should$ be$ noted$ that$ the$ society$ for$ Mathematical$ Psychology$ was$ not$

founded$until$1976.$

25$The$ history$ of$ the$ controversy$ around$ measurement$ in$ psychology$ that$ gave$ rise$ to$ the$

interest$ in$ measurement$ theory$ and$ mathematical$ psychology$ is$ fascinating.$ For$ more$

information$ see$ Michell$ (2007)$ who$ tells$ the$ story$ of$ how$ the$ representational$ theory$ of$

measurement$ garnered$ interest$ because$ of$ a$ controversy$ that$ arose$within$ the$ psychological$

community$ in$ the$ 1930’s$when$physicist$ and$philosopher$ of$ science$N$R$Campell$ applied$ the$

theory$ to$ the$work$ of$ Gestaltist$Helmholtz,$ producing$ a$ distinction$ between$ fundamental)and$

derived$ measurement$ (Michell$ in$ Boumans,$ 2007).$ When$ the$ British$ Association$ for$ the$

Advancement$of$Science$appointed$the$so$called$Ferguson$Committee$in$1932$to$investigate$the$

measurement$ of$ psychological$ phenomena,$ Campell$ argued$ that$ psychologists$ needed$ to$ find$

evidence$ for$ more$ than$ order$ in$ the$ attributes$ they$ claim$ to$ be$ measuring.$ He$ wrote$

dismissively$of$psychologists$that,$“having$found$that$individual$sensations$have$an$order,$they$

assume$that$they$are$measurable’$(Ferguson$et$al.,$1940,$p.$347).$

$ 72$

used,$then$it$also$needs$to$be$a$necessary$property$of$the$empirical$phenomenon$

being$measured.$$

Mathematical$ psychologists$ applied$ this$ key$ element$ of$ the$ representational$

theory$of$measurement$ to$ the$measurement$of$human$beings$as$objects$ to$be$

measured.$ They$ shared$ this$ foundation$ in$ the$ representational$ theory$ of$

measurement$with$the$decision$researchers$at$Michigan.26$This$meant$that$both$

sets$of$scholars$relied$on$the$assumption$that$it$was$(at$least$in$theory)$possible$

to$ represent$ human$ decision$ behaviour$ mathematically$ and$ that$ the$

mathematical$ representations$ of$ human$decision$ behaviour$ should$ in$ turn$ be$

reflected$in$actual$human$decisions.$$

Again,$using$the$example$of$transitivity,$if$transitivity$is$a$necessary$property$of$

the$normative$decision$theory$(the$ instrument$of$measurement)$ then$ in$order$

for$the$representational$ theory$of$measurement$to$hold,$ transitivity$needed$to$

be$a$property$of$human$decision$making$(that$which$is$being$measured).$But$the$

necessary$properties$of$human$decision$making$were$themselves$an$empirical$

question.$ Here$ the$ measurement$ of$ humans$ (as$ objects)$ collapsed$ with$ the$

notion$of$humans$as$ instruments)of)measurement.$The$ representational$ theory$

of$ measurement$ for$ psychology$ then$ required$ numerical$ correlation$ to$ both$

stimuli$ encountered$ by$ the$ individuals,$ and$ to$ the$ individuals$ themselves.$

Coombs,$Tversky’s$doctoral$supervisor$and$collaborator,$spells$out$the$situation$

using$an$analogy$between$the$individual$and$the$scientific$instrument:$$

In$psychological$measurement,$the)individual)is)the)measuring)device;$he$plays$the$

role$ of$ the$ pan$ balance,$ the$ meter$ stick,$ or$ the$ thermometer$ […]$ Psychological$

measurement$theory$is$concerned$with$the$empirical$regularities$in$behavior$that$

justify$ numerical$ assignments$ to$ the$ stimuli$ he$ is$ responding$ to$ and/or$ justify$

numerical$assignments$to$him$(Coombs,$1983$p.$36).$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

26$This$is$also$why$for$example$Krantz’s$coTauthors$of$Foundation)of)Measurement$(1971;$1971;$

1971)$Suppes,$Luce$and$Tversky,$could$all$ justifiably$be$considered$contributors$to$both$fields$

(Heukelom,$2014$p.$91).$

$ 73$

In$the$psychology$of$decision$making,$concepts$like$probability$and$(subjective)$

expected$ utility$were$ considered$ to$ be$ psychological$ phenomena.$ This$meant$

that$human$perception$of$these$phenomena$had$a$bearing$on$their$nature.$$

Heukelom$ (2014)$ when$ dissecting$ the$ initial$ point$ of$ contention$ between$

Kahneman$ and$ Tversky$ argues$ that$ the$ key$ to$ the$ problem$ of$ the$ intuitive$

statistician$was$ precisely$ this$ dual$ role$ of$ the$ human$ as$ both$ instrument$ and$

object$ of$ measurement.$ Heukelom’s$ argument$ is$ that$ this$ reliance$ on$ human$

perception$ as$ instrument$ in$ turn$ necessitated$ a$ conception$ of$ the$ human$

measuring$device$ as$ functional)on$ some$ level.$ For$mathematical$psychologists$

functional$meant$consistent$and$consistent$meant$in$accordance$with$normative$

decision$ theory.$ So$ the$ necessary$ assumption$ that$ followed$was$ that$ humans$

acted$in$accordance$with$normative$decision$making$theory.$$

This$was$the$intellectual$background$from$which$Tversky$presented$his$lecture$

arguing$that$humans$should$be$considered$flawed$intuitive$statisticians.$It$is$not$

surprising$ that$ the$ question$ initially$ divided$ the$ two$ scholars.$ Kahneman$had$

already$ spent$ a$ good$ chunk$ of$ his$ career$ focused$ on$ how$ people’s$ common$

sense$intuitions$differed$from$formal$rules$of$logic$and$statistics.$It$makes$sense$

that$ Kahneman’s$ initial$ reaction$would$ be$ to$ be$ sceptical$ of$ the$ notion$ of$ an$

intuitive$statistician.$$

Tversky$ had$ inherited$ an$ interest$ in$ the$ intuitive$ statistical$ ability$ of$ humans$

from$behavioural$decision$research.$He$had$ long$worked$with$ the$assumption$

that$ the$ intuitive$ statistician,$ though$ not$ always$ successful,$ was$ proficient$ in$

their$ own$ right,$ aiming$ for$ a$ normative$ solution$ based$ on$ probabilistic$

information.$We$ have$ already$ seen$ that$ behavioural$ decision$ researchers$ like$

Edwards$ took$ it$ upon$ themselves$ to$ test$ humans$ as$ measuring$ devices.$

Comparing$ actual$ human$ decision$making$ to$ normative$ decision$ theory,$ they$

were$ able$ to$ inform$mathematical$ psychologists$ of$ the$ potential$ flaws$ of$ the$

measuring$ device$ that$ is$ the$ human$ being.$ They$ could$ show$ experimentally$

under$ which$ circumstances$ the$ measuring$ instrument$ of$ the$ psychologist$

$ 74$

interested$ in$ decision$ making$ (the$ human$ being)$ functioned$ well,$ and$ the$

circumstances$under$which$it$did$not.$$

The$ key$was$ that$ Edwards$ and$ his$ followers,$ including$ Tversky,$ retained$ the$

notion$of$human$beings$as$generally$functional$measuring$devices.$In$their$view,$

individuals$ in$ their$ decision$ behaviour$ were$ generally$ consistent$ with$

normative$ decision$ theory$ and$ were$ as$ such$ considered$ to$ be$ conservative$

Bayesians.$ As$ Heukelom$ (2014)$ explains,$ inconsistencies$ with$ normative$

decision$ theory$ in$ actual$ individual$ behaviour$was$ not$ in$ itself$ a$ particularly$

grave$problem$for$behavioural$decision$researchers$like$Edwards$in$the$pursuit$

of$ their$ selfTassigned$ tasks,$ as) long) as) the) inconsistencies) remained) random.$

Mounting$evidence$of$ systematic$ inconsistencies$began$ to$damn$ the$project$of$

employing$human$beings$as$measuring$instruments$at$all.$$

Heukelom$takes$the$example$of$the$thermometer$alluded$by$Coombs$(1983)$to$

illustrate$ the$ ensuing$ methodological$ crises.$ A$ single$ thermometer$ that$

sometimes$does$not$function$well,$in$no$way$condemns$the$use$of$thermometers$

and$measuring$device.$Likewise,$ a$ situation$where$say$no$ thermometer$ in$ the$

world$ can$ provide$ an$ exact$ measure$ of$ temperature,$ still$ allows$ for$ a$ valid$

measurement$of$temperature$using$the$average$of$a$set$of$thermometers.$$

However,$ an$ observed$ systematic) inconsistency$ between$ the$ numerical$

representation$ of$ temperature$ and$ the$ temperature$ measured$ using$

thermometers$ presents$ the$ scientist$ with$ a$ choice$ between$ concluding$ that$

there$are$fundamental$flaws$with$the$theory$or$that$there$are$fundamental$flaws$

with$the$instrument.$To$come$back$to$the$case$of$decision$making,$if$humans$are$

valid$ instruments$ then$ the$ theory$ of$ human$ decision$ behaviour$ is$

fundamentally$ flawed.$ If,$ on$ the$other$hand$ the$ theory$holds$correct,$ then$ the$

individual$ as$ instrument$ is$ no$ longer$ valid.$ Using$ a$ flawed$ instrument,$ the$

behavioural$decision$researcher$interested$in$say$expected$utility,$can$no$longer$

infer$the$relative$expected$values$of$a$given$scenario$from$the$choices$made$by$

individuals$in$an$experimental$setting.$$

$ 75$

Heukelom’s$argument$is$that$the$choice$between$theory$and$instrument$posed$a$

difficulty$ for$ Tversky.$ Despite$ having$ accumulated$ more$ and$ more$ damning$

results$ for$the$individual$as$measurement$device$for$decision$making$between$

1965$and$roughly$1970,$not$wanting$to$throw$the$proverbial$baby$out$with$the$

bathwater,$ Tversky$was$ reticent$ to$ abandon$ the$ notion$ of$ the$ individual$ as$ a$

good$ decision$ maker,$ i.e.$ the$ kind$ of$ decision$ maker$ that$ more$ or$ less$

corresponded$with$normative$decision$theory.$$

His$collaboration$with$Kahneman$that$began$at$the$University$of$Jerusalem$was$

the$catalyst$of$a$shift$in$perspective.$It$helped$turn$what$could$be$thought$of$as$a$

weakness$ in$ Tversky’s$ theoretical$ framework$ into$ a$ strength$ by$ turning$ the$

project$of$ increasing$descriptive$accuracy$ into$one$that$ focused$on$testing$and$

providing$evidence$ for$ systematic$deviation$ from$normative$decision$ theory.$ I$

discuss$this$shift$in$perspective$in$more$detail$below,$however,$I$first$provide$a$

short$ history$ of$ the$ psychology$ department$ at$ the$ Hebrew$ University$ of$

Jerusalem,$in$order$to$show$how$the$circumstances$in$which$their$collaboration$

began.$$

Collaboration$at$the$Hebrew$University$of$Jerusalem$$

Kahneman$ joined$ the$ faculty$ of$ the$ then$ three$ year$ old$ department$ of$

psychology$ in$ 1961.$The$Hebrew$University$ of$ Jerusalem$ is$ the$ second$oldest$

institution$of$higher$education$in$the$State$of$Israel.$The$oldest,$the$Technion,$or$

the$ Haifa$ Institute$ of$ Technology,$ opened$ only$ a$ year$ before$ the$ Hebrew$

University$ in$ 1925.$ 27 $Selected$ courses$ in$ psychology$ were$ offered$ at$ the$

university$ from$ 1933$ onwards,$ but$ a$ department$ of$ psychology$ was$ not$

established$until$1939$when$Chaim$Weizmann$(1874T1952)$who$later$became$

the$ first$ president$ of$ Israel$ after$ independence,$ invited$ Italian$ psychoanalyst$

Enzo$Bonaventura$(1891T1948)$to$take$up$a$chair$in$psychology.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

27$Israel$ currently$ has$ a$ total$ of$ eight$ universities:$ Technion$ (Israel$ Institute$ of$ Technology),$

Hebrew$ university$ of$ Jerusalem,$Weizmann$ Institute$ of$ Science,$ BarTIlan$ University,$ TelTAviv$

University,$University$ of$Haifa,$BenTGurion$University$ of$ the$Negev,$Open$University$ of$ Israel,$

and$Ariel$University.$$

$ 76$

Earlier$ attempts$ had$ been$ made$ to$ establish$ a$ department$ with$ social$

psychologist$Kurt$Lewin$(1890T1947)$at$the$helm,$but$after$some$negotiations,$

Lewin$ turned$ down$ the$ invitation$ to$ found$ and$ chair$ a$ department$ of$

psychology$ at$ the$ Hebrew$ University$ of$ Jerusalem$ and$moved$ instead$ to$ the$

USA$to$work$at$Cornell$University$(Algon$&$Luccio,$2011).$28$$

While$ at$ the$ university$ Bonaventura$ created$ a$ psychology$ curriculum$ which$

came$into$effect$in$1941$and$built$Israel’s$first$psychology$laboratory.$Although$

students$ still$ could$ not$ major$ in$ psychology$ Bonaventura’s$ professorship$

allowed$students$to$minor$in$psychology.$$

This$ early$ period$ of$ psychology$ at$ the$ Hebrew$ University$ was$ cut$ short$ by$

Bonaventura’s$ death$ on$ April$ 13th,$ 1948$ when$ a$ university$ convoy$ to$ Mount$

Scopus$ where$ the$ University$ had$ been$ built$ was$ ambushed. 29 $His$ death$

effectively$halted$the$development$of$psychology$at$the$Hebrew$University.$The$

next$ few$ years$were$ patchy$ in$ terms$ of$ psychology$ courses$ offered.$ Teachers$

were$hired$on$a$temporary$basis,$and$some$courses$in$psychology$were$taught$

by$faculty$from$other$departments.$The$campus$on$Mt.$Scopus$had$been$closed$

following$the$ambush$on$the$convoy$that$killed$Bonaventura$and$78$others.$All$

lectures$ and$ seminars,$ including$ those$ in$ psychology,$ had$ been$ relocated$ to$

buildings$scattered$around$the$city.$$

Between$1949$and$1957,$ the$department$of$psychology$had$a$ series$of$ chairs$

who$ only$ stayed$ for$ short$ periods$ of$ time.$ Attempts$ were$ made$ to$ recruit$ a$

more$ permanent$ chair,$ and$ representatives$ of$ the$ university$ were$ sent$ on$

recruitment$ missions$ mainly$ to$ the$ States.$ There$ seems$ to$ have$ been$ little$

concern$ at$ the$ time$ about$ psychological$ affiliations$ of$ the$ prospective$ chair.$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

28$For$ more$ on$ the$ negotiations$ between$ the$ Hebrew$ University$ and$ Kurt$ Lewin$ see$ Bargal$

(1998).$$

29$Psychology$had$been$approved$as$a$minor$subject$within$the$school$of$education$in$1941$and$

was$taught$as$a$minor$subject$for$the$6$years$between$then$and$Bonaventura’s$untimely$death$

(Algon$&$Luccio,$2011).$

$ 77$

Psychoanalyst$David$Rapaport$(1911T1960)$and$gestalt$and$social$psychologist$

Solomon$Asch$(1907T1996)$were$both$approached$for$the$position.$$

In$the$end$the$position$was$given$to$Shlomo$(Sol)$Kugelmass$in$1957,$a$ junior$

lecturer$ and$ researcher$ from$ Columbia$ University,$ New$ York$ who$ had$

emigrated$ to$ Israel$ to$ do$ neurological$ research$ at$ the$ Hadassah$ Hospital$ in$

Jerusalem.$Kugelmass$who$acted$as$head$of$the$department$between$1957$and$

1968,$ had$ a$ significant$ impact$ on$ its$ character,$modelling$ the$ department$ on$

American$ psychology$ research$ centres.30$A$ department$ so$ heavily$ focused$ on$

research$ was$ an$ oddity$ at$ the$ Hebrew$ University$ of$ Jerusalem$ whose$ very$

existence$was$justified$by$its$function$as$primarily$a$teaching$institution.$$

The$ department’s$ official$ website$ has$ a$ quote$ by$ Prof$ Shlomo$ Brezhnitz$ (b.$

1936)$on$Kugelmass’$ impact,$ and$on$ the$ feat$ that$was$establishing$a$ research$

centred$department:$$

it$should$be$clarified$that$the$probability$of$establishing$a$serious$department$with$

an$emphasis$on$empirical$research$was$close$to$zero…$Sonny$[Kugelmass]$had$to$

fight$like$a$lion$for$many$years$in$order$to$ensure$that$the$scientific$way$of$thinking$

would$be$the$one$that$would$be$reinforced.$To$his$credit,$psychology$in$Israel$has$

reached$ the$ special,$ prestigious$ status$ that$ is$ like$ no$ other$ in$ the$ world!!!$ …$ In$

order$ to$ do$ justice$ to$ history,$ it$ is$ important$ to$ emphasize$ this$ in$ a$ clear$ and$

unequivocal$way$(Brezhnitz,$“History$of$the$department”,$2016).$$

The$ research$ focus$ of$ the$ department$ meant$ among$ other$ things,$ that$ the$

psychology$department$accepted$a$very$limited$number$of$students.$In$the$first$

few$years$they$capped$the$amount$of$students$they$accepted$at$twenty$a$year.$

Demand$ for$ psychological$ studies$ was$ also$ high,$ as$ were$ the$ acceptance$

requirements.$The$department$made$prospective$students$sit$difficult$entrance$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

30$This$chimes$with$a$comment$that$Kahneman$made$in$my$interview$with$him,$saying$“Israel$is$

intellectually$an$American$State”$speaking$about$how$in$the$early$days$of$the$reinstatement$of$

the$psychology$department,$while$he$felt$the$quality$of$their$students$was$exceptionally$high,$as$

he$recalls$it,$“there$was$no$sense$that$we$were$an$elite$place.$We$were$looking$up$mainly$at$the$

United$States”$(Kahneman,$Interview$with$the$author,$April$29th,$2014).$$

$ 78$

exams,$ and$ eventually$ incorporated$ psychometric$ testing$ in$ to$ the$ selection$

process$(BenTAri$&$Amir,$1986).$$

When$Kahneman$joined$the$reopened$department$of$Psychology$in$1961,$it$had$

been$running$for$only$three$years,$the$same$three$years$during$which$Tversky$

completed$his$B.A.$The$department$at$that$time$was$understandably$small$with$

only$ 7$ people$ on$ staff$ including$ Kahneman.$ The$ newness$ and$ the$ size$ of$ the$

department$ meant$ that$ staff$ were$ obliged$ to$ maintain$ a$ broad$ approach$ to$

psychology.$ With$ such$ a$ small$ faculty,$ there$ was$ little$ room$ for$ the$ kind$ of$

narrow$specialisation$that$one$might$find$in$bigger$departments.$$

The$curriculum$too$was$modelled$on$American$research$centres.$All$of$the$first$

year$undergraduate$courses$were$obligatory,$and$spanned$a$wide$range$of$the$

psychological$ landscape$ including$ Physiological$ Psychology,$ Developmental$

Psychology,$Social$Psychology,$the$psychology$of$individual$differences,$Testing$

Theory$ and$ Intermediate$ Statistics,$ and$ Experimental$ Psychology$ which$

Kahneman$taught$(“History$of$the$department”,$2016).$$

While$working$in$Jerusalem,$Kahneman$moved$on$to$study$vision$and$attention.$

In$1966$he$requested$and$was$granted$ the$ funds$ to$set$up$a$ laboratory$at$ the$

Hebrew$University$of$ Jerusalem.$The$opportunity$ to$ set$up$his$own$ lab$was$a$

reflection$ of$ both$ early$ professionalization$ and$ the$ research$ orientation$

established$ by$ Kugelmass.$ It$ was$ one$ of$ three$ laboratories:$ Kahneman’s$ on$

vision$research,$one$for$laboratory$experimentation$on$physiological$reactions,$

and$an$animal$laboratory,$established$in$1966$in$conjunction$with$the$approval$

of$a$masters$programme$in$psychology$(“History$of$the$department”,$2016).$$

Kahneman$developed$an$appreciation$for$laboratory$research$during$his$time$at$

the$Hebrew$University$of$Jerusalem.$For$him,$experience$with$experimentation$

in$a$laboratory$was$essential$to$completing$training$as$a$psychologist:$

in$order$to$acquire$the$basic$skills$I$would$need$to$have$a$proper$laboratory$and$do$

regular$science$ T$ I$needed$ to$be$a$solid$shortTorder$cook$before$ I$ could$aspire$ to$

become$a$chef$(Kahneman,$2002$p.$6).$$

$ 79$

It$ was$ in$ the$ laboratory$ that$ Kahneman$ performed$ his$ experiments$ on$ both$

vision$and$attention,$using$pupil$sizes$to$measure$the$cognitive$effort$of$selected$

tasks.$ He$ eventually$ also$ extended$ the$ method$ of$ measuring$ pupil$ sizes$ to$

memory$tasks$(Kahneman$&$Wright,$1971;$Wright$&$Kahneman,$1971).$Within$

his$work$in$the$laboratory,$Kahneman$made$an$experimental$turn$in$his$notion$

of$the$role$of$‘the$norm’.31$$

Conventional$ psychological$ research$ centred$ around$ the$ discovery$ of$ a$ fixed$

true) value) of$ psychological$ phenomena$ like$ human$ perception$ of$ weight$ or$

height,$ modelled$ on$ experimentation$ in$ the$ physical$ sciences,$ specifically$

physics.$A$physicist$who$wanted$to$know$the$true$value$of$ the$temperature$at$

which$water$boils$would$measure$a$ series$of$ instances$at$which$water$boiled.$

Conventional$ measurement$ of$ say,$ human$ perception$ of$ temperature$ would$

follow$ a$ similar$ experimental$ structure$ where$ the$ mean$ of$ instances$ of$

individual$perceptions$of$ temperature$would$be$used$to$construct$a$true)value$

of$human$perception$of$temperature.$$

The$ point$ is$ that$ these$ experiments$ were$ designed$ to$ establish) a) norm.$

Kahneman$ instead$ took$an$ interest,$not$ in$ the$establishment$of$ a$norm$ in$ the$

relationship$ between$ individual$ (statistical)$ errors,$ but$ in$ the$ causes) of)

systematic)errors$ treating$the$norm$from$which$individuals$deviate$as$a$known)

value.$ In$ summary,$ Kahneman’s$ style$ of$ psychology$ differed$ from$ the$

conventional$ in$ that$ he$ was$ not$ interested$ in$ discovering$ the) norm,$ but$ in$

discovering$how$people$deviate)from)a)given)norm.$

The$beginnings$of$a$new$approach$to$decision$making$

The$question$before$Kahneman$and$Tversky$in$their$debate$about$the$intuitive$

statistician$ was$ relatively$ simple:$ does$ this$ way$ of$ proceeding,$ identifying$

patterns$ in$ behaviour$ that$ deviate$ from$ normative$ prescription,$ make$ it$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

31$Heukelom$ (2014)$ gives$ us$ a$ helpful$ analysis$ of$ Kahneman’s$ style$ of$ experimentation$ by$

comparing$ it$ to$ 19th$ century$ German$ psychologists$ and$ interwar$ experimental$ psychology$ in$

America$pp.$.$$

$ 80$

necessary$ to$ think$ of$ human$ beings$ as$ intuitive$ statisticians?$ Could$ the$

deviations$not$mean$that$humans$are$in$fact$not$intuitive$statisticians$at$all,$but$

function$intuitively$with$a$different$kind$of$interpretative$framework?$$

For$ Tversky$working$with$ the$ tradition$ of$ decision$ theory,$ the$ answer$ to$ the$

first$question$had$always$been$yes,$with$some$modifications.$For$Kahneman,$the$

answer$ seemed$more$ likely$ to$ be$ no,$ with$ some$modifications.$ This$ was$ the$

intellectual$move$that$Kahneman$and$Tversky$made,$going$from$the$hypothesis$

that$ humans$ were$ “bad$ intuitive$ statistician”$ to$ humans$ as$ “not$ intuitive$

statisticians$ at$ all”.$ Smokler$ (1990),$ comparing$ the$ basic$ assumption$ of$

Tversky’s$ thesis$ supervisor$ Edwards$ to$ the$ one$ in$ Heuristics$ and$ Biases$

Programme$summarises$it$like$this:$$

Edwards$ confirmed$ that$ people$ were$ conservative$ Bayesians;$ Tversky$ and$

Kahneman$ revised$ this$ finding$ to$ show$ that$ people$ are$ not$ Bayesians$ at$ all$ (p.$

301).$$

Heukelom’s$ (2014)$ discussions$ of$ Tversky’s$ problem$ of$ choosing$ between$

theory$and$instrument,$and$the$experimental$turn$introduced$by$Kahneman$are$

helpful$ in$ understanding$ the$ intellectual$ moves$ that$ ushered$ in$ their$

collaboration.$However,$ I$would$argue$ that$ the$beginnings$of$ the$ formation$of$

the$ psychology$ of$ error$ that$ lies$ at$ the$ heart$ of$ Kahneman$ and$ Tversky’s$

particular$ approach$ to$ the$ normative/descriptive$ distinction$ are$ best$

understood$in$the$context$of$ the$newly$formed$state$of$ Israel$and$the$budding$

psychology$department$of$the$Hebrew$University$of$Jerusalem.$$

The$ newness$ of$ the$ Israeli$ state$ and$ the$ need$ for$ rapid$ civil$ society$ building$

created$ opportunities$ for$ Kahneman$ to$ enter$ the$ psychological$ profession$ at$

very$young$age.$It$was$the$Israeli$armed$forces$that$provided$the$setting$for$his$

first$ position$ as$ a$ professional$ psychologist.$ There$ the$ kinds$ of$ tasks$ that$

Kahneman$was$given$impacted$greatly$on$his$views$on$the$efficacy$of$statistical$

methods$ compared$ with$ human$ intuition.$ He$ found$ support$ for$ his$ intuition$

that$intuition$was$fallible$in$Meehl’s$provocative$book$on$the$subject.$$

$ 81$

But$early$Israeli$nation$building$was$not$just$a$factor$in$providing$professional$

opportunities$ for$ Kahneman$ and$ strengthening$ his$ appreciation$ of$ the$

predictive$ powers$ of$ statistics.$ It$ also$ provided$ justification$ for$ using$ social$

scientific$approaches$in$civil$institution$building.$The$clearest$example$of$this$is$

provided$by$Kahneman$and$Schild’s$1966$Training)Agents)of)Social)Change.$The$

article$is$also$a$clear$example$of$Kahneman’s$take$on$the$psychology$of$error$in$

action.$The$study$compares$people’s$beliefs$about$effective$methods$of$training$

with$ beliefs$ based$ on$ accepted$ social$ scientific$ knowledge.$ The$ assumption$

behind$ the$ project$ was$ that$ there$ is$ a$ difference$ between$ commonTsense$

intuition$ and$ social$ scientific$ knowledge.$ It$ was$ justified$ by$ the$ notion$ that$

institution$building$should$proceed$with$knowledge$based$on$studies$of$actual$

behaviour$of$real$people.$$

This$difference$between$commonTsense$intuition$and$scientific$knowledge$was$

key$to$the$beginning$of$the$collaboration$between$Kahneman$and$Tversky$in$the$

late$1960’s.$Kahneman$and$Tversky$both$worked$at$ the$Hebrew$University$of$

Jerusalem.$ At$ the$ time,$ the$ psychology$ department$ consisted$ of$ a$ tightTknit$

group$of$ only$ 7$ lecturers.$ This$meant$ a$ necessity$ for$ all$ the$ staff$members$ to$

keep$an$open$mind$toward$different$schools$of$psychology.$The$small$size$of$the$

department$ also$ meant$ ample$ opportunities$ for$ collaboration$ between$ the$

people$that$made$up$the$department.$$

The$question$that$triggered$the$approach$that$they$took$in$the$collaboration$was$

whether$humans$can$be$said$to$be$intuitive$statisticians.$It$was$a$question$that$

Tversky$had$arrived$at$through$traditional$decision$theory.$Key$to$the$question$

was$ a$ separation$ of$ normative$ and$ descriptive$ realms$ of$ decision$ making.$

Commonly$decision$ theorists$would$ research$descriptive$decision$making$and$

use$it$to$compare$normative$decision$theory$and$formal$probability$theory.$Any$

discrepancies$would$then$be$dealt$with$either$as$an$instrumental$flaw$(a$human$

error)$or$as$a$flaw$in$the$normative$theory.$$

Having$ accepted$ a$ discrepancy$ between$ commonTsense$ intuition$ and$ formal$

rules,$Kahneman’s$ influence$on$ their$ approach$was$ to$ increase$ the$ separation$

$ 82$

between$ the$ normative$ and$ descriptive$ by$ restricting$ their$ attention$ to$

descriptive$ deviations$ from$ normative$ decision$ making$ rules.$ This$ move$

engendered$a$psychological$programme$that$focused$on$explaining$descriptive$

deviations$ from$ normative$ theory,$ leaving$ normative$ theory$ to$ function$ as$ a$

benchmark.$$

It$was$at$this$juncture$that$the$psychology$of$error$that$was$the$Heuristics$and$

Biases$ Programme$ began.$ The$ following$ chapter$ is$ a$ description$ of$ the$ how$

Kahneman$ and$ Tversky$ constructed$ the$Heuristics$ and$ Biases$ Programme$ by$

putting$their$explanatory$framework$of$their$new$psychology$of$error$to$work.$$

$

$ 83$

CHAPTER(3:(THE$MAKING'OF'THE'HEURISTICS)AND)BIASES)PROGRAMME!(1971"1981)!!

Kahneman$ and$ Tversky’s$ first$ joint$ publication$was$ published$ in$ 1971.$ Their$

continued$ collaboration$ resulted$ in$ the$ so$ called$ Heuristics$ and$ Biases$

Programme$ largely$ constructed$ in$ the$ decade$ between$ 1971$ and$ 1981.32$The$

Heuristics$ and$ Biases$ Programme$ was$ built$ on$ experiments$ with$ human$

subjects,$ many$ of$ which$ took$ the$ form$ of$ quiz$ like$ questions$ of$ probability,$

choice$ preference,$ or$ logical$ puzzles.$ It$ has$ enjoyed$ notable$ popular$ and$

academic$ appeal.$ Both$ scholars$ continued$ to$ do$work$ individually$ during$ the$

period$of$collaboration$but$almost$none$of$their$individual$work$has$become$as$

widely$ acknowledged$ as$ their$ collaborative$ work$ (Laibson$ &$ Zeckhauser,$

1998).33$$

The$focus$of$this$chapter$is$the$process$of$constructing$the$Heuristics$and$Biases$

Programme.$ My$ aim$ is$ to$ is$ to$ show$ how$ the$ decisions$ that$ Kahneman$ and$

Tversky$made$in$the$course$of$constructing$the$programme$served$to$stabilise$

their$ core$ premise:$ that$ there$ are$ instances$ where$ actual$ human$ decision$

making$behaviour$deviates$from$the$dictates$of$ logical$and$statistical$norms$in$

systematic$and$predictable$ways.$$

I$also$aim$to$show$how$the$way$Kahneman$and$Tversky$proceeded$in$stabilising$

their$ programme$ served$ to$ anchor$ it$ to$ established$ institutional$ and$

disciplinary$practices.$Specifically$I$discuss$1)$the$kinds$of$logical$and$statistical$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

32$In$total,$Kahneman$and$Tversky$published$17$journal$articles,$3$book$chapters,$and$a$piece$of$

the$Scientific$American.$They$also$coTedited$two$books,$one$ in$collaboration$with$psychologist$

Paul$Slovic$(Kahneman,$Slovic,$&$Tversky,$1982).$$

33$As$ Kahneman$ notes$ in$ his$ Nobel$ biographical,$ the$ only$ exceptions$ to$ this$ general$ rule$ are$

Kahneman’s$textbook$on$attention$(Kahneman,$1973)$and$Tversky’s$on$the$theory$of$similarity$

(Tversky,$1977).$

$ 84$

norms$they$used,$2)$the$way$they$chose$to$test$deviation$from$those$norms,$3)$

the$kinds$of$subjects$they$chose,$4)$the$style$and$presentation$of$their$findings,$

and$ their$ choices$about$where$ to$publish$ them,$and$ finally$5)$ the$ inclusion$of$

expected$utility$theory$as$a$norm$from$which$deviation$occurs,$which$in$effect$

mobilised$ an$ entire$ intellectual$ tradition$ (neoTclassical$ economics)$ into$ the$

Heuristics$and$Biases$Programme$and$helped$lay$the$groundwork$for$the$kind$

of$ behavioural$ economics$ sponsored$ through$ the$ Behavioral$ Economics$

Programme.$$$

The$Core$Premise$$

Throughout$ the$ Heuristics$ and$ Biases$ programme$ Kahneman$ and$ Tversky$

moved$ from$ researching$ the$ psychology$ of$ judgment$ with$ their$ work$ on$

heuristics$and$biases,$to$an$emphasis$on$the$psychology$of$decisions$under$risk$

in$prospect$theory.$They$then$extended$their$work$on$prospect$theory,$and$the$

notion$ of$ “riskTaversion”$ to$ develop$ what$ they$ dubbed$ “framing$ effects.”)

Common$to$all$these$areas$of$research$was$Kahneman$and$Tversky’s$emphasis$

on$descriptive$deviations$from$normative$decision$rules,$and$their$core$premise$

that$ informal$ human$ reasoning$ is$ guided$by$deepTseated$ intuitions$ that$ differ$

from$ the$ rules$ of$ formal$ logical$ and$ statistical$ inference.$ They$ hypothesised$

further$ that$ these$ intuitions$ tended$ to$overrule$ the$ laws$of$ formal$ logical$ and$

statistical$inference$even$when$individuals$are$familiar$with$those$formal$rules.$

The$ Heuristics$ and$ Biases$ Programme$ then,$ is$ best$ thought$ of$ as$ the$

investigatory$programme$designed$to$confirm$this$core$premise.$$

The$ terms$ heuristics$ and$ biases$ denote$ cause)and)effect$ in$ the$Heuristics$ and$

Biases$ Programme.$ Individual$ heuristics$ were$ what$ Kahneman$ and$ Tversky$

conceived$ of$ as$ components$ of$ the$ human$ intuitive$ interpretative$ framework$

and$the$various$biases$were$the$kinds$of$systematic$deviations$from$the$rules$of$

normative$decision$making$that$they$produced.$The$clearest$and$most$succinct$

definition$of$ the$core$premise$of$ the$Heuristics$and$Biases$Programme$can$be$

$ 85$

found$ in$ Kahneman$ and$ Tversky’s$ 1974$ “Judgment$ Under$ Uncertainty:$

Heuristics$and$Biases”:$$

People$rely$on$a$limited$number$of$heuristic$principles$which$reduce$the$complex$

tasks$ of$ assessing$ probabilities$ and$ predicting$ values$ to$ simpler$ judgmental$

operations.$In$general,$these$heuristics$are$quite$useful,$but$sometimes$they$lead$to$

severe$and$systematic$errors$(Tversky$&$Kahneman,$1974$p.$1124).$

Kahneman$and$Tversky$intended$the$term$“heuristics”$to$be$a$neutral$term$for$

general,$universal$rules$that$humans$intuitively$apply$to$judgment$and$decision$

making$ tasks.$ The$ notion$ that$ heuristics$ were$ “in$ general$ [...]$ quite$ useful”$

(Tversky$ &$ Kahneman,$ 1974$ p.$ 1124)$ was$ an$ important$ element$ of$ the$

programme,$as$was$the$difference$in$complexity$between$intuitive$thinking$and$

normative$ruleTfollowing.$The$task$that$Kahneman$and$Tversky$set$themselves$

was$ to$ investigate$ those) instances$ when$ heuristics$ led$ people$ to$ deviate$ from$

logical$and$statistical$norms.$In$other$words,$their$focus$lay$on$those$times$when$

“they$ lead$ to$ severe$ and$ systematic$ errors”$ (Tversky$ &$ Kahneman,$ 1974$ p.$

1124).$

Debunking$the$intuitive$statistician:$beginning$with$experts$

As$ discussed$ in$ the$ previous$ chapter,$ Kahneman$ and$ Tversky$ had$ arrived$ at$

their$core$premise$through$a$discussion$of$whether$people$could$in$any$way$be$

considered$ to$ be$ “intuitive$ statisticians”.$ Proceeding$ on$ the$ idea$ that$ people’s$

intuitive$ decision$ rules$ differed$ from$ formal$ statistical$ ones,$ their$ first$ move$

was$to$debunk$the$notion$of$the$“intuitive$statistician”.$The$way$they$chose$to$do$

this$was$ by$ empirically$ testing$ human$ intuitions$ around$ random$ sampling$ in$

subjects$who$were$well$versed$in$statistical$rules.$$

$ 86$

The$ study$ resulted$ in$ their$ first$ joint$ publication$ “Belief$ in$ the$ Law$ of$ Small$

Numbers”$published$in$1971.34$The$belief$thesis$was$fourfold:$$

Our$thesis$is$that$people$have$strong$intuitions$about$random$sampling;$that$these$

intuitions$are$wrong$in$fundamental$respects;$ that$these$ intuitions$are$shared$by$

naive$subjects$and$by$trained$scientists$and$that$they$are$applied$with$unfortunate$

consequences$ in$ the$ course$ of$ scientific$ inquiry$ (Tversky$ &$ Kahneman,$ 1971$ p.$

105).$

In$ “Belief$ in$ the$ Law$ of$ Small$ Numbers”,$ Kahneman$ and$ Tversky’s$ two$main$

propositions$ were$ that$ people$ have$ a$ tendency$ to$ overestimate$ the$

representativeness$of$ samples$ to$ the$ general$population$ from$which$ they$had$

been$ drawn,$ and$ that$ people$ harbour$misguided$ beliefs$ about$ small$ samples$

being$selfTcorrective,$i.e.$that$a$deviation$in$one$direction$within$a$sample$would$

be$ cancelled$ out$ by$ a$ deviation$ in$ the$ other.$35$Together,$ they$ claimed,$ these$

intuitions$ led$ both$ scientists$ and$ laypersons$ to$ believe$ that$ small$ samples$

function$ similarly$ to$ large$ samples.$ Kahneman$ and$ Tversky$ referred$ to$ the$

phenomenon$as$the$‘belief$in$the$law$of$small$numbers’,$named$to$indicate$that$

it$was$a$distortion$of$mathematician$Jacob$Bernoulli’s$(1654T1705)$“law$of$large$

numbers”.$

“Belief$ in$ the$ Law$ of$ Small$ Numbers”$ was$ framed$ as$ an$ argument$ about$ the$

correct$ uses$ of$ statistics$ in$ scientific$ investigation.$ The$ key$ message$ of$ the$

article$was$that$a$belief$in$the$law$of$small$numbers$led$to$incorrect$judgments$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

34$Kahneman$mentioned$in$my$interview$with$him$that$he$had$written$the$questionnaire$on$his$

own,$following$the$kind$of$“single$question”$type$psychological$studies$I$mention$in$the$previous$

chapter,$ and$ that$ he$ had$ begun$ doing$ in$ the$ “developmental$ context”$ (Kahneman,$ Interview$

with$the$author,$April$29th,$2014).$$

35$This$latter$proposition,$as$Kahneman$and$Tversky$noted$in$the$article,$was$essentially$the$soT

called$ “gambler’s$ fallacy”$ or$ the$ idea$ that$ a$ losing$ streak$ should$ be$ followed$ by$ a$ win$ in$ a$

misguided$notion$of$the$“fairness$of$nature”.$The$main$idea$behind$the$gambler’s$fallacy$is$that$

gamblers$tend$to$believe$that$the$laws$of$chance$are$much$less$random$than$they$are.$This$belief$

generates$ the$ unfounded$ inference$ that$ a$ coin,$ a$ die$ or$ a$ ball$ on$ a$ roulette$ table$ should$

somehow$be$fair.$If$the$roulette$ball$has$ended$on$black$several$times$in$a$row,$human$intuition$

tells$ us,$ next$ roll$ it$will$ end$ on$ red.$ Kahneman$ and$ Tversky$ are$ quite$ amusing$when$writing$

about$ the$ phenomenon$ of$ the$ gambler’s$ fallacy:$ “Even,$ the$ fairest$ of$ coins$ […]$ given$ the$

limitations$ of$ its$memory$ and$moral$ sense,$ cannot$ be$ as$ fair$ as$ the$ gambler$ expects$ it$ to$ be”$

(Tversky$&$Kahneman,$1971$p.$106).$

$ 87$

about$ statistical$ significance,$ statistical$ power$ and$ confidence$ intervals.$ The$

consequences$ for$ psychologists$ who$ engaged$ in$ statistical$ analysis$ was$ that$

they$ would$ feel$ overly$ confident$ about$ the$ validity$ of$ their$ results$ based$ on$

small$samples,$which$would$in$turn$lead$them$to$unwarranted$rejection$of$the$

null$ hypothesis.$ Kahneman$ and$ Tversky$ argued$ in$ strong$ language$ that$

unwarranted$rejection$of$the$null$hypothesis$was$“not$just$wasteful$but$actually$

pernicious”$and$that$“it$makes$for$frustrated$scientists$and$inefficient$research”$

(Tversky$&$Kahneman,$1971$p.$107).$$

The$evidence$ for$ the$prevalence$of$ the$belief$ in$ the$ law$of$small$numbers$was$

based$ on$ the$ results$ of$ a$ questionnaire$ consisting$ of$ a$ set$ of$ hypothetical$

research$ decisions$ put$ to$ two$ separate$ groups$ of$ professional$ psychologists;$

attendees$of$a$mathematical$psychology$meeting$and$participants$of$a$general$

session$of$the$American$Psychological$Association.$As$in$the$example$below,$the$

style$and$content$of$the$questions$(that$were$replicated$in$the$article)$testified$

to$the$assumption$that$these$subjects$were$well$versed$in$the$statistical$method:$$

Suppose$ you$ have$ run$ an$ experiment$ on$ 20$ subjects,$ and$ have$ obtained$ a$

significant$ result$which$ confirms$your$ theory$ (z$=$2.23,$ p$<$ .05,$ twoTtailed).$ You$

now$have$cause$to$run$an$additional$group$of$10$subjects.$What$do$you$think$the$

probability$is$that$the$results$will$be$significant,$by$a$oneTtailed$test,$separately$for$

this$group?$(Tversky$&$Kahneman,$1971$p.$105)$

In$ violation$ of$ formal$ Bayesian$ inference,$ 75$ of$ Kahneman$ and$ Tversky’s$ 84$

subjects$provided$estimates$above$0.6,$with$a$total$median$of$0.85.$According$to$

Kahneman$ and$ Tversky’s$ calculations$ the$ answer$ to$ this$ question$ should$ fall$

somewhere$just$below$0.5.$$

There$ are$ several$ interesting$ aspects$ to$ “Belief”$ and$ the$ role$ it$ played$ in$

launching$Kahneman$and$Tversky’s$collaboration.$Both$the$choice$of$statistical$

norm$and$the$choice$of$subjects$in$“Belief”$were$significant$choices$to$ensure$the$

acceptance$ of$ their$ more$ general$ thesis$ that$ people’s$ intuitions$ differ$ from$

normative$ decision$ rules.$ The$ “heuristics”$ and$ the$ “biases”$ (although$

importantly$Kahneman$and$Tversky$had$not$yet$named$intuitive$decision$rules$

$ 88$

heuristics)$ in$ the$ BeliefTthesis$ were$ narrowly$ defined$ to$ refer$ specifically$ to$

“intuitions$about$random$sampling”$and$“unfortunate$consequences$in$scientific$

inquiry”$ (Tversky$&$Kahneman,$ 1971$ p.$ 105),$ confining$ their$ investigation$ to$

deviations$ from$normative$ statistical$ rules$ in$ the$context$of$ statistically$based$

studies$ for$ the$purpose$of$ scientific$ inquiry.$Because$ “Belief”$was$ framed$as$ a$

comment$ on$ the$ correct$ uses$ of$ statistics,$ the) normative) correctness$ of$ the$

hypothetical$decisions$that$were$put$to$Kahneman$and$Tversky’s$subjects$was$a$

given.$ After$ all,$ statistical$ rules$ were$ there$ to$ ensure$ the$ correctness$ of$ the$

statistical$ method.$ The$ correct$ application$ of$ the$ statistical$ method$ required$

that$ the$ practitioner$ follow$ the$ normative$ principles$ that$ sustain$ the$ internal$

logic$of$the$kind$of$statistical$system$in$question.$This$meant$that$arguments$for$

the$normativity$of$statistical$rules$were$unnecessary.$$

When$it$came$to$acceptance$of$the$normativity$of$statistical$logic$it$was$enough$

for$ Kahneman$ and$ Tversky$ to$ invoke$ the$ intentions$ of$ the$ researcher:$ “We$

refuse$to$believe”,$they$wrote$“that$a$serious$investigator$will$knowingly$accept$

a$ .50$ risk$ of$ failing$ to$ confirm$ a$ valid$ research$ hypothesis”$ (Tversky$ &$

Kahneman,$ 1971$ p.$ 110).$ This$ was$ very$ similar$ to$ Savage’s$ notion$ of$

normativity$ in$ The) Foundations) of) Statistics$ (Savage,$ 1954)$ for$ whom$ the$

acceptance$ of$ normativity$was$ also$ ultimately$ an$ introspective$ process$ of$ the$

rational$person.$In$the$case$of$Kahneman$and$Tversky,$that$rational$person$was$

equated$ with$ their$ chosen$ subjects:$ psychologists$ who$ engaged$ in$ statistical$

analysis.$$

The$normativity$of$the$statistical$rules$invoked,$in$so$far$as$they$corresponded$

with$the$intentions$of$“serious$investigators”,$did$not$need$to$be$questioned.$The$

problem$with$intuition$running$counter$to$formal$statistical$rules$was$precisely$

that$it$also$ran$counter$to$the$intentions$of$the$subject$(the$investigator)$without)

the) researcher’s) awareness.$ This$ is$ why$ Kahneman$ and$ Tversky$ stressed$ the$

point$ that$ “The$ representational$ hypothesis$ (representativeness$ heuristic)$

describes$a$cognitive$bias,$which$operates$regardless$of$motivational$factors$[…]$

the$ true$ believer$ of$ the$ law$ of$ small$ numbers$ commits$ his$ multitude$ of$ sins$

$ 89$

against$ the$ logic$ of$ statistical$ inference$ in$ good$ faith”$ (Tversky$ &$ Kahneman,$

1971$pp.$109T110).$$

Furthermore,$ by$ enrolling$ psychologists$ who$ were$ familiar$ with$ formal$

statistics$as$ subjects$ to$provide$empirical$evidence$ for$ their$ thesis,$Kahneman$

and$ Tversky$ could$ ease$ acceptance$ of$ their$ notion$ of$ the$ nonTintuitive$

statistician.$By$choosing$subjects$who$were$proficient$in$statistical$theory$they$

could$ stave$ off$ the$ criticism$ that$ their$ subjects$ simply$ did$ not$ know$ the$

normative$ rules$ well$ enough.$ By$ providing$ support$ for$ the$ idea$ that$ “Even$

statisticians$were$not$good$intuitive$statisticians”$(Kahneman,$2011$p.$5),$ they$

could$make$a$good$case$for$the$power$of$the$ intuitions$that$they$hypothesised$

led$to$deviations$from$normative$rules$of$decision$making.$$

Heuristics$and$Biases:$From$Expert$to$Lay$and$Back$Again$

Representativeness:$using$everyday$examples$$

Kahneman$ and$ Tversky$ developed$ their$ programme$ by$ steadily$ testing$ new$

kinds$of$cognitive$puzzles$and$decision$problems,$analysing$the$deviations$from$

logical$and$statistical$norms$that$they$observed$in$those$experiments,$and$in$this$

way$adding$new$kinds$of$heuristics$to$the$roster.$The$most$significant$move$that$

Kahneman$and$Tversky$made$in$the$very$early$days$of$their$collaboration$was$

to$ expand$ their$ method$ of$ investigation$ from$ the$ domain$ of$ experts$ to$ the$

domain$ of$ naive$ subjects.$ It$was$ a$move$ that$ served$ to$ strengthen$ their$ core$

premise$by$providing$empirical$proof$of$ their$original$ thesis$ that$ the$kinds$of$

intuitions$ they$ had$ already$ observed$ in$ people$ who$ were$ well$ versed$ in$

normative$ decision$ rules$ were$ “shared$ by$ naive$ subjects”$ (Tversky$ &$

Kahneman,$1971$p.$105).$In$other$words,$the$decision$to$add$naive$subjects$to$

the$ subject$ pool,$ served$ to$ reinforce$ the$ notion$ that$ not$ only$were$ heuristics$

deepTseated,$they$were$also$universal.$$

This$move$from$expert$to$lay$subjects$is$visible$in$both$style$and$content$of$the$

work$ following$ “Belief”.$ Testing$ lay$ subjects$ required$ positing$ the$ kinds$ of$

$ 90$

questions$ and$ decision$ problems$ that$ lay$ subjects$ could$ be$ expected$ to$

understand.$Still,$their$basic$experimental$formula$remained$the$same:$present$

a$cognitive$puzzle$or$decision$problem$to$a$group$of$subjects$and$measure$the$

difference$ between$ their$ answers$ and$ the$ correct$ answer$ in$ line$ with$ the$

normative$rule$that$they$were$testing.$$

One$of$Kahneman$and$Tversky’s$most$frequently$cited$experimental$test$using$

subjects$with$varied$ levels$of$ statistical$ training$and$knowledge$of$probability$

theory$ was$ the$ so$ called$ ‘Linda$ Problem’.$ The$ results$ of$ the$ ‘Linda$ Problem’$

were$ used$ to$ provide$ further$ evidence$ of$ their$ first$ and$ most$ extensively$

developed$heuristic:$the$representativeness$heuristic.36$$

‘Representativeness’,$ according$ to$ Kahneman$ and$ Tversky$was$ the$ belief$ that$

the$ probability$ of$ an$ event$ depends$ on$ the$ degree$ to$which$ it$ represents$ the$

major$characteristics$of$the$population$or$process$that$it$refers$to$(Kahneman$&$

Tversky,$1972).$The$‘Linda$problem’$was$designed$to$test$systematic$violations$

of$ the$ conjunction$ rule$ of$ probability.$ The$ rule$ goes$ like$ this:$ in$ formal$

probability$theory$instances$of$A+B$can$never$be$more$probable$than$instances$

of$(only)$A$because$instances$of$A+B$includes$all$instances$of$A.37$Kahneman$and$

Tversky$first$conducted$experiments$to$test$violations$of$the$conjunction$rule$in$

Jerusalem$in$1974$(Kahneman$et$al.,$1982).$They$later$dedicated$an$entire$paper$

to$ the$ exploration$ of$ the$ violations$ of$ the$ conjunction$ rule$ (Tversky$ &$

Kahneman,$1983).$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

36$“Belief$ in$ the$ Law$ of$ Small$ Numbers”$ (1971)$ did$ not$ include$ the$ term$ ‘heuristic’,$ but$ as$

discussed$in$the$previous$section,$the$article$did$introduce$the$notion$of$representativeness$as$

an$intuitive$interpretative$tool.$

37$In$ the$ original$ experimental$ testing$ of$ the$ conjunction$ fallacy$ the$ two$ scholars$ alternated$

between$the$Linda$problem$and$a$scenario$based$on$a$fictive$male$character$called$Bill.$Bill$has$

not$ gained$ even$ half$ the$ traction$ that$ Linda$ has,$ and$ the$ test$most$ commonly$ referred$ to$ in$

discussions$about$violations$of$the$conjunction$fallacy$is$the$Linda$problem.$This$is$most$likely$

because$ Kahneman$ and$ Tversky$ performed$ the$ experiment$ of$ the$ Linda$ problem$ in$ two$

versions,$ one$ extended$ version$ tested$ with$ both$ the$ fictive$ characters$ Linda$ and$ Bill,$ and$ a$

simple$one,$performed$only$with$the$Linda$scenario.$$

$ 91$

The$Linda$Problem$was$a$variation$of$ these$ initial$experiments$constructed$to$

suit$ their$ English$ speaking$ subjects$ at$ the$ Stanford$ University$ and$ the$

University$ of$ British$ Colombia.$ The$ translation$ of$ the$ problem$ scenario$ was$

both$ linguistic$ and$ cultural.$ The$ problem$ consisted$ of$ matching$ ‘stereotypes’$

(occupation,$ political$ affiliation,$ hobbies)$ with$ a$ description$ of$ a$ person,$ and$

relied$on$the$subjects$recognising$the$stereotypes$involved.$The$Linda$problem$

was$ also$ an$ example$ of$ one$ of$ the$ times$when$Kahneman$ and$ Tversky$made$

several$ deliberate$ attempts$ at$ eliminating$ violations$ of$ the$ rule,$ in$ order$ to$

really$ test$ the$ strength$ of$ the$ heuristic.$ In$ the$ Linda$ problem,$ subjects$ were$

presented$with$the$following$scenario:$$

Linda$ is$ 31$ years$ old,$ single,$ outspoken$ and$ very$ bright.$ She$ majored$ in$

philosophy.$As$a$student,$she$was$deeply$concerned$with$issues$of$discrimination$

and$social$justice,$and$also$participated$in$antiTnuclear$demonstrations.$(Tversky$&$

Kahneman,$1983,$p.$297)$

In$ the$ extended$ version$ of$ this$ test,$ subjects$ were$ presented$ with$ a$ set$ of$ 8$

possible$descriptions$of$what$Linda$is$doing$with$her$life:38$$

Linda$is$a$teacher$in$elementary$school.$

Linda$works$in$a$bookstore$and$takes$Yoga$classes.$

Linda$is$active$in$the$feminist$movement.$(F)$

Linda$is$a$psychiatric$social$worker.$

Linda$is$a$member$of$the$League$of$Women$Voters.$

Linda$is$a$bank$teller.$(T)$

Linda$is$an$insurance$salesperson.$

Linda$is$a$bank$teller$and$is$active$in$the$feminist$movement.$(T&F)$

(Tversky$&$Kahneman,$1983$p.$297)$

The$ subjects$ task$was$ then$ to$ rate$ the$ above$ possibilities$ either$ according$ to$

how$representative$they$found$them$or$according$to$how$probable$they$found$

them.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

38$The$notations$‘F’$and$‘T’$stand$for$‘Feminist’$and$‘Teller’$respectively.$$

$ 92$

In$ the$ simpler$ version,$ what$ Kahneman$ and$ Tversky$ referred$ to$ as$ the$

“Transparent$Test”$subjects$were$presented$with$only$two$options:$

Linda$is$a$bank$teller.$(T)$$

Linda$is$a$bank$teller$and$is$active$in$the$feminist$movement.$(T&F)$

(Tversky$&$Kahneman,$1983$p.$299)$

After$85$%$of$a$ total$of$142$students$having$rated$the$conjunction$to$be$more$

probable$ than$ the$ alternative$ in$ this$ stripped$ down$ version$ of$ the$ Linda$

Problem,$Kahneman$and$Tversky$decided$to$dedicate$some$time$to$manipulate$

the$ test$ further$ in$ order$ to$ explore$ alternative$ reasons$ why$ this$ “flagrant$

violation$ of$ the$ conjunction$ rule”$might$ occur$ (Tversky$&$Kahneman,$ 1983$p.$

299).$Kahneman$and$Tversky$referred$to$these$extensions$of$the$test$as$a$“series$

of$increasingly$desperate$manipulations$designed$to$induce$subjects$to$obey$the$

conjunction$rule”$(Tversky$&$Kahneman,$1983$p.$299).$

They$ tested$ for$ the$ possibility$ that$ in$ relation$ to$ the$ alternative$ statement$

subjects$ interpreted$ the$singular$statement$ (Linda$ is$a$bank$ teller)$as$another$

conjunction:$ “Linda$ is$ a$ bank$ teller$ and) not) a) feminist”.$ In$ this$ kind$ of$

interpretation,$choosing$the$alternative$would$not$constitute$a$violation$of$ the$

conjunction$ rule.$ They$ then$ went$ on$ to$ test$ the$ extent$ to$ which$ statistically$

naïve$subjects$could$recognise$the$rule$if$they$spelt$it$out$for$them$by$changing$

the$alternatives$to$“arguments”:$$

Argument$1.$ Linda$ is$more$ likely$ to$be$ a$bank$ teller$ than$ she$ is$ to$be$ a$ feminist$

bank$ teller,$because$every$ feminist$bank$ teller$ is$ a$bank$ teller,$but$ some$women$

bank$tellers$are$not$feminists,$and$Linda$could$be$one$of$them.$

$

Argument$2.$Linda$is$more$likely$to$be$a$feminist$bank$teller$than$she$is$likely$to$be$

a$bank$teller,$because$she$resembles$an$active$feminist$more$than$she$resembles$a$

bank$teller.$(Tversky$&$Kahneman,$1983$p.$299)$

Although$a$lesser$majority$(65%)$now$chose$to$violate$the$conjunction$rule$by$

choosing$argument$2,$Kahneman$and$Tversky$interpreted$the$result$as$down$to$

the$ strong$ appeal$ of$ the$ representativeness$ heuristic.$ They$ performed$ the$

$ 93$

experiment$presenting$the$statement$about$Linda$as$a$bank$teller$as$an$explicit$

disjunction:$“Linda$is$a$bank$teller$whether$or$not$she$is$active$ in$the$feminist$

movement.$ (T*)”$ (Tversky$ &$ Kahneman,$ 1983$ p.$ 299)$ and$ still$ found$ a$

preference$for$the$conjunction.$The$only$time$Kahneman$and$Tversky$achieved$

what$ they$ considered$ to$ be$ “modest$ success$ in$ loosening$ the$ grip$ of$ the$

conjunction$ fallacy”$came$when$they$added$a$ fictive$bet$ to$ the$question.$Their$

hypothesis$was$that$the$betting$scenario$helped$highlight$the$lesser$“pay$off”$of$

the$ conjunction$ in$ comparison$ to$ the$ singular$ statement.$ Still,$ violations$

remained$ in$ a$ 56%$majority,$which$ they$ considered$ to$be$ “much$ too$high$ for$

comfort”$(Tversky$&$Kahneman,$1983$p.$300).$$

This$series$of$modifications$to$the$Linda$Problem$were$presented$to$statistically$

naïve$ subjects.$ To$ test$ the$ effect$ of$ the$ heuristic$ in$ less$ statistically$ naïve$

subjects,$Kahneman$and$Tversky$recruited$a$group$of$64$social$science$graduate$

students$who$had$all$taken$a$number$of$statistics$courses,$to$perform$the$ratings$

version$ of$ the$ Linda$ problem.$ This$ time,$ they$ did$ achieve$ a$ result$ where$ the$

majority$of$the$subjects$assigned$a$lower$probability$rating$to$the$conjunction.$

However,$ as$ Kahneman$ and$ Tversky$ highlighted$ in$ the$ article,$ 36%$ still$

committed$the$fallacy,$so$“the$incidence$of$violations$was$fairly$high$even$in$this$

group$ of$ intelligent$ and$ sophisticated$ respondents”$ (Tversky$ &$ Kahneman,$

1983$p.$300).$$

This$ rigorous$ testing$ of$ the$ tendency$ of$ the$ representativeness$ heuristic$ to$

produce$the$conjunction$fallacy$despite$various$kinds$of$instructions$or$hints$as$

to$ how$ to$ follow$ the$ conjunction$ rule$ was$ exemplary$ of$ how$ Kahneman$ and$

Tversky$ built$ their$ Heuristics$ and$ Biases$ Programme.$ The$ foundation$ of$ the$

programme$depended$on$ the$stability$of$ the$heuristics$ that$ they$hypothesised$

as$ causes$ for$ deviations$ from$ formal$ normative$ decision$ theory.$ This$ was$ a$

stability$ that$ Kahneman$ and$ Tversky$ established$ gradually$ through$ the$

accumulation$ of$ evidence$ from$ their$ cognitive$ experiments.$ The$ style$ and$

content$ of$ the$ Linda$ Problem$ was$ clearly$ adapted$ to$ lay$ subjects,$ generally$

phrased$in$commonly$used$language$and$with$topical$optional$scenarios$(antiT

nuclear$ demonstrations,$ yoga$ etc.).$ The$ scenario$ was$ also$ adapted$ to$ their$

$ 94$

specific$group$of$subjects:$undergraduate$students$at$the$Universities$of$British$

Columbia$and$Stanford.$After$all,$the$problem$presented$to$the$students$was$to$

match$ Linda’s$ activities$ as$ an$ undergraduate$ student$ with$ potential$ future$

career$and$hobbies.$$

The$experiments$ that$ they$performed$on$deviations$ from$the$conjunction$rule$

were$ impactful$ mainly$ because$ of$ the$ simplicity$ of$ the$ rule.$ This$ helped$

Kahneman$and$Tversky$to$show$a$variety$of$instances$where$intuitive$heuristics$

led$people$to$violate$the$rule.$The$simplicity$of$the$rule$also$importantly$aided$in$

cementing$the$notion$that$the$heuristics$that$led$people$to$violate$the$rule$were$

deepTseated$ and$ powerful.$ Again,$ the$ kinds$ of$ subject$ chosen$ for$ the$ various$

experiments,$ and$ in$ particular$ their$ knowledge$ of$ statistics$ and$ probability$

theory,$ mattered.$ In$ the$ case$ of$ the$ Linda$ problem$ and$ the$ experiments$

conducted$at$Stanford$and$British$Columbia,$Kahneman$and$Tversky$replicated$

the$ experiment$ using$ three$ groups$ of$ subjects$ categorised$ by$ levels$ of$

“statistical$ sophistication”$ (Kahneman$et$al.,$1982,$p.$91).$The$group$ that$ they$

classed$ as$ “statistically$ naive”$ consisted$ of$ undergraduate$ students$ from$both$

universities$who$had$no$ training$ in$either$probability$ theory$or$ statistics.$The$

“intermediate”$ group$ was$ made$ up$ of$ graduate$ students$ from$ Stanford$

University$who$were$studying$either$psychology$and$education$or$medicine$and$

who$had$ taken$ courses$ in$ statistics.$ Finally,$ the$ group$ classed$ as$ “statistically$

sophisticated”$ consisted$ of$ graduate$ students$ on$ the$ decision$ science$

programme$at$the$Stanford$Business$School$who$all$had$a$number$of$advanced$

courses$in$both$probability$theory$and$statistics$under$their$belts$(Kahneman$et$

al.,$1982,$p.$91).$

$While$statistically$naive$subjects$could$not$be$expected$to$possess$the$statistical$

training$ of,$ say,$ mathematical$ psychologists,$ they$ could$ be$ expected$ to$

understand$ the$ logic$ of$ the$ formal$ rules$ once$ explained.$ This$ expectation$

increased$with$the$levels$of$knowledge$of$statistics$and$probability$since,$just$as$

in$ Kahneman$ and$ Tversky’s$ early$ experiments$ on$ representativeness$ using$

mathematical$psychologists$who$were$highly$trained$in$statistical$methods,$the$

expectation$that$the$rule$would$be$understood$and$its$correctness$accepted$was$

$ 95$

higher$with$subjects$who$had$received$professional$training$in$statistics$and/or$

probability$ theory.$ By$ replicating$ the$ experiments$ on$ subjects$ with$ different$

levels$of$statistical$sophistication,$Kahneman$and$Tversky$could$test$the$degree$

to$which$readiness$to$accept$the$normativity$of$the$rule,$had$an$impact$on$the$

power$of$ the$ intuition.$For$ them,$ their$results$supported$the$notion$that$ there$

were$some$differences$precisely$in$relation$to$readiness$to$accept$the$rule,$and$

ability$ to$correct$ the$error,$but$not$ to$ the$extent$ that$ this$would$eliminate$ the$

effects$ of$ the$ heuristic$ entirely.$ In$ this$way$ their$ interpretation$ of$ the$ results$

helped$ shore$ up$ the$ idea$ that$ heuristics$ were$ deepTseated$ intuitions$ that$

overrode$normative$rules,$even$when$those$normative$rules$were$made$explicit.$$

Availability:$heuristics$at$work$in$various$stages$of$the$thought$process$

Representativeness$was$not$the$only$heuristic$developed$in$the$Heuristics$and$

Biases$ Programme.$ As$ mentioned$ previously,$ Kahneman$ and$ Tversky$

developed$ their$ programme$ by$ hypothesising$ other$ kinds$ of$ heuristics$ that$

could$also$cause$deviations$from$formal$rules.$The$heuristic$availability$centred$

on$ ease$ of$ cognitive$ retrieval.$ The$ idea$ behind$ availability$was$ that$ questions$

about$how$many$ there$ are$of$ something,$ how$ likely$ something$ is$ to$occur,$ or$

how$ often$ two$ events$ coincide$ are$ determined$ by$ how$ easy$ it$ is$ to$ think$ of$

examples.$$

In$one$of$Kahneman$and$Tversky’s$studies$on$availability$they$presented$their$

subjects$with$the$following$kind$of$problem:$$

The$frequency$of$appearance$of$letters$in$the$English$language$

was$studied.$A$typical$text$was$selected,$and$the$relative$

frequency$with$which$various$letters$of$the$alphabet$appeared$

in$the$first$and$third$positions$in$words$was$recorded.$Words$of$

less$than$three$letters$were$excluded$from$the$count.$

$

You$will$be$given$several$letters$of$the$alphabet,$and$you$will$

be$asked$to$judge$whether$these$letters$appear$more$often$in$the$

first$or$in$the$third$position,$and$to$estimate$the$ratio$of$the$

frequency$with$which$they$appear$in$these$positions.$

$$

$

$ 96$

Consider$the$letter$R.$$$ $ $ T$the$first$position?$

Is$R$more$likely$to$appear$in$ $ $ T$the$third$position?$

$$ $ $ $ $ $ $ (check$one)$

$

My$estimate$for$the$ratio$of$these$two$values$is$_________$:$1.$(Tversky$&$Kahneman,$

1973$p.$212)$

Kahneman$ and$ Tversky$ ran$ this$ test$ on$ several$ groups$ of$ subjects,$ using$

different$ letters$ and$ sometimes$ reversing$ the$order$of$ the$positions$ (first$ and$

third).$Together$the$tests$showed$a$bias$whereby$people$ favoured$estimations$

that$the$first$positions$would$be$more$frequent$than$alternative$positions.$The$

reason$why,$ they$ concluded,$was$ that$ people$ have$ an$ easier$ time$ thinking$ of$

words$that$begin$with$a$given$letter$than$they$do$thinking$of$words$where$that$

letter$comes$in$third$place.$$

One$of$the$most$important$characteristics$of$Kahneman$and$Tversky’s$notion$of$

the$availability$heuristic,$was$that$it$worked$both$as$a$tool$of$assessment$and$in$

the$ processes$ of$ actually$ thinking$ of$ examples.$ Kahneman$ and$ Tversky$ were$

clear$that$the$cognitive$process$of$retrieval$was$not$necessary$for$the$heuristic$

to$work,$likening$the$procedure$to$the$assessment$of$the$difficulty$of$a$puzzle$or$

a$ mathematical$ problem$ without$ having$ to$ actually$ solve$ it$ (Tversky$ &$

Kahneman,$1973).$The$ idea$that$heuristics$had$a$role$ to$play$ in$ the$very$early$

stages$ of$ the$ thought$ process,$ before$ the$ performance$ of$ any$ actual$ decision$

tasks$ served$ to$ further$ cement$ the$ notion$ that$ heuristics$ supersede$ formal$

decision$rules,$and$that$they$are$universal,$systematic$and$predictable.$$

Adjustment$and$Anchoring:$taking$the$relevance$out$of$relevance$

The$ adjustment) and) anchoring$ heuristic,$ first$ introduced$ in$ the$ 1974$

“Judgement$ under$ Uncertainty:$ Heuristics$ and$ Biases”$ (Tversky$&$ Kahneman,$

1974),$referred$to$the$way$people$often$make$judgments$in$relation$to$an$initial$

value.$People$who$are$given$an$ initial$value,$either$ in$the$form$of$the$question$

posed,$ or$ as$ a$ result$ of$ insufficient$ computation,$ take$ that$ value$ into$ account,$

and$adjust$to$it$when$they$make$their$assessments.$$

$ 97$

One$of$the$more$striking$findings$of$the$adjustment$and$anchoring$heuristic$was$

that$ the$ biases$ occurred$ regardless$ of$ the$ relevance$ of$ the$ value$ for$ the$

prediction$ at$ hand.$ In$ one$ experiment$ described,$ subjects$ were$ instructed$ to$

spin$a$wheel$with$numbers$between$0$and$100$before$estimating$whether$they$

thought$ the$ number$ of$ African$ countries$ that$ were$ members$ of$ the$ UN$ was$

higher$or$lower$than$the$number$on$the$wheel.$They$were$then$asked$to$give$an$

actual$ numerical$ estimate$ of$ countries$with$ the$ same$ criteria.$ Kahneman$ and$

Tversky$ found$ the$ arbitrary$ numbers$ that$ the$ subjects$ had$ rolled$ to$ have$ a$

significant$effect$on$their$estimations$(Tversky$&$Kahneman,$1974).$$

This$move$to$take$the$relevance$of$the$options$as$it$were$“out$of$the$equation”$

was$ another$ notable$ move$ toward$ strengthening$ the$ core$ premise$ of$ the$

Heuristics$ and$ Biases$ Programme$ because$ it$ showed$ that$ relevance$ to$ the$

context$was$not$necessary$ for$ the$heuristic$ at$play$ (in$ this$ case$anchoring)$ to$

have$an$effect.$In$this$sense,$the$arbitrariness$of$the$numbers$served$to$increase$

the$gulf$between$intuitive$rule$following$and$formal$rule$following.$The$effect$of$

this$was$to$add$to$the$general$argument$underpinning$their$work$that$empirical$

investigation$should$be$given$serious$attention$in$the$decision$sciences.$$

The$three$heuristics$working$in$tandem$

In$ an$ explicit$ comparison$ between$ representativeness$ and$ availability,$

Kahneman$ and$ Tversky$ explored$ how$ the$ way$ the$ question$ was$ phrased$

affected$which$heuristic$was$more$likely$to$come$into$play.$Using$an$experiment$

based$on$the$probability$of$birth$orders,$ they$showed$that$ if$ the$question$was$

phrased$in$terms$of$the$generic$ features$of$an$object$or$an$event,$people$were$

more$ likely$ to$ use$ the$ representativeness$ heuristic.$ If$ on$ the$ other$ hand,$ the$

question$ was$ phrased$ in$ terms$ of$ their$ specific$ occurrences,$ the$ availability$

heuristic$was$more$likely$(Kahneman$&$Tversky,$1972).$So,$for$example,$in$the$

following$ scenario$ people$ are$ likely$ to$ use$ the$ representativeness$ heuristics$

because$ what$ is$ emphasized$ in$ the$ example$ is$ the$ generic$ characteristic$

girl/boy:$$

$ 98$

All$families$of$six$children$in$a$city$were$surveyed.$In$72$families$the$

exact$order$of$births$of$boys$and$girls$was$G$B$G$B$B$G.$

What$is$your$estimate$of$the$number$of$families$surveyed$in$which$

the$exact$order$of$births$was$B$G$B$B$B$B?$(Kahneman$&$Tversky,$1972$p.$432)$

According$ to$ formal$ probability$ theory$ the$ alternatives$ are$ approximately$

equally$likely.$However,$because$the$first$sequence$is$more$representative$of$the$

general$population$in$terms$of$the$distribution$of$sexes,$the$first$sequence$was$

judged$by$subjects$to$be$more$likely.$Kahneman$and$Tversky’s$assumption$here$

was$that$it$would$appear$more$likely$that$a$family$could$have$a$girl,$followed$by$

a$boy,$followed$by$a$girl,$followed$by$two$boys$and$another$girl,$than$that$they$

would$have$a$boy,$a$girl,$followed$by$four$boys$in$a$row.$$

An$alternative$to$this$interpretation$was$that$examples$of$families$with$a$gender$

distribution$ like$ the$one$ in$ the$ first$option$was$more$ readily$ available,$ that$ is$

that$ people$ had$ an$ easier$ time$ calling$ to$ mind$ families$ resembling$ the$ first$

example$than$families$resembling$the$second.$This$would$attribute$the$error$to$

the$availability$heuristic$(Kahneman$&$Tversky,$1972).$$

This$study$can$also$be$contrasted$with$the$experiments$on$availability$and$the$

placement$of$letters$like$the$one$quoted$above.$In$this$example,$Kahneman$and$

Tversky$claimed$that$people$were$more$likely$to$use$the$availability$heuristic$to$

answer$this$question$because$it$emphasized$the$specific$occurrence$of$a$letter$in$

words$ of$ the$ English$ language.$ When$ both$ generic$ features$ and$ specific$

instances$ are$ emphasized,$ the$ authors$ speculated$ that$ both$ heuristics$ would$

most$likely$come$into$play.$To$support$this$notion$they$took$the$example$of$the$

likelihood$of$a$war$ending:$

In$contemplating$an$event,$such$as$the$termination$of$a$particular$war$by$a$given$

time,$ people$ often$ construct$ or$ imagine$ scenarios$ that$ lead$ to$ the$ event$ in$

question.$The$likelihood$of$the$event$may,$then,$be$evaluated$by$the$availability$of$

scenarios$ that$ lead$ to$ ending$ the$ war$ as$ well$ as$ by$ the$ degree$ to$ which$ these$

scenarios$ are$ representative$ of$ the$ relevant$ military$ and$ political$ situation$

(Kahneman$&$Tversky,$1972$p.$452).$

$ 99$

As$was$ the$ case$with$ representativeness,$ some$ of$ the$ tests$ of$ the$ availability$

heuristic$could$be$ interpreted$as$a$result$of$adjustment$and$anchoring.$One$of$

Kahneman$ and$ Tversky’s$ tests$ of$ the$ availability$ heuristic$ took$ the$ form$ of$ a$

mathematical$ problem$ with$ a$ fairly$ simple$ structure$ (Tversky$ &$ Kahneman,$

1973$pp.$215T216).$Two$separate$groups$of$subjects$were$given$five$seconds$to$

estimate$ the$ total$ of$ either$ the$ sequence$ 1x2x3x4x5x6x7x8$ or$ the$ sequence$

8x7x6x5x4x3x2x1.$ Both$ groups$ underestimated$ the$ correct$ answer$ which$ is$

40320$by$quite$a$margin.$The$estimations$of$the$two$groups$were$also$quite$far$

apart.$ The$ group$with$ the$ ascending$ sequence$provided$ a$median$ estimate$ of$

512,$ compared$ to$ the$ group$ with$ the$ descending$ sequence$ whose$ median$

estimate$was$2250.$$

Kahneman$and$Tversky’s$interpretation$of$the$results$was$that$the$five$seconds$

allowed$ the$ subjects$ to$ do$ their$ computation$ was$ insufficient$ information$ to$

estimate$the$correct$answer.$The$availability$heuristic$was$at$work$in$the$form$

of$ actual$ retrieval$ as$ opposed$ to$ a$ process$ of$ assessment.$ In$ the$ descending$

sequence,$ just$ computing$ the$ first$ three$numbers$ gets$ the$ subject$ to$336.$ For$

the$ascending$sequence,$even$computing$the$first$4$digits$which$is$possible$since$

computing$ smaller$ numbers$ is$ easier,$ the$ subjects$ would$ reach$ only$ 24$

(Tversky$&$Kahneman,$1973).$

A$ year$ later,$ for$ the$ 1974$ “Judgment$ Under$ Uncertainty”,$ Kahneman$ and$

Tversky$instead$opted$to$present$the$results$of$the$numerical$sequencing$study$

as$ the$ result$ of$ the$ adjustment$ and$ anchoring$ heuristic.$ Both$ interpretations$

were$possible$because$the$available$information$about$the$sequence$allowed$in$

the$ five$ seconds$ of$ computation$ anchored$ the$ subject$ (most$ commonly)$ to$

either$336$or$24.$The$two$heuristics$in$this$sense$could$be$said$to$work$together,$

availability$ ensuring$ that$ people$ underestimate$ the$ value,$ and$ anchoring$ that$

the$estimations$of$ the$descending$sequence$would$be$higher$than$those$of$ the$

ascending$one.$$

Although$ it$might$ appear$ that$ oscillating$ between$heuristics$ in$ explaining$ the$

biases$ they$ produced$ weakened$ the$ explanatory$ power$ of$ the$ individual$

$ 100$

heuristics,$ it$ simultaneously$ served$ to$ strengthen$ the$ core$ premise$ that$

heuristics$ understood$ as$ intuitive$ decision$ rules$ were$ more$ powerful$ in$

explaining$ actual$ decision$ making$ than$ formal$ decision$ rules.$ In$ this$ sense,$

drawing$ on$ different$ heuristics$ to$ explain$ the$ same$ bias,$ and$ showing$ how$

heuristics$sometimes$worked$ in$tandem$with$each$other$served$to$cement$the$

idea$ that$heuristics$ supersede$normative$ rule$ following.$As$was$ the$ case$with$

showing$ that$ arbitrariness$ did$ not$ affect$ the$ impact$ of$ adjustment$ and$

anchoring,$ this$ in$ turn$ strengthened$ the$ more$ general$ argument$ for$ the$

necessity$ of$ empirical$ psychological$ investigation$ for$ accurate$ descriptions$ of$

actual$decision$making$processes.$$

Prospect$Theory:$Mobilising$MicroNEconomics$$

Kahneman$ and$ Tversky’s$ most$ extensively$ cited$ work$ to$ date$ is$ their$ 1979$

Prospect) Theory) –) Analysis) of) Decision) Under) Risk.$ Prospect$ theory$ was$ a$

descriptive$ model$ of$ human$ judgment$ and$ decision$ making,$ created$ through$

extending$and$critiquing$aspects$of$mathematician$John$von$Neumann's$(1903T

1967)$and$economist$Oskar$Morgenstern’s$(1902T1977)$expected$utility$theory.$$

Daniel$ Bernoulli$ (1700T1782)$ laid$ the$ foundations$ for$ the$ expected$ utility$

theory$ as$ a$ means$ of$ rationalising$ behaviour$ like$ purchasing$ insurance$ or$

avoiding$fair$bets,$and$as$a$solution$to$the$St.$Petersburg$paradox$proposed$by$

his$brother$and$teacher$Nicolaus$Bernoulli$II$(1695T1726)(Neilson,$2010).$39$All$

the$above$problems$were$problems$because$they$were$violations$of$the$dictates$

of$ value$maximization.$ To$ solve$ these$ problems,$ Bernoulli$ replaced$monetary$

value$with$“utility”$or$the$sensation$of$either$pleasure$or$pain$that$an$individual$

would$ have$ toward$ a$ given$ value.$ Expected$ Utility$ Theory$was$ formalised$ by$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

39$Daniel$Bernoulli$was$the$nephew$of$Jacob$Bernoulli$(author$of$the$law$of$large$numbers)$and$

the$son$of$mathematician$Johann$Bernoulli.$Nicolaus$II$Bernoulli$was$Johann$Bernoulli’s$eldest$

son,$ and$Daniel$ Bernoulli’s$ older$ brother.$ He$ died$ of$ a$ fever$while$ on$ appointment$ to$ the$ St.$

Petersburg$ Academy$ by$ invitation$ of$ Peter$ the$ Great$ at$ just$ 31$ years$ of$ age.$ Together$ the$

Bernoulli$ family$ of$ mathematicians$ (eight$ in$ total)$ made$ unprecedented$ contributions$ to$

applied$mathematics.$ For$more$ on$ the$ history$ and$ contributions$ of$ Jacob$ and$ Johann$ see$ for$

example$(Mukhopadhyay,$2001).$$

$ 101$

von$Neumann$and$Morgenstern$in$The)Theory)of)Games)and)Economic)Behavior,)

their$ presentation$ of$ game$ theory$ and$ its$ application$ to$ economic$ theory$$

published$in$1944$(Von$Neumann$&$Morgenstern,$1944).$$

Both$expected$utility$theory$and$prospect$theory$are$models$of$decision$making$

in$ uncertain$ conditions$ (gambles$ or$ lotteries)$ and$ both$models$ add$ to$ formal$

probability$theory$the$notion$of$a$subjective$utility,$or$the$difference$between$an$

outcome$ and$ the$ perceived$ desirability$ of$ that$ outcome$ for$ the$ gambler.$ By$

1974$when$work$began$on$prospect$theory,$Kahneman$and$Tversky$had$spent$a$

fair$ amount$ of$ time$working$ on$ the$ways$ in$which$ people$ deviated$ from$ the$

normative$rules$of$assessing$probability.$The$crux$to$understanding$Kahneman$

and$Tversky’s$modification$of$expected$utility$theory$is$that$the$utility$of$each$of$

the$possible$outcomes$in$expected$utility$theory$is$measured$by$the$probability$

that$ a$ decision$ will$ lead$ to$ that$ outcome,$ according) to) rules) of) normative)

probability) theory.$ In$ prospect$ theory$ the$ probability$ of$ an$ outcome$ was$

measured$ by$ what$ Kahneman$ and$ Tversky$ called$ “decision$ weights”$ which$

were$subjective$perceptions$of$probability.$$

Prospect$ theory$ then,$ added$ to$ the$ subjective$ perception$ of$ value,$ (already$ a$

significant$ element$ of$ expected$ utility$ theory)$ the$ subjective$ perception$ of$

probability.$ In$other$words,$ for$ the$creation$of$prospect$ theory$Kahneman$and$

Tversky$ did$what$ they$ had$ learnt$ to$ do$ best:$ they$ questioned$ the$ descriptive$

validity$of$formal$decision$rules,$in$this$case,$of$formal$probability$theory.$They$

asked$ themselves$ whether$ people$ actually$ assess$ probability$ according$ to$

formal$probability$theory.$ If,$as$they$suspected,$the$answer$was$no,$they$could$

make$use$of$ subjects’$ actual$probability$assessments$ to$ further$understanding$

of$subjective$perceptions$of$value.$$

Kahneman$ and$ Tversky$ began$ their$ presentation$ of$ prospect$ theory$ with$ a$

discussion$of$what$they$call$the$certainty$effect.$The$majority$of$the$hypothetical$

questions$ used$ as$ empirical$ support$ for$ the$ models$ of$ prospect$ theory$ were$

variations$of$problems$posed$by$French$economist$Maurice$Allais$(1911T2010),$

who$ had$ previously$ performed$ experiments$ on$ the$ preference$ for$ certainty$

$ 102$

over$ a$ gamble.$40$The$major$ difference$ was$ that$ Kahneman$ and$ Tversky$ used$

larger$numbers$in$their$experiments.$$

As$an$example,$a$group$of$subjects$were$asked$to$choose$first$between$a$gamble$

with$ an$80%$ chance$ of$winning$4000$ shekels$ or$ a$ sure$ gain$ of$ 3000$ shekels.$

Most$of$ the$ subjects$ in$ this$ first$ scenario$ chose$ the$ sure$gain.$This$ choice$ is$ a$

violation$of$expected$utility$theory$because$the$expected$value$of$the$first$option$

(4000,$0.80=3200)$ is$greater$ than$ the$expected$value$of$ the$ sure$gain$ (3000).$

However,$ Kahneman$ and$ Tversky$ could$ explain$ this$ with$ the$ notion$ of$ the$

certainty$ effect$ and$ risk$ aversion$which$ is$ simply$ the$ idea$ that$ people$ prefer$

certainty$over$risk.$$

The$ same$ subjects$ were$ then$ given$ a$ choice$ between$ two$ gambles,$ this$ time$

between$ a$ gamble$with$ a$ 20%$chance$ of$winning$4000$ shekels$ and$ a$ gamble$

with$ a$ 25%$ chance$ of$ winning$ 3000$ shekels.$ Most$ subjects$ in$ the$ second$

scenario$chose$the$first$gamble$(4.000,$0.20)$which$is$both$risk$seeking$and$in$

accordance$ with$ the$ value$ maximizing$ option.$ This$ showed$ that$ there$ were$

scenarios$where$people$did$not$display$ risk$ aversion.$Kahneman$and$Tversky$

repeated$ this$ experiment$ using$ different$ amounts$ of$ money,$ and$ different$

probability$ rates.$ Crucially,$ they$ also$ gave$ the$ same$ group$ of$ subjects$ choice$

problems$with$the$same$amounts$of$money,$phrased$as$a$gamble$or$sure$thing,$

not$of$gains,$but$of$losses.$$

The$result$was$then$presented$in$a$table$(below)$that$effectively$drove$home$the$

point$that$people’s$preferences$were$reversed$in$the$domain$of$gains$(positive$

prospects)$and$in$the$domain$of$losses$(negative$prospects).$The$numbers,$and$

their$probabilities$stay$the$same,$the$only$difference$being$that$the$numbers$in$

the$ right$ hand$ column$ have$ a$ –$ in$ front$ of$ them$ to$ indicate$ that$ they$ were$

phrased$as$hypothetical$losses.$The$signs$>$and$<$were$used$to$highlight$which$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

40$Allais$had$become$interested$in$and$made$substantial$effort$to$refute$the$descriptive$validity$

of$ the$norms$underpinning$expected$utility$ theory.$For$a$detailed$account$of$ the$debate$about$

the$ extent$ Von$ Neumann$ and$Morgenstern’s$ behavioural$ axioms$ should$ be$ considered$ to$ be$

descriptive$see$Heukelom$(2014)$A)History)of)Behavioral)Economics,)especially$chapter$2.$$

$ 103$

choice$ was$ the$ majority$ preference,$ and$ the$ asterisk$ was$ used$ to$ denote$

significance$at$the$0.1$level:$$

Table$2$“Preferences$Between$Positive$and$Negative$Prospects”$from$(Kahneman$&$Tversky,$

1979$p.$268).$

$

They$called$this$phenomenon$“the$reflection$effect”.$The$proof$of$the$reflection$

effect$ paved$ the$way$ for$ the$ first$ of$ two$main$ claims$ of$ prospect$ theory:$ that$

people,$ in$ violation$ of$ the$ predictions$ of$ expected$utility$ theory,$ are$ only$ risk$

averse$in$the$domain$of$gains.$In$the$domain$of$losses$people$are$actually$riskT

seeking.$According$to$Kahneman$and$Tversky$this$was$because$people$feel$the$

effects$of$a$loss$to$much$greater$extent$than$they$do$the$effects$of$gains.$$

The$ aggravation$ that$ one$ experiences$ in$ losing$ a$ sum$ of$ money$ appears$ to$ be$

greater$than$the$pleasure$associated$with$gaining$the$same$amount.$(Kahneman$&$

Tversky,$1979$p.$279)$$

The$different$attitudes$to$risk$ led$Kahneman$and$Tversky$to$the$second$major$

claim$of$prospect$theory:$that$what$drives$assessments$of$value$and$utility$are$

not$final$states$of$assets,$but$changes$in$wealth.$This$dynamic$conceptualisation$

of$value$is$at$the$heart$of$the$theory.$The$key$to$the$contribution$that$Kahneman$

and$Tversky$made$to$decisions$under$risk$was$not$their$claim$that$people$were$

risk$ averse$ in$ the$ domain$ of$ gains,$ which$ was$ a$ staple$ element$ of$ expected$

utility$theory:$ it$was$the$notion$that$people$were$risk)seeking$ in$the$domain$of$

losses.$With$ prospect$ theory$ Kahneman$ and$ Tversky$ reworked$ the$ notion$ of$

$ 104$

risk$ aversion$ to$ become$ loss$ aversion.$ Loss$ aversion$ in$ other$ words$ was$ a$

shorthand$ for$ the$ notion$ that$ people$ were$ not$ generally$ risk$ averse$ (as$

Bernoulli$would$have$it)$but$risk$seeking$in$the$domain$of$losses,$i.e.$loss$averse.$

For$the$development$of$prospect$theory,$Kahneman$and$Tversky$theorised$two$

phases$ of$ the$ decision$ making$ process$ for$ risky$ choice,$ the$ editing$ phase$

followed$ by$ the$ evaluation$ phase.$ Kahneman$ and$ Tversky$ listed$ six$ different$

kinds$ of$ editing$ processes:$ coding$ (which$ establishes$ the$ reference$ point),$

combination$and$segregation$of$prospects,$cancellation$of$outcomes$common$to$

all$ prospects,$ simplification$ (simplifying$ the$ alternatives$ by$ for$ example$

rounding$ off$ decimal$ numbers)$ and$ the$ detection$ of$ dominance$ (eliminating$

irrelevant$or$highly$undesirable$alternatives).$

They$ illustrated$ the$evaluation$phase$ in$ two$separate$ functions:$one$ that$ they$

dubbed$ the$ hypothetical$ value$ function,$ and$ one$ that$ they$ called$ the$

hypothetical$weighting$function.$It$was$the$asymmetry$with$regard$to$decisions$

related$ to$ losses$ and$gains$ that$produced$ the$ sTshape$of$ the$ value$ function$of$

prospect$theory,$and$it$was$the$assumption$of$diminishing$sensitivity$to$changes$

in$ wealth$ in$ the$ domain$ of$ losses,$ that$ made$ the$ curve$ steeper$ below$ the$

reference$point$(the$zero$point$of$the$value$function)$than$above:$$

Figure$7:$Hypothetical$Value$function$of$Prospect$Theory$from$(Kahneman$&$Tversky,$1979,$

p.$279).$

$

The$value$function$of$prospect$theory$is$intended$

to$describe$changes$in$objective$wealth$in$relation$

to$ subjective$ valuation.$ It$ is$ important$ to$

emphasise$ that$ the$ value$ function$ is$ an$

expression$of$what$Kahneman$and$Tversky$called$

decision$ weights,$ not$ normative$ probabilities.$

Prospect$theory$builds$on$utility$theory$by$attaching$value$to$changes$in$states$

relative$to$a$reference$point$rather$than$final$states,$and$by$hypothesising$that$

$ 105$

decisions$are$not$made$in$exact$proportion$to$their$subjective$probability.$The$

hypothetical$ value$ function$ illustrates$ how$ value$ is$ perceived$ and$ the$

hypothetical$weighting$function$how$probabilities$are$calculated$in$the$form$of$

decision$weights:$$

Figure$8:$Hypothetical$Weighting$function$from$(Kahneman$&$Tversky,$1979$p.$283)$

$

The$ dotted$ line$ of$ the$weighting$ function$ represents$ formal$ probabilities$ and$

the$ unbroken$ line$ represents$ decision$weights.$ The$ key$ to$ the$ function$ is$ the$

assertion$that$decisions$are$“overweighted”$for$small$probabilities$(near$0)$and$

underweighted$ for$ large$ probabilities$ (near$ 1.0).$What$ this$meant$ in$ practice$

was$ that$ there$was$a$sharp$drop$ in$perceived$probability$ from$a$sure$ thing$to$

slightly$ less$ than$ sure,$ and$ the$ difference$ between$ a$ sure$ thing$ and$ an$ only$

slightly$ less$sure$thing$was$more$dramatically$experienced$than$the$difference$

between$ two$unsure$ things$ even$ if$ the$ formal$ differences$ in$ probability$were$

smaller.$This$meant$that$people$tended$to$treat$degrees$of$uncertainty$similarly,$

and$ it$ confirmed$ that$ uncertainty$ generally$ had$ a$ very$ different$ character$ to$

certainty$(the$certainty$effect).$$

Kahneman$and$Tversky$invoked$the$overweighting$of$very$small$probabilities$to$

explain$the$tendency$for$people$to$buy$insurance$for$very$unlikely$events,$or$to$

purchase$ lottery$ tickets$ with$ very$ small$ chances$ of$ winning,$ following$ in$ the$

$ 106$

tradition$ of$ creating$ a$ model$ of$ decision$ making$ that$ could$ rationalise$

behaviour$ that$ would$ otherwise$ be$ considered$ violations$ of$ an$ existing$

normative$model$of$rational$choice,$in$this$case,$expected$utility$theory.41$$

A$‘prospect’$in$prospect$theory$is$the$possible$outcome$of$a$gamble.$The$reason$

prospect$ theory$ showed$ violation$ of$ the$ rational$ norms$ of$ expected$ utility$

theory$was$because$expected$utility$theory$assumes$description)invariance:$the$

notion$ that$ the$ way$ a$ choice$ problem$ is$ framed$ has$ no$ effect$ on$ the$ choice$

between$ two$ mathematically$ equivalent$ choices.$ As$ such,$ prospect$ theory$

follows$from$Kahneman$and$Tversky’s$work$on$heuristics$and$biases$ in$that$ it$

was$ created$ to$ add$ descriptive$ accuracy$ to$ normative$ decision$ rules.$ The$

strongest$ conceptual$ connection$ between$ heuristics$ and$ biases$ and$ prospect$

theory$was$ the$ normative/descriptive$ distinction.$ Expected$utility$ theory$was$

not$ only$widely$ used$ in$ economics$ and$ other$ areas$ of$ decision$making,$ but$ a$

model$that$was$claimed$to$have$both$normative$and$descriptive$validity.$$

Expected$utility$theory$has$dominated$the$analysis$of$decision$making$under$risk.$

It$has$been$generally$accepted$as$a$normative$model$of$rational$choice,$and$widely$

applied$as$ a$descriptive$model$of$ economic$behavior.$Thus$ it$ is$ assumed$ that$ all$

reasonable$ people$ would$ wish$ to$ obey$ the$ axioms$ of$ the$ theory$ and$ that$ most$

people$actually$do,$most$of$the$time$(Kahneman$and$Tversky,$1979,$p.$263).$

In$ large$ part,$ the$ partial$ collapse$ of$ the$ normative/descriptive$ distinction$ in$

subsequent$applications$of$expected$utility$theory$formalised$by$von$Neumann$

and$Morgenstern$was$a$result$of$ the$way$that$von$Neumann$and$Morgenstern$

went$ about$ creating$ the$ theory.$ Their$ construction$ of$ the$ model$ began$ with$

establishing$ a$ series$ of$ “rational$ axioms”$ from)which$ they$ then$ proceeded$ to$

derive$ the$ decisions$ a$ person$ would$ have$ to$ make$ in$ order$ to$ follow$ those$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

41$They$were$the$least$definite$about$the$reliability$of$the$function$at$its$extremes,$having$noted$

the$opposite$tendencies$in$some$cases$where$the$small$probabilities$were$completely$ignored$or$

where$ the$ difference$ between$ a$ high$ probability$ event$ and$ certainty$was$ neglected.$ This$ led$

them$ to$ conclude$ that$ the$ function$was$ “not$wellTbehaved$near$ its$ endTpoints”$ (Kahneman$&$

Tversky,$1979$p.$283).$$

$

$ 107$

rational$ axioms.$ In$ other$words,$ their$ theory$was$ eminently$ normative$ in$ the$

sense$ that$ it$ described$ the$ behaviour$ that$ would$ lead$ to$ adherence$ to$ their$

rational$axioms.42$$

With$prospect$ theory,$Kahneman$and$Tversky$moved$ to$a$model$with$greater$

descriptive$accuracy$in$two$important$elements$of$expected$utility$theory:$in$the$

notion$ of$ utility$ as$ the$ subjective$ valuation$ of$ the$ outcome,$ and$ in$ the$

perception$ of$ the$ probabilities.$ First$ their$ notion$ of$ “value”$ which$ replaced$

“utility”$ in$ the$ von$ Neumann/Morgenstern$ model,$ was$ not$ a$ subjective$

valuation$ of$ an$ outcome$ given$ an$ individual's$ preferences$ if) they) behaved)

according) to) the) normative) rules) of) rational) choice.$ Rather$ it$ was$ a$ subjective$

empirically$ derived$ valuation$ of$ an$ outcome$ constructed$ through$ an$

individual's$ reference$point.$ Secondly,$ the$probabilities$ assumed$ in$ the$model$

were$not$objective,$but$were$also$subject$to$bias.$$

Enrolling$economists$

The$significance$of$ their$choice$ to$ target$expected$utility$ theory$was$ that$with$

their$ approach,$ which$ consisted$ of$ upholding$ a$ clear$ distinction$ between$ the$

normative$and$the$descriptive,$Kahneman$and$Tversky$could$accomplish$both$a$

critique$ of$ the$ descriptive$ validity$ of$ expected$ utility$ theory$ and$ produce$ an$

alternative$descriptive$model$based$on$the$results.$By$producing$an$alternative$

model$ of$ expected$ utility$ theory$ they$ effectively$ enrolled$ large$ sections$ of$

microeconomic$theory$into$the$Heuristics$and$Biases$Programme.$Not$only$was$

(and$is)$expected$utility$theory$an$important$part$of$the$microeconomic$roster,$

but$the$practice$of$ improving$on$the$model$had$a$ long$tradition$among$microT

economists.$ Put$ simply,$ a$new$and$ improved$model$ of$ expected$utility$ theory$

was$something$that$economists$could$understand.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

42$As$ Thaler$ put$ it$ in$ his$ autobiography$ “Expected$ utility$ is$ the$ right$way$ to$make$ decisions”$

(Thaler,$2015,$p.$29).$

$

$ 108$

Perhaps$ even$more$ significantly,$ the$move$ to$mobilise$ expected$utility$ theory$

was$an$effective$tool$for$conveying$the$message$that$psychological$explanations$

mattered$in$the$course$of$creating$knowledge$about$economic$decision$making.$

It$was$a$statement$of$what$they$perceived$to$be$a$psychological$emptiness$of$the$

hypothetical$ decision$ maker$ embedded$ in$ the$ model$ of$ expected$ utility.$ In$

prospect$ theory$ Kahneman$ and$ Tversky$ ‘inserted’$ empirically$ tested$

judgements$ in$not$ one$but$ two$decision$ stages$where$ the$model$was$built$ on$

judgement$derived$from$normative$rules,$and$based$on$those$insertions$created$

a$model$with$greater$descriptive$accuracy.$In$this$way$they$were$able$to$convey$

to$economists$that$psychologists$had$something$valuable$to$add$not$just$to$the$

conversation,$but$to$the$construction$of$economic$models,$and$crucially$to$their$

predictive$powers.$$

This$ production$ of$ an$ alternative$ model$ illustrated$ in$ the$ hypothetical$ value$

function$ and$ the$ hypothetical$ weighting$ function$ had$ the$ added$ benefit$ of$

lending$ the$ theory$some$appeal$ for$not$ just$economists,$but$decision$ theorists$

and$ mathematical$ psychologists,$ i.e.$ the$ mathematically$ oriented$ decision$

scientists$whose$ game$ it$ was$ to$ tweak$ normative$models$ based$ on$ empirical$

research.$ As$ Heukelom$ (2014)$ has$ noted,$ the$ authors$ in$ their$ opening$

statement$avoided$the$use$of$the$word$rational)in$order$not$to$overly$antagonise$

economists,$and$possibly$to$avoid$association$with$Herbert$Simon’s$theories$of$

bounded$rationality$for$which$he$had$won$the$Nobel$Prize$the$year$before.$

Still,$the$way$that$Kahneman$and$Tversky$tackled$the$problem$of$the$empirical$

deviations$ from$ expected$ utility$ theory$ was$ indicative$ of$ their$ particular$

approach$ to$ normativity$ that$ separated$ them$ from$Ward$ Edwards'$ approach,$

and$ from$ the$ approach$ that$ Tversky$ took$ to$ decision$ theory$ before$ his$

collaboration$with$Kahneman.$Where$Ward$Edwards$would$have$attempted$to$

tweak$the$mathematical$axioms$that$describe$decision$making$to$salvage$their$

normativity,$ Kahneman$ and$ Tversky$ continued$ with$ their$ separation$ of$ the$

normative$and$descriptive,$confining$prospect$ theory$to$reflect$actual$decision$

making,$ content$ to$ present$ and$ thereby$ emphasise$ the$ difference$ between$

normative$and$descriptive$decision$making.$In$Kahneman’s$own$words,$writing$

$ 109$

on$ the$ difference$ between$ how$ he$ and$ Tversky$ tackled$ Allais’$ paradox$ of$

preferences$for$certainty$over$gambles$mentioned$above:$$

The$natural$response$of$a$decision$theorist$to$the$Allais$paradox,$certainly$in$1975$

and$ probably$ even$ today,$would$ be$ to$ search$ for$ a$ new$ set$ of$ axioms$ that$ have$

normative$ appeal$ and$ yet$ permit$ the$ nonlinearity.$ The$ natural$ response$ of$

psychologists$was$to$set$aside$the$issue$of$rationality$and$to$develop$a$descriptive$

theory$of$ the$preferences$that$people$actually$have,$regardless$of$whether$or$not$

they$should$have$them.$(Kahneman$2003$p.$726)$

“Prospect$ Theory”$ was$ published$ in$ the$ journal$ Econometrica.$ The$ shifts$ in$

publication$ sites$ from$ the$ Psychological) Bulletin$ (1971)$ to$ Science$ (1974)$ to$

Econometrica$(1979)$are$indicative$of$the$audience$that$Kahneman$and$Tversky$

were$ attempting$ to$ reach.$ Their$ choice$ to$ publish$ in$Science$was$ a$ deliberate$

attempt$ to$ reach$ an$ audience$ beyond$ psychologists$with$ the$ justification$ that$

their$ thesis$ about$ systematic$ deviations$ caused$ by$ intuitive$ heuristics$ could$

have$ appeal$ beyond$ the$ disciplinary$ boundaries$ of$ psychology$ (Kahneman,$

2002).$$

Kahneman$and$Tversky$took$their$time$with$the$preparation$for$both$“Judgment$

Under$ Uncertainty”$ and$ “Prospect$ Theory”.$ A$ collection$ of$ letters$ written$ by$

Tversky$to$his$friend$and$colleague$David$Krantz$indicate$that$work$on$the$1974$

“Judgement$Under$Uncertainty”$began$as$early$as$November$of$1971.$Similarly$

the$ letters$ indicate$ that$ the$ main$ argument$ of$ “Prospect$ Theory”$ was$

formulated$as$early$as$1975,$with$much$time$spent$adapting$the$language$of$the$

article$ so$ that$ it$ would$ be$ accessible$ to$ economists$ and$ decision$ theorists$

(Heukelom,$2014).$

Kahneman$has$made$the$claim$that$the$choice$of$Econometrica$for$publication$of$

“Prospect$ Theory”$ was$ not$ driven$ by$ a$ wish$ to$ “influence$ economics”$

(Kahneman,$ 2011$ p.$ 271).$ Their$ choice$ was$ driven$ by$ a$ wish$ to$ be$ in$ the$

company$ of$ other$ influential$ theorists$ of$ decision$making$ (Kahneman,$ 2011).$

Still,$ “Prospect$ Theory”$ addressed$ economists$ directly,$ and$ as$ Kahneman$

comments,$ there$ is$ little$ doubt$ that$ prospect$ theory$ would$ not$ have$ had$ the$

$ 110$

same$ impact$ on$ economists$ had$ it$ been$ published$ in$ a$ psychological$ journal$

(Kahneman,$2002).$$

While$ “Prospect$ Theory”$ retains$ some$ of$ the$ elements$ of$ Kahneman$ and$

Tversky’s$ earlier$ work$ on$ heuristics$ and$ biases$ it$ differs$ in$ significant$ ways.$

“Prospect$Theory”$was$written$ in$a$style$to$appeal$to$economists$and$decision$

theorists.$ The$ paper$ contains$ substantially$ more$ equations$ which$ was$ by$ all$

accounts$ designed$ to$ allow$ prospect$ theory$ to$ gain$ acceptance$ from$ the$

community$ of$ economists.$ Kahneman$ (2002)$ reflected$ on$ this$ aspect$ of$

prospect$theory$in$his$Nobel$biographical$with$characteristic$sharpness:$$

Prospect$ theory$ was$ a$ formal$ theory,$ and$ its$ formal$ nature$ was$ the$ key$ to$ the$

impact$ it$had$ in$economics.$Every$discipline$of$social$science,$ I$believe,$has$some$

ritual$ tests$ of$ competence,$ which$ must$ be$ passed$ before$ a$ piece$ of$ work$ is$

considered$worthy$ of$ attention.$ Such$ tests$ are$ necessary$ to$ prevent$ information$

overload,$and$they$are$also$important$aspects$of$the$tribal$life$of$the$disciplines.$In$

particular,$ they$ allow$ insiders$ to$ ignore$ just$ about$ anything$ that$ is$ done$ by$

members$of$other$tribes,$and$to$feel$no$scholarly$guilt$about$doing$so.$To$serve$this$

screening$ function$efficiently,$ the$competence$tests$usually$ focus$on$some$aspect$

of$form$or$method,$and$have$little$or$nothing$to$do$with$substance.$Prospect$theory$

passed$such$a$test$in$economics,$and$its$observations$became$a$legitimate$(though$

optional)$part$of$the$scholarly$discourse$in$that$discipline.$It$is$a$strange$and$rather$

arbitrary$ process$ that$ selects$ some$ pieces$ of$ scientific$ writing$ for$ relatively$

enduring$ fame$while$ committing$most$of$what$ is$published$ to$almost$ immediate$

oblivion$(Kahneman,$2002).$

To$ summarise,$ in$ creating$ prospect$ theory$ Kahneman$ and$ Tversky$mobilised$

the$heuristics$and$biases$framework$to$rework$expected$utility$theory$which$is$

arguably$one$of$the$most$influential$and$important$models$for$microTeconomics.$

The$ creation$ of$ prospect$ theory$ was$ a$ milestone$ of$ the$ Kahneman/Tversky$

collaboration$because$ it$went$ beyond$ testing$ and$describing$deviation$ from$a$

norm$to$the$construction$of$an$alternative$(equally$testable)$model$of$decision$

making$under$uncertainty.$$

Prospect$theory$also$effectively$enrolled$an$entire$discipline$into$the$Heuristics$

and$ Biases$ Programme.$ The$ centrality$ of$ expected$ utility$ theory$ for$ neoT

classical$microeconomics$meant$ that$ neoTclassical$ economists$were$ alerted$ to$

$ 111$

the$ programme$ and$ the$ potential$ consequences$ of$ Kahneman$ and$ Tversky’s$

psychological$insights.43$$

Framing$effects:$how$heuristics$affect$decision$making$on$several$levels$$

Kahneman$and$Tversky’s$work$on$the$notion$of$loss$aversion$led$them$to$think$

further$about$the$consequences$of$a$shift$in$reference$point$affecting$whether$or$

not$a$prospect$is$considered$a$loss$or$a$gain.$The$result$of$the$broadening$of$this$

notion$turned$into$a$phenomenon$they$called$“framing$effects”.$Framing$effects$

essentially$capitalises$on$the$idea$that$whether$or$not$a$prospect$is$considered$a$

loss$ or$ a$ gain$ can$ be$ manipulated$ by$ the$ wording$ or$ presentation$ of$ the$

prospect.$ In$ short,$ the$ study$ of$ framing$ effects$ is$ built$ on$ the$ notion$ that$

semantics$matter$in$human$judgment$and$decision$making$processes.$The$word$

“framing$ effect”$ then,$was$ an$ allusion$ to$ the$ idea$ of$ a$ frame$ of$ reference$ and$

how$reference$points$affect$preference.$$

The$ claim$ that$ Kahneman$ and$ Tversky$ made$ in$ “Prospect$ Theory”$ was$ that$

people$code$choice$problems$as$gains$or$losses,$and$that$whether$the$alternative$

is$ coded$ as$ a$ loss$ or$ a$ gain$will$ affect$ their$ choice$ because$ it$ affects$ people’s$

willingness$to$gamble.$With$framing$effects,$Kahneman$and$Tversky$developed$

a$ strand$ of$ the$ empirical$ study$ of$ decision$ making$ by$ making$ that$ coding$

explicit$in$the$choice$problem.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

43$In$my$interview$with$him,$Kahneman$made$a$point$of$emphasising$that$in$his$view$it$was$not$

writing$“Prospect$Theory”$or$any$of$the$ideas$contained$in$other$seminal$work$by$himself$and$

Tversky$that$moved$heuristics$and$biases$ in$the$direction$of$economics;$ it$was$Richard$Thaler$

(Kahneman,$Interview$with$the$author,$April$29th,$2014).$While$I$think$it$was$interesting$that$he$

would$downplay$the$idea$of$prospect$theory$as$the$catalyst$of$behavioural$economics,$and$while$

I$see$his$point$(namely$that$it$was$the$work$that$Thaler$and$others$did$to$apply$the$insights$of$

heuristics$ and$biases$ to$ economic$decision$making$ that$made$behavioural$ economics$ into$ the$

discipline$ it$ is$ today),$ to$my$mind$there$ is$no$denying$that$the$deliberate$efforts$of$Kahneman$

and$Tversky$to$appeal$to$economists$with$Prospect$Theory$meant$that$it$served$as$an$exemplar$

of$ how$ heuristics$ and$ biases$ could$ be$ applied$ to$ critique$ assumptions$ of$ human$ behaviour$

embedded$in$neoTclassical$economics.$$

$

$ 112$

The$ basic$ principle$ of$ framing$ effects$ is$ that$ the$ ‘same$ problem’$ framed$ in$

different$ways$will$produce$predictably$different$choices.$By$ ‘the$same’$ in$ this$

context$is$meant$ ‘to$have$the$same$probability$of$outcome’,$and$framing$refers$

to$ language$or$wording.$ Framing$effects$ then$mainly$produce$deviations$ from$

the$ logical$ principles$ of$ coherence$ and$ consistency.$ The$ notion$ of$ framing$

effects$is$closely$related$to$the$notion$of$preference$reversals$since$the$principle$

of$ consistency$ dictates$ that$ a$ rational$ subject$ should$make$ the$ same$ decision$

when$confronted$with$the$same$choice$set,$regardless$of$wording.$$

Tversky$&$Kahneman$ elaborate$ on$ this$ phenomenon$ in$ the$ 1981$ article$ “The$

Framing$ of$ Decisions$ and$ the$ Psychology$ of$ Choice”$ (Tversky$ &$ Kahneman,$

1981).$They$built$their$argument$about$the$predictability$of$framing$effects$both$

in$ relation$ to$ monetary$ decisions,$ and$ in$ relation$ to$ a$ hypothetical$ ‘loss$ of$

human$lives’$scenario.$To$illustrate$the$effects$of$framing$in$relation$to$the$latter,$

152$ students$ from$Stanford$University$ and$ the$University$of$British$Columbia$

were$ presented$ with$ the$ following$ problem$ (the$ numbers$ within$ the$ square$

brackets$denote$the$percentage$of$students$that$preferred$each$option):$$

Imagine$ that$ the$ U.S.$ is$ preparing$ for$ the$ outbreak$ of$ an$ unusual$ Asian$ disease,$

which$ is$ expected$ to$ kill$ 600$ people.$ Two$ alternative$ programs$ to$ combat$ the$

disease$ have$ been$ proposed.$ Assume$ that$ the$ exact$ scientific$ estimate$ of$ the$

consequences$of$the$programs$are$as$follows:$$

If$Program$A$is$adopted,$200$people$will$be$saved.$[72$percent]$$

If$Program$B$is$adopted,$there$is$1/3$probability$that$600$people$will$be$saved,$and$

2/3$probability$that$no$people$will$be$saved.$[28$percent]$(Tversky$&$Kahneman,$

1981,$p.$453)$$

A$ further$ 155$ students$ were$ presented$ with$ the$ same$ scenario$ but$ with$ the$

following$options:$$

If$Program$C$is$adopted$400$people$will$die.$[22$percent]$$

If$ Program$ D$ is$ adopted$ there$ is$ 1/3$ probability$ that$ nobody$ will$ die,$ and$ 2/3$

probability$that$600$people$will$die.$[78$percent]$(Tversky$&$Kahneman,$1981,$p.$

453)$

$ 113$

For$a$choice$to$be$internally$consistent$A$should$be$preferred$over$B$where$A$is$

dominant$ and$ the$ same$ decision$ should$ be$made$where$ the$ two$ options$ are$

equal.$Despite$the$similarity$of$options$A$and$C$on$the$one$hand$and$options$B$

and$ D$ on$ the$ other,$ the$ percentages$ of$ preference$ are$ almost$ exactly$ the$

reverse.$$

The$ explanation$ that$ Kahneman$ and$ Tversky$ offered$ for$ this$ was$ to$ do$ with$

how$humans$feel$about$risk,$and$introduces$the$concepts$‘risk$seeking’$and$‘risk$

averse’$to$describe$different$kinds$of$decisions.$Option$A$is$a$risk$averse$option,$

i.e.$the$students$preferred$the$certainty$of$saving$200$people$over$the$gamble$of$

losing$ everyone.$ However,$ when$ the$ same$ outcome$ is$ presented$ as$ a$ certain$

loss$of$400$people,$as$in$option$C,$loss$aversion$works$in$favour$of$the$gamble.$

The$theory$of$framing$derives$from$experiments$that$show$that$the$presentation$

of$options$matters.$

When$ it$ comes$ to$ the$ normative$ aspects$ of$ the$ phenomenon$ of$ framing$

Kahneman$and$Tversky$argued$that$secondary$consequences$of$a$choice$such$as$

the$more$pleasurable$experience$of$saving$5$dollars$on$a$15$dollar$purchase$as$

opposed$to$the$same$amount$on$say$a$250$dollar$purchase$may$be$considered$

legitimate$and$that$choices$ that$differ$ in$ this$way,$not$only$ in$ form$but$also$ in$

substance$need$not$be$resolved$in$the$same$way.$This$is$why$their$conclusion$is$

the$following:$$

We$do$not$wish$to$recommend$that$any$two$decision$problems$that$have$the$same$

primary$consequences$should$be$resolved$in$the$same$way.$We$propose,$however,$

that$ systematic$ examination$ of$ alternative$ framings$ offers$ a$ useful$ reflective$

device$that$can$help$decision$makers$assess$the$values$that$should$be$attached$to$

the$primary$and$secondary$consequences$of$ their$choices$(Kahneman$&$Tversky,$

1984$p.$348).$

The$ normative$ issue$ was$ addressed$ in$ Kahneman$ and$ Tversky$ (1984)$ in$

relation$to$risk$aversion$in$the$domain$of$gains$and$risk$seeking$in$the$domain$of$

losses.$They$argued$ that$ the$reason$why$ this$was$normatively$unacceptable$ is$

because$ it$ relates$ to$ the$ two$ principles$ of$ rational$ choice:$ dominance$ and$

$ 114$

invariance.$Dominance$pertains$to$situations$where$A$is$recognised$as$“better”$

than$B,$and$invariance$to$situations$where$the$two$options$are$equal.$

Kahneman$ and$Tversky’s$work$ on$ framing$ effects$ helped$ strengthen$ the$ core$

premise$ of$ their$ programme$ because,$ not$ unlike$ some$ of$ their$ work$ on$

adjustment$and$anchoring,$ they$ could$ show$ that$ framing$effects$ affect$ several$

aspects$ of$ the$ decision$ making$ process.$ Changing$ the$ way$ that$ the$ acts$ or$

options$ of$ a$ decision$ are$ presented,$ changing$ the$ presentation$ of$ possible$

outcomes,$ and$ changing$ the$ presentation$ of$ the$ probabilities$ that$ an$ act$ will$

lead$ to$ a$ given$ outcome$ can$ all$ change$ the$ reference$ point,$ and$ thus$ affect$

preferences$and$the$choices$made.$The$1981$article$provided$examples$of$all$of$

these$different$ways$of$changing$the$framing$of$a$decision$problem$in$order$to$

give$ a$ comprehensive$ overview$ of$ framing,$ and$ in$ so$ doing$ emphasised$ how$

deeply$embedded$heuristics$are$in$the$process$of$decision$making.$$$

The$ Relationship$ Between$ Heuristics,$ Psychology$ and$ Normative$

Decision$Rules$$

Kahneman$ and$ Tversky$ developed$ the$ Heuristics$ and$ Biases$ Programme$ by$

building$on$the$notion$that$informal$human$reasoning$is$guided$by$deeply$held$

intuitions,$ that$ those$ intuitions$ differ$ from$ the$ rules$ of$ formal$ logical$ and$

statistical$inference,$and$that$they$take$precedence$over$following$those$formal$

rules$ in$ actual$ human$ decision$ making.$ This$ was$ the$ core$ premise$ of$ the$

Heuristics$and$Biases$Programme.$Throughout$the$making$of$their$programme,$

Kahneman$and$Tversky$made$a$series$of$decisions$that$strengthened$their$core$

premise$that$people$deviate$from$logical$and$statistical$norms$in$systematic$and$

predictable$ways.$$

In$relation$to$their$work$on$“the$law$of$small$numbers”,$I$emphasised$that$their$

decisions$ to$ use$ a$ specific$ normative$ statistical$ rule$ in$ the$ context$ of$ the$

production$ of$ scientific$ studies$ and$ to$ use$ subjects$ who$ were$ well$ versed$ in$

statistics$served$to$strengthen$the$core$premise$by$rendering$the$normativity$of$

$ 115$

the$normative$ a$ given,$ and$by$ staving$off$ the$ criticism$ that$ statistical$ training$

offsets$the$effects$of$intuition$in$the$decision$making$process.$$$

In$ the$ development$ of$ their$ first$ heuristic,$ “Representativeness”,$ using$ the$

example$ of$ the$ Linda$ Problem,$ I$ emphasised$ how$ their$ move$ to$ extend$ the$

programme$to$lay$subjects$was$reflected$in$the$style$and$content$of$the$decision$

problem$posed$and$how$the$ inclusion$of$ lay$subjects$as$well$as$ the$deliberate$

comparison$ between$ lay$ subjects$ and$ subjects$ trained$ in$ statistics$ and$

probability$ theory,$ served$ to$ strengthen$ the$core$premise$by$underpinning$ its$

universality.$ In$ the$ section$ on$ how$ Kahneman$ and$ Tversky$ developed$ the$

heuristic$ “Availability”,$ and$ in$ their$ work$ on$ “Framing$ Effects”$ I$ emphasised$

how$their$work$served$to$strengthen$the$core$premise$by$underpinning$the$idea$

that$heuristics$work$at$several$stages$of$the$decision$process.$$$

When$ it$ came$ to$ “Adjustment$ and$ Anchoring”$ my$ emphasis$ lay$ on$ how$ the$

arbitrariness$of$the$anchor,$served$to$reinforce$the$core$premise$by$increasing$

the$ gulf$ between$ intuitive$ and$ formal$ rule$ following.$ This$ again$ added$ to$ the$

general$ argument$ that$ psychological$ explanation$ was$ crucial$ for$ accurate$

descriptions$of$actual$decision$making$processes.$$

In$my$ discussion$ on$ “Prospect$ Theory”$ I$ argued$ that$ Kahneman$ and$ Tversky$

added$ to$ the$ strength$ of$ their$ programme$ by$ inserting$ psychology$ into$ an$

important$ theory$ of$ micro$ economics.$ I$ also$ discussed$ how$ the$ style$ of$ the$

paper$and$ the$choice$ to$publish$ it$ in$Econometrica$ signalled$ their$ intention$ to$

enrol$economists$by$alerting$them$to$the$potential$value$of$their$programme$to$

enhance$the$descriptive$accuracy$of$microTeconomic$theory.$$

How$the$strength$of$the$heuristics$relates$to$the$strength$of$the$programme$

The$ key$ to$ understanding$ the$ modus$ operandi$ of$ the$ Heuristics$ and$ Biases$

Programme$is$ to$understand$that$heuristics$born$out$of$deeply$held$ intuitions$

were$said$to$cause$biases$in$a$way$that$pitted$intuitions$against$normative$rule$

following.$ The$ hypothesised$ relationship$ between$ intuition$ and$ logical$ and$

statistical$reasoning$in$the$Heuristics$and$Biases$Programme$was$the$idea$that$

$ 116$

human$ intuitions$ sometimes$ run$ counter$ to$ formal$ logic$ and$ statistics,$ and$

when$they$do$the$former$tend$to$overrule$the$latter.$$

Heuristics$ as$ Kahneman$ and$ Tversky$ understood$ them$ were$ ubiquitous$ and$

deeply$ ingrained$ intuitions.$Their$view$on$ the$ubiquity$of$heuristic$ judgments$

relates$ to$ the$ notion$ that$ intuition$ is$ not$ easily$ thwarted$ by$ familiarity$ and$

experience$with$normative$rules:$$

What$is$perhaps$surprising$is$the$failure$of$people$to$infer$from$lifelong$experience$

such$ fundamental$ statistical$ rules$ as$ regression$ toward$ the$mean$ […]$ Statistical$

principles$are$not$ learned$ from$everyday$experience$ […]$people$do$not$ learn$ the$

relation$between$sample$size$and$sampling$variability,$although$the$data$for$such$

learning$are$abundant$(Tversky$and$Kahneman,$1974,$p.$1130).$

Part$ of$ Kahneman$ and$ Tversky’s$ hypothesis$ was$ that$ following$ the$ rules$ of$

heuristics$demanded$less$cognitive$effort$than$following$the$formal$rules$of$logic$

and$statistics.$This$ is$why$when$our$heuristics$ lead$us$to$deviate$ from$making$

the$ judgments$ that$ normative$ decision$ theory$ dictates$ this$ is$ usually$ because$

the$ heuristic$ “tricks”$ us$ into$ ignoring$ other$ factors.$ The$ assumption$ that$

training$ in$ formal$ decision$ theory$ or$ statistics$ could$ not$ thwart$ the$ effects$ of$

intuitions$was$ present$ in$ Kahneman$ and$ Tversky’s$ notion$ of$ the$ relationship$

between$intuition$and$other$kinds$of$reasoning$from$the$very$beginning$of$the$

Programme.$ The$ second$ to$ last$ page$ of$ “Belief$ in$ the$ Law$ of$ Small$ Numbers$

reads:$“Apparently,$acquaintance$with$formal$logic$and$with$probability$theory$

does$not$extinguish$erroneous$intuitions”$(Tversky$&$Kahneman,$1971$p.$109).$$

In$ “Belief$ in$ the$ Law$ of$ Small$ Numbers”$ Kahneman$ and$ Tversky$ also$ briefly$

discussed$what,$if$anything,$could$be$done$to$counteract$the$negative$effects$of$

intuition.$ Their$ suggestion$ was$ for$ researchers$ and$ students$ to$ learn$ to$

recognize$the$bias$and$take$the$necessary$precautions.$They$made$it$clear$in$the$

article$that$a$scientist’s$best$recourse$to$avoid$this$kind$of$fallacy$was$to$make$

use$ of$ statistical$ hypothesis$ testing:$ “Statistical$ tests$ […]$ protect$ the$ scientific$

community$ against$ overly$ hasty$ rejections$ of$ the$ null$ hypothesis$ (i.e.,$ Type$ 1$

$ 117$

error)$by$policing$its$many$members$who$would$rather$live$by$the$law$of$small$

numbers”$(Tversky$&$Kahneman,$1971$p.$106).$$

The$ only$ way$ to$ avoid$ deviation$ from$ formal$ logic$ was$ through$ careful$ and$

deliberate$ calculation,$ which$ should$ ideally$ also$ be$ made$ explicit,$ that$ is,$

included$in$the$final$report$of$the$analysis.$This$was$because$it$was$calculation$

that$allowed$one$to$‘see’$the$deviation$in$the$first$place.$Kahneman$and$Tversky$

became$ progressively$ less$ optimistic$ about$ human$ capacity$ to$ correct$ the$

biases.$ The$ beginning$ of$ their$ collaboration$ contains$ some$ statements$ to$ the$

effect$that$learning$may$be$an$option.$For$example$on$the$tendency$to$disregard$

sample$size$they$wrote:$$

We$surely$do$not$mean$to$imply$that$man$is$incapable$of$appreciating$the$impact$of$

sample$size$on$sampling$variance.$People$can$be$taught$the$correct$rule,$perhaps$

even$with$little$difficulty.$The$point$remains$that$people$do$not$follow$the$correct$

rule,$when$left$to$their$own$devices$(Kahneman$&$Tversky,$1972$p.$444).$

Their$ only$ previous$ experience$ investigating$ the$ representativeness$ heuristic,$

testing$its$presence$in$professional$psychologists,$had$already$taught$them$that$

a$statistical$education$was$not$enough$to$counter$the$effects$of$the$heuristic.$$

It$ was$ important$ for$ Kahneman$ and$ Tversky$ to$ maintain$ the$ stability$ and$

universality$of$the$heuristics$they$proposed$and$their$effects$in$order$to$cement$

the$ foundational$ premise$ of$ The$ Heuristics$ and$ Biases$ Programme.$ As$ such,$

evidencing$the$strength$of$the$heuristics$was$directly$tied$to$strengthening$the$

programme$ itself.$ Establishing$ the$ power$ of$ heuristics$was$ simultaneously$ to$

establish$the$power$of$psychological$knowledge$to$enhance$predictive$accuracy$

of$normatively$derived$models$of$decision$making.$Analysing$how$the$decisions$

made$served$to$strengthen$their$core$premise$helps$illuminate$the$way$in$which$

every$ stage$ of$ strengthening$ the$ core$ principles$ of$ the$ Heuristics$ and$ Biases$

Programme$was$simultaneously$a$move$toward$establishing$the$notion$that$the$

addition$ of$ psychological$ knowledge$ was$ the$ way$ to$ achieving$ additional$

descriptive$accuracy.$$

$ 118$

The$normative/descriptive$distinction$personified$

Jamie$CohenTCole$(2005)$has$written$a$study$on$the$reflexivity$of$psychologists,$

at$ the$ conceptual$ interim$of$behavioural$ and$ cognitive$psychology.$One$of$ the$

conclusions$ of$ CohenTCole’s$ analysis$ is$ that$ the$ psychological$ scientists$

conceptualised$the$subject$of$their$study$(the$human$mind)$as$ ‘layTversions’$of$

themselves,$ and$ that$ by$ extension$ collapsed$ the$ distinction$ between$ the$

scientific$ mind$ and$ the$ universal$ human$ mind.$ Thus$ they$ simultaneously$

conceptualised$ human$ nature$ based$ on$ their$ vision$ of$ themselves,$ while$

promoting$‘the$correct’$method$of$investigating$it,$transforming$their$discipline$

in$the$process.$The$‘normal$human’$thus$became$a$mirror$of$the$good$scientist:$$

To$those$who$insisted$that$thinking$could$not$be$explained$solely$by$conditioning,$

the$project$extended$beyond$the$claim$that$cognition$was$an$irreducible$aspect$of$

normal$human$nature.$Instead,$there$were$very$specific$modes$of$thought$that$they$

ascribed$ to$ the$normal$human:$human$ cognition$was$ supposed$ to$ operate$much$

like$ the$ thinking$ of$ a$ particular$ sort$ of$ person$ –$ the$ good$ scientist$ (CohenTCole,$

2005$p.$119).$

Kahneman$and$Tversky$took$the$method$of$comparing$the$scientist$and$the$layT

mind$ to$ an$ operational$ level.$ They$ would$ work$ together,$ giving$ themselves$

simple$decision$problems,$and$answering$them$as)lay)subjects.$They$deliberately$

invoked$ their$ own$ intuitions$ in$ order$ to$ then$ compare$ their$ preferences$with$

those$ required$ by$ formal$ decision$ rules.$ Knowing$ that$ they$ would$ have$ to$

confirm$ the$ convergence$ of$ their$ own$ intuitions$ with$ subjects$ in$ an$

experimental$setting,$they$could$nevertheless$feel$fairly$confident$in$the$results$

that$their$experiments$would$yield.$As$Kahneman$puts$it$“by$playing$the$roles$of$

both$ experimenters$ and$ subjects$we$were$ able$ to$move$ quickly”$ (Kahneman,$

2011$p.$271).$$

For$ the$ making$ of$ the$ Heuristics$ and$ Biases$ Programme,$ Kahneman$ and$

Tversky$ operationalised$ the$ normative/descriptive$ distinction.$ As$ an$

expression$ of$ the$ centrality$ of$ the$ normative/descriptive$ distinction$ in$ the$

Heuristics$and$Biases$Programme,$in$an$article$on$their$collaboration$from$1985$

Kahneman$ and$ Tversky$ are$ presented$ as$ embodiments$ of$ the$ dichotomy$

$ 119$

between$ intuition$ and$ formal$ reasoning.$ Kahneman$ becomes$ intuition$

personified,$while$Tversky$is$more$closely$associated$with$formal$reasoning.$

$The$ images$ below$ come$ from$ a$ 1985$ issue$ of$ the$ popular$ science$magazine$

Discover.$The$magazine$gives$a$hint$ that$by$ then$ the$ two$scholars$had$already$

come$to$personify$the$two$pillars$of$the$error$approach.$$

Figure$9:$Images$of$Kahneman$and$Tversky$from$Discover$Magazine$1985.$$

$

$

$

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$

$

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$ 120$

The$ caption$ for$ Tversky$ reads:$ “Tversky$ amid$ battlements$ of$ Jerusalem’s$ old$

city,$ a$ sharp$ mind,$ a$ brilliant$ mathematical$ thinker”$44$and$ for$ Kahneman:$

“Kahneman$studying$at$home$in$Vancouver.$Intuitive$–$the$worrier$of$the$two”$

(Discover$Magazine,$1985$(p.$24)$SG2,$S7,$B208,$F1543,$RAC).45$

The$ strategic$ placement$ of$ a$ statistics$ and$ an$ economics$ textbook$ in$ the$

background$ of$ Kahneman’s$ image$ is$ a$ good$ example$ of$ how$ the$ two$ were$

typecast$early$on$in$roles$that$have$been$repeated$regularly$in$oral$accounts$and$

interviews.$While$ it$was$ the$ case$ (as$mentioned$ in$ chapter$2)$ that$Kahneman$

lacked$Tversky’s$background$in$Decision$theory$and$Mathematical$Psychology,$

Kahneman’s$undergraduate$degree$was$a$major$ in$psychology$and$a$minor$ in$

mathematics.$His$interest$for$statistics$and$the$consequences$of$statistical$logic$

for$ the$measurement$ of$ psychological$ phenomena$was$ strong$ throughout$ his$

career$as$a$psychologist,$and$an$ important$ influence$ in$the$collaboration.$Both$

the$ images$ and$ their$ captions$ bear$ witness$ to$ the$ notion$ that$ they$ were$

somehow$ two$ halves$ of$ one$ whole,$ both$ with$ regard$ to$ their$ respective$

strengths$and$to$their$approach$to$psychology.$$

Kahneman$and$Tversky’s$approach$to$decision$making$did$not$change$markedly$

with$prospect$theory,$and$neither$did$their$choice$of$subject.$In$significant$ways,$

prospect$theory$was$a$continuation$of$their$work$to$add$descriptive$accuracy$to$

formal$decision$theory.$Expected$utility$theory,$as$the$product$of$von$Neumann$

and$ Morgenstern’s$ game$ theory$ was$ an$ established$ part$ of$ formal$ decision$

theory.$ It$was$also$very$much$part$of$Tversky’s$ repertoire$of$expertise$having$

written$his$PhD$on$the$subject.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

44$Tversky$was$considered$by$those$who$knew$him$to$be$a$very$clever$man.$Malcolm$Gladwell$

(who$never$met$Tversky$himself)$ in$ a$ footnote$ to$one$of$his$books$ relates$ a$ story$of$how$his$

friend$and$colleague$Adam$Alter$described$the$“Tversky$intelligence$test”$which$was$essentially$

“the$faster$you$realized$Tversky$was$smarter$than$you,$the$smarter$you$were”$(Gladwell,$2013,$

p.$170).$

45$This$connotation$of$“intuitive”$with$“worrier”$is$not$really$consistent$with$the$heuristics$and$

biases$ framework,$ it$ was$ most$ probably$ a$ journalistic$ move$ to$ superimpose$ Kahneman$ and$

Tversky’s$“characters”$on$to$the$parts$of$their$work$they$were$made$to$represent$in$the$article.$$

$

$ 121$

Instead,$ the$ significance$ of$ the$move$ to$ enrol$ expected$ utility$ theory$ into$ the$

Heuristics$and$Biases$Programme$was$that$it$effectively$mobilised$the$discipline$

of$ microTeconomics.$ On$ the$ 10th$ of$ December$ 2002$ in$ Stockholm,$ Sweden,$

psychologist$ Daniel$ Kahneman$ became$ the$ second$ ever$ nonTeconomist$ to$ be$

awarded$ the$Nobel$Memorial$Prize$ in$ the$Economic$Sciences.46$It$was$possible$

for$ the$ members$ of$ the$ economic$ sciences$ prize$ committee$ to$ select$ a$

psychologist$ as$ the$ recipient$ in$ 2002$ because$ the$ work$ he$ had$ done$ with$

colleague$ Amos$ Tversky$ on$ the$ psychology$ of$ decision$ making$ had$ 20$ years$

previously$been$mobilised$by$economists$to$form$the$discipline$of$behavioural$

economics.$ With$ prospect$ theory$ especially$ they$ managed$ to$ assert$ the$

importance$both$of$ ‘psychology’$ T$ the$psychology$of$ the$decision$maker$ in$ the$

form$ of$ heuristics$ in$ the$ decision$ making$ $ process$ and$ of$ ‘Psychology’$ T$ the$

corpus$of$knowledge$and$methods$for$empirical$data$gathering$encompassed$in$

the$discipline$of$psychology.47$The$following$chapter$is$the$story$of$how$a$group$

of$economists$and$psychologists$mobilised$Kahneman$and$Tversky’s$approach$

to$decision$making$by$applying$it$specifically$to$economic$decision$making.$$

$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

46$The$ first$ of$ its$ kind$ was$ awarded$ to$ Herbert$ Simon$ in$ 1978$ for$ his$ work$ on$ the$ decision$

making$processes$of$organizations.$

47$I have borrowed this way of distinguishing between ‘Psychology’ the discipline (with an upper case ‘P’) and ‘psychology’ (with a lower case ‘p’) to refer to its subject matter from (Richards, 2002).$

$ 123$

CHAPTER&4:"THE"MAKING"OF"THE"BEHAVIORAL*ECONOMICS*PROGRAM*(1984"1992)"!

In$ this$ chapter$ I$ chronicle$ the$ development$ of$ the$ Behavioral$ Economics$

Program$funded$first$by$the$Alfred$P.$Sloan$Foundation$and$later$jointly$with$the$

Russell$ Sage$ Foundation.$ The$ programme$ ran$ between$ 1984$ and$ 1992.$ The$

psychologists$ and$ economists$ who$ took$ part$ in$ the$ programme$ were$

instrumental$ in$ wielding$ the$ heuristics$ and$ biases$ approach$ for$ research$ in$

economic$ decision$ making.$ It$ is$ safe$ to$ say$ that$ without$ the$ SloanTSage$

Behavioral$ Economics$ Program$ there$ would$ have$ been$ no$ behavioural$

economics.$Almost$all$research$in$the$emergent$field$of$behavioural$economics$

was$either$directly$sponsored$by$the$programme,$or$indirectly$associated$with$

it,$through$the$recipients$of$Behavioral$Economics$Program$funding.)$

Behavioural$economists$were$well$ aware$ that$ the$ field$was$ less$ likely$ to$have$

been$ constructed$ at$ all$without$ the$ SageTSloan$ private$ funding.$ The$ declining$

resources$of$the$National$Science$Foundation$(NSF)$at$the$time,$combined$with$

the$ preferences$ of$ its$ economics$ panel$ to$ fund$ research$ that$ would$ produce$

mathematical$ models$ of$ neoclassical$ economic$ theory,$ made$ it$ difficult$ to$

receive$ funding$ for$ research$ that$ took$ a$ behavioural$ approach.$ Robert$ Shiller$

has$ commented$on$ the$ contrast$ between$NSF$ funding$ and$ Sloan/Russell$ Sage$

funding$ which$ is$ especially$ interesting$ since$ he$ served$ on$ the$ NSF$ panel$ for$

economics$ between$ 1983T85.$ According$ to$ Shiller,$ although$ there$ was$ some$

support$for$research$that$could$be$described$as$behavioural$during$his$time$on$

the$panel,$grants$for$behaviourally$oriented$projects$were$hard$to$argue$for$over$

more$“technically$impressive”$proposals:$$

the$standards$that$we$applied$were$probably$rather$high,$resulting$in$the$exclusion$

of$some$provocative$research$proposals.$Some$panel$members$were$in$the$habit$of$

disparaging$such$research,$suggesting$it$ is$“low$brow.”$It$turns$out$to$be$hard$for$

$ 124$

most$panel$members$ to$ argue$ for$ a$behavioral$ economics$ grant$when$ funding$ it$

requires$turning$down$some$members$of$the$profession$that$are$more$technically$

impressive,$ and$ when$ a$ few$ members$ of$ the$ panel$ were$ vaguely$ hostile$ to$ the$

behavioral$work$(Shiller,$Letter$ to$Wanner,$ June$5th,$1992,$SG2,$S7,$B196,$F1442,$

RAC).$$

The$ perception$ of$ a$ difference$ in$ status$ between$ behavioural$ research$ and$

mathematical$ modelling$ was$ a$ recurring$ theme$ in$ the$ evaluations$ of$ the$

progress$ of$ behavioural$ economics$ that$Wanner$ requested$ from$ recipients$ of$

funding$ within$ the$ Behavioral$ Economics$ Program.$ The$ low$ status$ of$

behavioural$ research$ was$ not$ the$ only$ barrier$ to$ national$ funding.$ The$

interdisciplinary$nature$of$the$field$also$meant$that$panels$of$funding$bodies$did$

not$ consider$ behavioural$ economics$ to$ fall$ within$ their$ remit.$ Behavioural$

economist$Colin$Camerer$(1959T)$referring$to$his$appointment$on$the$Decision,$

Risk$and$Management$Science$(DRMS)$panel$of$the$NSF$which$was$underway$at$

the$ time$ of$ his$ writing$ (1991T1993)$ argued$ that$ achieving$ approval$ for$

proposals$ like$ the$ ones$ funded$ by$ the$ Behavioral$ Economics$ Program$ was$

difficult$because$of$their$interTdisciplinarity:$$

unfairly$ judged$ by$ the$ DRMS$ panel$ because$ they$ have$ too$ much$ economics$

content,$and$by$the$economics$panel$because$they$are$too$behavioral.$Many$of$the$

projects$people$have$fruitfully$worked$on$under$RSF$auspices$would$not$have$got$

funded$ by$ the$ NSF$ because$ they$ fell$ between$ the$ cracks$ (Camerer,$ Letter$ to$

Wanner,$June$4th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

The$SloanTSage$behavioural$economics$programme$provided$crucial$funding$for$

behavioural$research$that$would$otherwise$have$had$to$be$ justified$ in$relation$

to$ other$ kinds$ of$ economic$ and$ psychological$ research$which$ at$ the$ time$ had$

greater$appeal$for$national$funding$bodies.$The$initial$impetus$of$the$Behavioral$

Economics$ Program$ can$ be$ found$ in$ Wanner,$ who,$ with$ his$ education$ in$

cognitive$psychology,$developed$the$idea$to$fund$the$practical$application$of$his$

field.$It$is$an$interesting$example$of$the$workings$of$the$sociology$of$knowledge$

making$ how$ this$ broadly$ conceived$ scheme$ gradually$ crystallized$ into$ a$ subT

discipline$of$economics.$$

$ 125$

My$ aim$ in$ this$ chapter$ is$ to$ show$ how$ the$ actions$ of$ the$ principle$ actors$

involved$ in$ the$programme,$most$ notably$Eric$Wanner$ (b.$ 1942)$ and$Richard$

Thaler$(b.$1945),$shaped$the$programme$and$through$the$programme,$the$field.$

I$draw$on$archival$data$ from$the$Rockefeller$Archive$Centre$(RAC)$to$build$an$

account$ of$ the$ shape$ that$ the$ programme$ participants$ intended$ behavioural$

economics$to$take.$In$addition$I$make$use$of$secondary$sources$on$the$history$of$

behavioural$economics$and$on$the$personal$accounts$of$Wanner$and$Kahneman$

given$to$me$in$interviews$that$I$conducted$with$them$in$2012.$$

The$ chapter$ is$ structured$ around$ what$ could$ be$ characterised$ as$ defining$

moments$ in$ the$ life$ of$ the$ programme.$ I$ begin$ with$ the$ story$ of$ how$ the$

programme$moved$from$idea$to$realization$at$the$Alfred$P.$Sloan$Foundation.$I$

then$ move$ on$ to$ narrating$ the$ process$ of$ enlisting$ Kahneman,$ Tversky$ and$

Thaler,$ and$ identifying$ and$ installing$ an$ advisory$ committee.$ The$ narrative$

continues$with$ a$discussion$ about$ the$ consequences$of$Wanner’s$move$ to$ the$

Russell$Sage$Foundation,$effectively$making$the$Behavioral$Economics$Program$

a$twoTfoundation$joint$venture.$$

In$ the$ second$ half$ of$ the$ chapter$ I$ discuss$ a$ set$ of$ strategies$ that$ reflect$ the$

challenges$ involved$ in$ creating$an$ interdisciplinary$ field$ and$which$ultimately$

gave$ it$ an$ exclusive$ character,$ funding$ a$ core$ set$ of$ scholars$ who$ were$

considered$to$be$well$enough$versed$in$both$economic$theory$and$psychological$

methods$ to$ successfully$ do$ the$work$ required$ of$ a$ discipline$ like$ the$ kind$ of$

behavioural$ economics$ that$ Thaler,$ Kahneman,$ Wanner$ and$ his$ advisory$

committee$ envisioned.$ These$ strategies$ involved$ the$ use$ of$ requests$ for$

proposals$ (RFPs)$ to$ solicit$ projects$ and$ the$ formation$of$working$groups$ as$ a$

method$of$uniting$scholars$across$disciplinary$divides.$$

The$Launch$of$the$Behavioral$Economics$Program$$

The$ Behavioral$ Economics$ Program$ was$ the$ brainchild$ of$ Eric$ Wanner,$ vice$

president$ at$ the$Alfred$P.$ Sloan$Foundation$ (1982T1986)$and$president$ at$ the$

Russell$Sage$Foundation$(1986T2013).$Wanner$completed$his$doctoral$research$

$ 126$

(1967T1969)$ within$ the$ field$ of$ experimental$ psycholinguistics$ on$ cognitive$

models$of$ language$comprehension$at$ the$now$prestigious$Harvard$University$

Center$ for$ Cognitive$ Studies$ under$ the$ supervision$ of$ cognitive$ psychologist$

George$ Miller$ (1920T2012).48$Miller$ had$ coTfounded$ the$ centre$ with$ fellow$

psychologist$ Jerome$ Bruner$ in$ 1960$ with$ a$ view$ to$ establishing$ an$

interdisciplinary$ institution$of$nonTbehaviourist$cognitive$science$(CohenTCole,$

2007).$ Having$ completed$ his$ doctoral$ degree,$ Wanner$ began$ his$ academic$

career$working$as$a$lecturer$of$psychology$first$at$first$Harvard$University,$then$

Rockefeller$ University,$ and$ finally$ at$ the$ University$ of$ Sussex,$ publishing$

research$which$continued$in$the$psycholinguistic$vein$of$his$doctoral$thesis$(e.g.$

Wanner,$1973,$1975,$1980;$Wanner$&$Shiner,$1976).$$

In$ 1976$ Wanner$ took$ a$ position$ as$ editor$ for$ the$ Harvard$ University$ Press$

where$he$ founded$a$book$series$on$contemporary$cognitive$science$called$ the$

Cognitive$ Science$ Series.$ The$ purpose$ of$ the$ book$ series$ was$ to$ produce$ a$

general$ review$ of$ current$ approaches$ in$ the$ cognitive$ sciences$ (Heukelom,$

2014). 49 $During$ his$ time$ as$ editor$ Wanner$ managed$ to$ put$ together$ an$

impressive$group$of$ scholars$ for$his$editorial$board$consisting$of$a$ total$of$47$

members,$including$Noam$Chomsky,$Jerry$Fodor,$Lila$Gleitman,$Hilary$Putnam,$

John$Searle,$and$his$ former$supervisor$George$Miller.$The$board$also$ included$

three$members$who$would$later$come$to$have$a$significant$involvement$in$the$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

48$In$the$last$year$of$working$on$his$doctoral$thesis,$Wanner$was$instead$assigned$to$supervisor$

Roger$Brown$another$psycholinguist$at$the$University,$Miller$having$left$to$fill$a$position$at$the$

Rockefeller$University.$However,$the$majority$of$the$thesis$was$supervised$by$Miller$(Heukelom,$

2012).$$

49$Nine$books$were$published$over$a$tenTyear$span$(from$1979T1989)$(Heukelom,$2014).$

$ 127$

Behavioral$ Economics$ Program:$ Robert$ Abelson$ (1928T2005),$ Daniel$

Kahneman$and$Amos$Tversky.50$$

In$ 1982,$Wanner$moved$ on$ to$ become$ a$ programme$ officer$ for$ the$ Alfred$ P.$

Sloan$Foundation.$At$ the$ time$that$Wanner$was$hired$at$ the$Sloan$Foundation$

its$acting$president$was$ labour$economist$Albert$Rees$(1921T1992).$Rees$who$

had$ taken$office$ in$1979$ shared$with$Wanner$ an$ interest$ in$ interTdisciplinary$

work$ and$ policymaking$ and$ in$ 1982$ he$ recruited$ Wanner$ to$ take$ over$ as$

programme$director$of$the$foundation’s$Cognitive$Science$Program$(Heukelom,$

2014).$ By$ then$ the$ programme$ had$ already$ been$ running$ for$ ten$ years$ and$

supervising$its$progress$was$not$the$most$stimulating$task$from$Wanner’s$point$

of$view.51$$

Wanner’s$ first$ proposal$ for$ a$ new$ programme$ at$ the$ Sloan$ Foundation$ was$

wider$ in$ scope$ than$ its$ subsequent$ realisation$ in$ the$ form$ of$ the$ Behavioral$

Economics$Program.$52$Sloan$foundation$president$Albert$Rees$urged$Wanner$to$

narrow$the$scope$of$the$initiative,$informing$him$that$a$project$which$aimed$to$

fund$ research$ on$ the$ application$ of$ cognitive$ psychology$ to$ decision$ making$

generally$ would$ be$ too$ costly.$ After$ some$ initial$ exploration$ of$ possibilities,$

Wanner$had$a$choice$between$two$areas$of$research$which$he$spelled$out$ in$a$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

50$The$ complete$ list$ of$ members$ of$ the$ editorial$ board$ is$ as$ follows:$ Robert$ Abelson,$ John$

Anderson,$Ned$Block,$Daniel$Bobrow,$Gordon$Bower,$ Joan$Bresnan,$Ann$Brown,$Roger$Brown,$

Susan$ Carey,$ Wallace$ Chafe,$ Noam$ Chomsky,$ Eve$ Clark,$ Herbert$ Clark,$ Michael$ Cole,$ Roy$

D’Andrade,$Donald$Davidson,$Charles$Fillmore,$Jerry$Fodor,$Donald$Foss,$Merrill$Garrett,$Rochel$

Gelman,$ Lila$ Gleitman,$ Marshall$ Haith,$ Gilbert$ Harman,$ Janellen$ Huttenlocher,$ Jerome$ Kagan,$

Daniel$ Kahneman,$ Ronald$ Kaplan,$ William$ Kessen,$ Walter$ Kintsch,$ Stephen$ Kosslyn,$ George$

Miller,$Ulric$Neisser,$Donald$Norman,$Daniel$Osherson,$Barbara$Hall$Partee,$Hilary$Putnam,$Lee$

Ross,$ David$Rumelhart,$ John$ Searle,$Marilyn$ Shatz,$ Dan$ Slobin,$ Edward$ Smith,$ Ann$Treisman,$

Amos$Tversky,$David$Waltz$and$Patrick$Winston$(Keil,$1979).$

51$This$was$the$reason$Wanner$indicated$in$his$interview$for$wishing$to$head$up$a$project$of$his$

own$(Wanner,$Interview$with$the$author,$April$23rd,$2014).$

52$Wanner$initially$wanted$to$spend$in$the$region$of$20$million$US$dollars$on$the$programme.$

$ 128$

letter$to$psychologist$Baruch$Fischoff:53$“the$application$of$cognitive$methods$of$

studying$ human$ decision$ to$ practical$ decision$ problems$ and$ decision$ aid$

technology”$ and$ “quite$ distinct$ from$ this,$ work$ that$ might$ be$ called$ the$

psychological$ foundations$ of$ economic$ behavior”$ (Wanner,$ Letter$ to$ Fischoff,$

January$26th,$1983,$SG2,$S7,$B198,$F1454,$RAC).$Wanner’s$considerations$as$to$

the$best$option$for$the$foundation$were$also$spelled$out$in$his$letter:$$

Both$areas$are$appealing$but$they$pose$very$different$problems$from$the$point$of$

view$ of$ the$ foundation’s$ commitment.$ In$ the$ case$ of$ economics,$ the$ field$ seems$

underpopulated$ and$ a$ bit$ illTstructured$ (if$ structure$ isn’t$ already$ too$ strong$ a$

term).$ As$ for$ the$ applied$ study$ of$ human$ decision,$ there$ seems$ to$ be$ many$

interested$ parties$ (both$ industrial$ and$ federal)$ that$ it$may$ be$ difficult$ to$ find$ a$

good$niche$for$the$Foundation$(Wanner,$Letter$to$Fischoff,$January$26th,$1983,$SG2,$

S7,$B198,$F1454,$RAC).$$

Wanner$finally$settled$on$research$focused$on$the$application$of$the$psychology$

of$ decision$making$ to$ economic$ decisions.$ Knowing$ that$ the$ direction$ he$ had$

chosen$ would$ involve$ dealing$ with$ the$ challenges$ he$ had$ already$ identified$

(that$ the$ field$was$ underpopulated$ and$ illTstructured),$ the$ task$ of$ identifying$

potential$grantees,$critical$for$the$success$of$any$grantTmaking$scheme,$became$

especially$so$for$what$was$to$become$the$Behavioral$Economics$Program.$$

Populating$the$field:$Kahneman,$Tversky$and$Thaler$$

The$first$crucial$task$for$Wanner$in$realising$his$new$funding$programme$was$to$

locate$ the$ right$ people$ for$ the$ job.$ The$ result$ was$ an$ initial$ focus$ to$ recruit$

“open$ minded”$ economists$ and$ psychologists$ who$ had$ drive$ enough$ for$ an$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

53$Fischoff$ eventually$ played$ a$ relatively$ active$ part$ in$ the$ Behavioral$ Economics$ Program.$

Fischoff$was$already$familiar$with$Kahneman$and$the$Heuristics$and$Biases$Programme,$having$

gone$from$the$US$where$he$was$born,$completing$his$B.Sc.$at$Wayne$State$University,$to$Israel$to$

first$live$on$a$Kibbutz$for$three$years$(1967T1970)$only$to$move$on$to$work$for$Kahneman$as$a$

research$ assistant$ (1971T1972)$ and$ eventually$ complete$ a$ PhD$ at$ the$ Hebrew$ University$ of$

Jerusalem$in$1975.$

$ 129$

interTdisciplinary$undertaking.54$They$also$needed$ to$be$capable$of$gaining$ the$

skills$ necessary$ to$ apply$ psychological$ methods$ of$ empirical$ investigation$ to$

microTeconomic$ theory$ in$ a$ similar$ vein$ to$what$ Kahneman$ and$ Tversky$ had$

done$to$produce$Prospect$Theory.$$

Kahneman$and$Tversky$were$the$first$to$be$approached$by$Wanner$concerning$

his$ idea.$ He$ was$ familiar$ with$ Kahneman’s$ work$ on$ attention$ and$ semantic$

differentials$ from$ the$ time$ of$ his$ doctorate.$ As$ I$ mention$ above,$ he$ had$ also$

worked$ indirectly$with$both$Kahneman$and$Tversky,$both$of$ them$serving$on$

the$advisory$board$of$his$Cognitive$Science$Series$at$Harvard,$as$noted$above.$$

In$hindsight$it$is$tempting$to$conceive$of$the$creation$of$prospect$theory$and$its$

deliberate$reworking$of$utility$theory,$discussed$in$the$previous$chapter,$as$the$

primary$ catalyst$ of$ behavioural$ economics.$ But$ Kahneman$ and$ Tversky$

understood$prospect$theory$as$another$contribution$in$a$line$of$work$focused$on$

deviations$ from$ a$ set$ of$ statistical$ norms,$ not$ primarily$ as$ a$ critique$ of$ neoT

classical$ economics.$ It$ was$ the$ participants$ in$ the$ behavioural$ economics$

programme$ (with$Wanner$ and$ Thaler$ at$ the$ helm)$ that$ began$ the$ process$ of$

making$ use$ of$ the$ heuristics$ and$ biases$ approach$ to$ revise$ the$ discipline$ of$

economics$from$within.$$

This$is$not$to$deny$that$the$Heuristics$and$Biases$Programme$was$in$some$ways$

integral$ in$ the$ initial$ stages$ of$ the$ Behavioral$ Economics$ Program.$ Wanner$

knew$of$prospect$theory,$and$presumably$considered$the$work$to$suit$the$brief$

that$ he$ was$ working$ toward.$ He$ approached$ Kahneman$ and$ Tversky$ at$ a$

meeting$of$the$Cognitive$Science$Society$at$Rochester$University$in$1982.$There$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

54$I$use$the$word$“open$minded”$here$because$it$is$the$word$that$Wanner$used$in$our$interview$

while$we$were$discussing$opposition$to$behavioural$economics$from$proponents$of$the$Chicago$

School$ and$ the$ idea$ that$ Wanner$ guessed$ to$ be$ Thaler’s,$ that$ recipients$ of$ the$ Behavioral$

Economics$ Programme$ do$ their$ best$ to$ engage$ with$ mainstream$ economists.$ In$ light$ of$ the$

success$of$prospect$ theory,$ although$publishing$ in$mainstream$economic$ journals$was$harder$

Wanner$ recollects$ “I$ think$ that$ led$us$ to$believe$ [that]$ if$we$get$ the$psychology$ right$ some$of$

them$will$ be$ open$minded$ enough$ to$ read$ it”$ (Wanner,$ Interview$with$ the$ author,$April$ 23rd,$

2014).$$

$ 130$

he$ presented$ them$with$ his$ idea$ (Heukelom,$ 2014).$ Initially,$ both$ Kahneman$

and$Tversky$were$sceptical:$

We$ thought$ that$ there$was$no$way$ to$ “spend$a$ lot$of$money$honestly”$on$such$a$

project,$because$ interest$ in$ interdisciplinary$work$could$not$be$coerced.$We$also$

thought$that$it$was$pointless$to$encourage$psychologists$to$make$themselves$heard$

by$ economists,$ but$ that$ it$ could$ be$ useful$ to$ encourage$ and$ support$ the$ few$

economists$who$were$interested$in$listening$(Kahneman,$2002).55$$

Someone$who$could$certainly$be$considered$one$of$“those$few$economists$who$

were$interested$in$listening”$was$economist$Richard$Thaler.$The$first$ever$grant$

within$the$scope$of$the$Behavioral$Economics$Program$was$awarded$in$1983$for$

the$then$38$year$old$Thaler$to$spend$a$year$as$a$visiting$scholar$at$the$University$

of$ British$ Columbia$ where$ Kahneman$ was$ working$ at$ the$ time.$ It$ was$

Kahneman$and$Tversky$who$had$initially$directed$Wanner$to$Thaler$(Heukelom,$

2014).$

In$more$ways$than$one,$Thaler$would$have$come$across$as$the$perfect$candidate$

for$the$initial$stages$of$the$programme.$He$was,$at$the$time,$a$rare$example$of$a$

young$scholar$who$had$trained$as$an$economist$and$who$had$come$across$and$

taken$an$interest$ in$the$Kahneman/Tversky$collaboration.$As$early$as$1977$he$

had$applied$for$and$been$granted$a$visiting$scholarship$at$the$Stanford$branch$of$

the$ National$ Bureau$ of$ Economic$ Research$ next$ door$ to$ where$ he$ knew$

Kahneman$ and$ Tversky$ would$ be$ working$ at$ the$ university’s$ Center) for)

Advanced)Studies.$Thaler$had$acquired$a$draft$of$the$then$unpublished$article$on$

prospect$ theory$ from$ Howard$ Kunreuther$ (b.$ 1938)$ the$ year$ before$ (Thaler,$

2015).$$

The$heuristics$ and$biases$ approach$ appears$ to$ have$had$ a$ profound$ effect$ on$

Thaler.$ In$ an$ interview$ for$ the$Chronicle$ of$Higher$Education,$Thaler$ tells$ the$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

55$Kahneman’s$comments$to$me$in$our$interview$provided$further$support$for$this$statement:$“I$

remember$ telling$him$two$ things:$ that$ it$wasn’t$a$ field$where$you$could$spend$a$ lot$of$money$

honestly$[...]$And$that$he$should$not$support$psychologists$who$wanted$to$transform$economics,$

but$ if$ there$ are$ economists$ who$ were$ interested$ in$ psychology,$ he$ should$ support$ them”$

(Kahneman,$Interview$with$the$author,$April$29th,$2014).$$

$ 131$

interviewer$ about$ how$ captivating$ he$ had$ found$ the$ Tversky$ and$ Kahneman$

1974$ paper$ “Judgment$ Under$ Uncertainty:$ Heuristics$ and$ Biases”$ (Goldstein,$

2011).$The$interview$depicts$Thaler’s$encounter$with$heuristics$and$biases$as$a$

near$damascene$conversion.$56$The$intensity$of$his$sense$of$revelation$is$echoed$

in$Thaler’s$own$writing:$“As$I$read,$my$heart$started$pounding$the$way$it$might$

during$the$ final$minutes$of$a$close$game.$The$paper$took$me$thirty$minutes$to$

read$from$start$to$finish,$but$my$life$had$changed$forever”$(Thaler,$2015,$p.$22).$$

The$heuristics$and$biases$approach$provided$a$framework$for$Thaler$to$explore$

a$series$of$what$he$had$already$found$to$be$inconsistencies,$or$puzzles$of$neoT

classical$ rationalism.$ Having$ familiarised$ himself$ with$ both$ heuristics$ and$

biases$and$prospect$theory,$he$applied$this$newfound$approach$to$a$selection$of$

these$ puzzles$ in$ an$ article$ entitled$ “Toward$ a$ Positive$ Theory$ of$ Consumer$

Choice”)drafted$in$1978$and$published$in$1980$(Thaler,$1980).$$

This$ article$ can$ be$ legitimately$ considered$ a$ milestone$ in$ the$ history$ of$ the$

making$ of$ behavioural$ economics$ because$ it$ was$ the$ first$ work$ in$ which$ an$

economist$ had$ deliberately$ applied$ the$ heuristics$ and$ biases$ framework$ to$ a$

series$of$ topics$where$ the$ rational$maximizing$model$of$ consumer$ choice$had$

been$ applied.$ In$ particular$ Thaler$ makes$ use$ of$ the$ normative/descriptive$

distinction,$with$the$subtle$distinction$that$the$predictable$errors$produced,$are$

claimed$ to$ be$ produced$ by$ economists$ through$ the$ conflation$ of$ the$

normative/descriptive$distinction:$$

Economists$ rarely$ draw$ the$ distinction$ between$ normative$models$ of$ consumer$

choice$ and$ descriptive$ or$ positive$ models.$ Although$ the$ theory$ is$ normatively$

based$ (it$ describes$what$ rational$ consumers$ should$ do)$ economists$ argue$ that$ it$

also$ serves$well$ as$ a$ descriptive$ theory$ (it$ predicts$what$ consumers$ in$ fact$ do).$

This$ paper$ argues$ that$ exclusive$ reliance$ on$ the$ normative$ theory$ leads$

economists$ to$ make$ systematic,$ predictable$ errors$ in$ describing$ or$ forecasting$

consumer$choices$(Thaler,$1980,$p.$39).$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

56$The$ Damascene$ conversion$ is$ an$ apt$ analogy$ especially$ as$ Thaler$ has$ long$ acted$ like$

something$of$an$apostle$of$behavioural$economics,$and$still$does.$$

$ 132$

Thus$ Thaler$ made$ the$ problem$ of$ descriptive$ deviations$ from$ normative$

economic$ models$ of$ consumer$ choice$ into$ a$ problem$ not$ so$ much$ for$ the$

consumers$ themselves,$ but$ for$ economists$ who$ assume$ a$ straightforward$

correlation$ between$ the$ normative$ and$ the$ descriptive.$ The$ reason$ it$ is$ a$

problem$ is$ because$ the$ lack$ of$ descriptive$ validity$ of$ normative$models$ leads$

economists$to$make$systemic$errors$of$prediction$of$actual$behavior.$$

Thaler’s$ aim$ is$ to$ use$ instances$ where$ the$ normative$ models$ fail$ to$ make$

accurate$predictions$of$actual$behaviour$ to$ suggest$ways$ in$which$economists$

can$make$changes$ to$ their$models$ to$ improve$on$ their$predictive$powers.$For$

this$project$(on$improving$the$predictive$validity$of$the$models)$he$makes$use$of$

prospect$ theory.$ He$ also$ interestingly$makes$ use$ of$ Kahneman$ and$ Tversky’s$

strategy$ of$ presenting$ his$ choice$ problems$ in$ the$ form$ of$ anecdotes.$ He$ is$

explicit$about$his$reasons$for$this:$$

several$ types$ of$ predicted$ errors$ in$ the$ normative$ theory$ are$ discussed.$ Each$ is$

first$illustrated$by$an$anecdotal$example.$These$examples$are$intended$to$illustrate$

the$behavior$under$discussion$ in$a$manner$ that$appeals$ to$ the$ reader’s$ intuition$

and$ experiences.$ I$ have$ discussed$ these$ examples$ with$ hundreds$ of$ friends,$

colleagues,$ and$ students.$ Many$ of$ the$ examples$ have$ also$ been$ used$ as$

questionnaires$ TT$ I$ can$ informally$ report$ that$a$ large$majority$of$nonTeconomists$

say$they$would$act$in$the$hypothesized$manner.$Yet$I$am$keenly$aware$that$more$

formal$tests$are$necessary$(Thaler,$1980,$p.$40).$$

In$ the$ article,$ Thaler$ explores$ a$ series$ of$ what$ he$ calls$ “mental$ illusions”$ T$

borrowing$ the$ term$ “illusion”,$ from$ Kahneman$ and$ Tversky’s$ terminology$ of$

cognitive$ illusions$ for$ some$ of$ the$ biases$ that$ they$ had$ reported.$ One$ such$

illusion$for$Thaler$was$the$phenomenon$that$economic$subjects$often$placed$a$

higher$value$on$an$object$in$their$possession$than$they$would$on$acquiring$it$in$

the$first$place,$or$replacing$the$object$if$they$lost$it.$$

This$ goes$ against$ the$ principles$ of$ rational$ economic$ theory$ because$

estimations$of$value$should$not$be$affected$by$the$way$in$which$an$object$came$

into$a$consumer’s$possession.$$

$ 133$

Thaler$called$this$phenomenon$‘the$endowment$effect’,$providing$evidence$for$it$

in$ hypothetical$ experiments$ involving$ bottles$ of$ wine.$ The$ endowment$ effect$

was$an$application$of$Kahneman$and$Tversky’s$ framing$effects.$ So$Thaler$had$

already$ begun$ compiling$ examples$ of$ deviations$ from$ standard$ economic$

theory.$ Heuristics$ and$ biases,$ together$ with$ its$ approach$ to$ the$

normative/descriptive$ distinction,$ gave$ Thaler$ a$ framework$ to$ tie$ together$

instances$ of$ departures$ from$ neoTclassical$ economic$ theory.$ In$ other$ words,$

Thaler$ was$ already$ doing$ the$ type$ of$ work$ that$ Kahneman$ and$ Tversky$ had$

been$doing,$with$specific$ implications$for$economic$models.$Thaler$had$trained$

as$ an$ economist,$ which$ meant$ that$ his$ work$ was$ already$ naturally$ geared$

toward$ economic$ decisions.$ In$ his$ Nobel$ autobiography$ Kahneman$ calls$what$

Thaler$was$doing$“one$question$economics”$to$indicate$that$Thaler$was$already$

approaching$microeconomic$ phenomena$ like$ a$ psychologist$ studying$ decision$

making,$ writing:$ “Dick$ had$ independently$ developed$ the$ skill$ of$ doing$ oneT

question$economics”$(Kahneman,$2002).$$

Heuristics$and$biases$also$gave$Thaler$an$alternative$to$experimental$economics$

and$the$kind$of$work$that$economists$like$Vernon$Smith$(b.$1927)$were$doing$at$

the$time$(I$discuss$the$difference$between$Smith’s$programme$of$experimental$

psychology$and$heuristics$and$biases$ inspired$behavioural$ economics$ in$more$

detail$ in$ chapter$ 5).$ Thaler$ preferred$ the$ heuristics$ and$ biases$ approach$ to$

SmithTstyle$experimental$economics$because$he$ found$ it$ to$be$more$critical$of$

the$ rationality$ principle.$ Wanting$ to$ work$ more$ closely$ with$ Kahneman$ and$

Tversky,$ he$ managed$ to$ obtain$ a$ position$ at$ Stanford,$ next$ to$ the$ Center) for)

Advanced)Studies$in$the$summer$of$1977,$mentioned$above,$and$was$from$then$

on$committed$to$the$behavioural$study$of$economics$in$a$heuristics$and$biases$

fashion$(Thaler,$2015).$$

At$ the$ very$ beginning$ of$ the$ Sloan$ Behavioral$ Economics$ Program$ it$ quite$

naturally$included$Thaler,$Kahneman$and$Tversky.$The$board$of$trustees$of$the$

Alfred$P.$Sloan$Foundation$approved$a$programme$ for$behavioural$economics$

of$ 250$ 000$ dollars$ for$ the$ first$ year$ in$ June$ 1984.$ The$ first$ official$ steps$ in$

setting$ up$ the$ programme$ involved$ Wanner$ and$ Rees$ together$ creating$ an$

$ 134$

advisory$ committee$ to$ review$ proposals$ and$ make$ decisions$ on$ grants.$ To$

maintain$ the$ interdisciplinary$nature$of$ the$programme$and$ to$ create$balance$

between$ representatives$ of$ each$ discipline,$ they$ decided$ that$ the$ committee$

should$ consist$ of$ two$ psychologists$ and$ two$ economists.$ The$ difficulty$ lay$ in$

finding$ four$ individuals$ who$ had$ enough$ interest$ and$ knowledge$ of$ both$

disciplines$ to$ judge$ the$ value$ of$ any$ prospective$ research$ proposals.$ The$

committee$ was$ eventually$ formed$ with$ psychologists$ Leon$ Festinger$ (1919T

1989)$ and$ Robert$ Abelson$ (1928T2005)$ and$ economists$ Thomas$ Schelling$

(b.1921)$and$William$Baumol$(b.1922).$$

The$ advisory$ committee$ to$ the$ new$ behavioural$ economics$ program$ was$

officially$ installed$ in$ the$ summer$ of$ 1984.$ Their$ first$ task$was$ to$ review$ two$

early$proposals$for$grants,$one$of$which$was$to$fund$Thaler’s$sabbatical$to$spend$

a$ year$ working$ with$ Kahneman$ at$ the$ University$ of$ British$ Columbia,$

Vancouver.$ As$ mentioned$ above,$ Thaler’s$ proposal$ was$ approved.$ Thaler$

quickly$ became$ a$ central$ character$ in$ the$ Behavioral$ Economics$ Program.$

Throughout$the$programme$Thaler$developed$close$collaborative$relationships$

and$ friendships$ with$ Kahneman$ and$ Wanner$ in$ particular.$ In$ the$ period$

between$1982$and$1983,$when$Wanner$was$still$considering$funding$either$the$

cognitive$ study$ of$ economic$ decisions$ or$ decision$ aid$ research,$ he$ met$ with$

Kahneman,$Tversky$and$Thaler$a$few$times$in$varying$constellations$to$discuss$

the$possibility$of$a$programme$of$behavioural$economics.$The$decision$made$by$

the$ advisory$ committee$ to$ fund$ Thaler$ to$ spend$ a$ sabbatical$with$ Kahneman$

was$confirmation$of$ their$view$that$encouraging$collaboration$between$Thaler$

and$ Kahneman$ would$ be$ crucial$ for$ the$ success$ of$ the$ programme.$ Robert$

Abelson’s$remarks$in$a$letter$to$Wanner$illustrates$the$sentiment:$

Getting$ Thaler$ and$ Kahneman$ together$ is$ bound$ to$ produce$ progress.$ Their$

teamwork$ could$ be$ as$ seminal$ as$ the$ Tversky$ and$ Kahneman$ pairing$ (Abelson,$

Letter$to$Wanner,$July$26th,$1984,$SG2,$S7,$B198,$F1454,$RAC).$$

The$enthusiastic$ support$ for$ the$Kahneman$and$Thaler$collaboration$was$also$

an$expression$of$the$general$attitude$of$the$advisory$committee$that$the$success$

$ 135$

of$ the$ field$ would$ at$ its$ core$ depend$ on$ successful$ collaborations$ between$

economists$ and$ psychologists$ in$ order$ to$ address$ a$ deficit$ in$ knowledge$ on$

either$side$of$the$disciplinary$divide.$For$psychologists,$this$deficit$consisted$of$

neoTclassical$theory$and$for$economists$of$the$experimental$method$in$general$

and$the$experimental$methods$used$for$the$study$of$psychological$phenomena$

in$particular.$$

Rationality$principle$on$trial$

Another$proposal$on$the$table$for$the$recently$installed$advisory$committee$was$

to$fund$a$conference$organized$by$labour$economist$Melvin$Reder$(1919T2016)$

and$psychologist$Robin$Hogarth$(b.$1942)$on$the$behavioural$underpinnings$of$

the$rationality$principle$of$economics.$At$the$time$both$Hogarth$and$Reder$were$

employed$ at$ the$ University$ of$ Chicago.$ Hogarth$ had$ in$ a$ letter$ to$ Wanner$

explained$ the$ theme$ to$ be$ the$ “scientific$ value”$ of$ the$ rationality$ principle:$

“What$ is$ the$ scientific$ tradeToff$ between$ maintaining$ an$ approximate$

assumption$ about$ reality$ versus$ trying$ to$ understand$ behavior$ in$ greater$

complexity?”$(Hogarth,$Letter$to$Wanner,$April$10th,$1984,$SG2,$S7,$B198,$F1454,$

RAC).$$

Hogarth,$ speaking$ for$himself$ and$Reder,$ considered$ this$ to$ lie$at$ the$heart$of$

the$ difference$ between$ psychological$ and$ economic$ approaches$ to$ behaviour.$

Where$ the$ rationality$principle$was$undoubtedly$useful$ in$ the$ construction$of$

complex$mathematical$modelling$ of$micro$ economic$ theory,$ the$ tradeToff$was$

the$ realism$ and$ the$ verisimilitude$ that$ the$ study$ of$ actual$ human$ behaviour$

could$provide.$$

While,$ as$ mentioned,$ the$ proposal$ to$ fund$ Thaler’s$ sabbatical$ was$ approved$

with$ some$ enthusiasm,$ funding$ for$ the$ conference$was$ declined.$57$Regardless,$

the$conference$went$ahead$as$planned$between$the$13th$and$the$15th$of$October$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

57$This$is$a$little$ironic$considering$behavioural$economics$advisory$committee$member,$Robert$

Abelson$ended$up$presenting$a$paper$at$the$conference.$$

$ 136$

1985$ at$ the$ University$ of$ Chicago$ with$ funding$ from$ the$ Irving$ B.$ Harris$

Foundation.58$$

Rees$and$Wanner$both$attended$the$conference$which$turned$out$to$be$quite$the$

landmark$ for$ the$ behavioural$ economics$ community.$ The$ conference$ was$

entitled$The)Behavioral)Foundations)of)Economic)Theory$and$its$explicit$aim$was$

to$ bring$ together$ psychologists$ and$ economists$ to$ discuss$ the$ neoTclassical$

rationality$principle$in$light$of$the$growth$in$evidence$of$descriptive$departures$

from$ it,$ and$ to$ develop$ further$ collaboration$ between$ economists$ and$

psychologists$conducting$research$in$the$field$(Hogarth$and$Reder,$1986).$$

The$ conference$ consisted$ of$ four$ sessions:$ 1)$ Rationality$ in$ Psychology:$ the$

contrast$ with$ economics,$ 2)$ Experimental$ Evidence$ on$ the$ Rationality$ of$

Decision$Makers,$ 3)$ The$ Nature$ and$ Necessity$ of$ the$ Rationality$ Postulate$ in$

Economic$ Theory,$ and$ 4)$ Behavioral$ Rationality$ in$ Finance:$ Theory$ and$

Anomalies.$Each$day$was$also$capped$by$a$panel$discussion.$$

In$ retrospect$ the$ conference$was$a$pivotal$ event$ in$ the$history$of$behavioural$

economics.$ It$ functioned$ as$ a$ kind$ of$ debut$ for$ the$ emerging$ behavioural$

economics$ community.$ As$ Thaler$ quite$ wittily$ puts$ it,$ the$ conference$ was$

behavioural$economics’$“first$major$public$hearing”$(Thaler,$2015,$p.$160).$The$

aims$ and$ the$ themes$ together$made$ a$ statement$ about$ the$ application$ of$ the$

psychology$ of$ the$ economic$ decision$ maker$ specifically$ to$ neoTclassical$

economic$theory$as$a$potentially$independent$field$of$research.$The$conference$

showcased$the$core$issues:$the$potential$of$collaboration$between$psychologists$

and$economists$despite$perceived$differences,$the$value$of$experimentation,$the$

descriptive$ failure$ (or$ not)$ of$ the$ neoTclassical$ rationality$ postulate,$ and$ the$

potential$for$application$of$behavioural$approaches$to$finance.$$

The$ first$ session$was$a$ talk$by$Herbert$ Simon$on$ the$ concept$of$ rationality$ in$

economics$ contrasted$with$ the$ concept$ of$ rationality$ in$ psychology$ for$which$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

58$The$ conference$ proceedings$ were$ published$ in$ a$ supplement$ to$ the$ Journal$ of$ Business$ in$

October$of$the$following$year.$$

$ 137$

Thaler$was$ a$discussant.$ It$was$ followed$by$one$on$ experimental$ evidence$on$

the$ rationality$ of$ decision$ makers$ led$ by$ Tversky$ and$ Kahneman.$ The$

conference$played$a$part$in$resurrecting$interest$in$psychological$aspects$of$the$

economic$ decision$ maker.$ There$ were$ a$ total$ of$ 61$ registered$ participants.$

Apart$ from$ the$ conference$ organisers$ these$ included$ among$ others$ Hillel$

Einhorn$ (1941T1987),$ Jack$Knetsch$ (b.$ 1933),$ Charles$ Plott$ (b.1938),$Howard$

Kunreuther$(b.$1938),$Kenneth$Arrow$(b.$1921),$Richard$Zeckhauser$(b.$1940),$

Robert$Shiller$(b.$1946),$in$addition$to$Kahneman,$Tversky$and$Thaler.59$$

As$ the$stated$aim$of$ the$conference$was$ to$question$ the$scientific$value$of$ the$

rationality$ principle,$ it$was$ really$ a$ conference$ about$ the$ extent$ to$which$ the$

psychology$ of$ the$ economic$ decision$ maker$ was$ relevant$ to$ the$ study$ of$

economics.$ The$ conference$ became$ a$ sort$ of$ first$ battle$ over$ rationality.$ The$

University$of$Chicago$was$home$to$many$senior$neoTclassical$economists,$some$

of$whom$were$in$attendance.$$

The$team$in$favour$of$the$behavioural$approach$was$made$up$of$Simon,$Tversky,$

Kahneman,$ Arrow,$ Shiller,$ Zeckhauser,$ Thaler$ and$ the$ conference$ organisers$

Einhorn$and$Hogarth.$The$team$representing$neoTclassical$rationalism$consisted$

of$ Chicago$ based$ economists$ Robert$ Lucas$ and$ Merton$ Miller,$ together$ with$

Eugene$Fama$and$Thaler’s$doctoral$ supervisor$ Sherwin$Rosen$ (Thaler,$ 2015).$

While$Lucas$and$Miller$were$both$seasoned$economists$and$no$doubt$suitably$

intimidating,$the$critics$of$the$rationality$assumption$were$no$mere$beginners,$

with$Simon$and$Arrow$both$already$having$received$the$Nobel$Memorial$Prize$

in$Economic$Sciences.$Add$to$that$Kahneman$and$Tversky,$authors$of$prospect$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

59$In$ our$ interview,$Wanner$mentioned$ the$ conference$ when$ I$ asked$ about$ what$ he$ thought$

were$ some$ of$ the$ milestone$ in$ the$ setting$ up$ of$ the$ Behavioral$ Economics$ Program.$ He$

remembered$ it$as$a$kind$of$ test$ for$ the$ then$small$behavioral$economic$community$who$were$

both$ literally$ and$ figuratively$young$ in$ comparison$ to$more$ seasoned$economists$ like$Merton$

Miller$who$was$a$speaker$at$the$conference$and$a$representative$of$the$neoTclassical$approach.$

Wanner$ recollects$ a$ feeling$ that$ some$ attempted$ to$ laugh$ away$ the$ ideas$ of$ behavioural$

economics,$ and$ that$ the$ conference$ ended$ up$ being$ a$ sort$ of$ baptism$ of$ fire$ for$ those$ who$

remained$dedicated$to$the$behavioural$economic$line$(Wanner,$the$author,$April$23rd,$2014).$$

$

$ 138$

theory$ which$ had$ already$ become$ widely$ known$ as$ an$ alternative$ model$ of$

expected$utility$theory$based$on$empirical$studies$of$human$decision$making.$$

Tversky$gave$a$paper$written$for$the$occasion$that$listed$a$set$of$deviations$from$

rational$decision$theory.$The$examples$were$typically$heuristics$and$biases$type$

problems,$and$their$main$argument$was$that$deviations$from$normative$models$

are$too$stable$for$normative$and$descriptive$analyses$to$be$reconciled$(Tversky$

&$Kahneman,$1986).$Kahneman$presented$a$paper$on$work$that$he,$Knetsch$and$

Thaler$ had$ done$ on$ fairness,$ again$ attempting$ to$make$ the$ basic$ behavioural$

economic$ point$ that$ actual$ humans$ do$ not$ act$ in$ conformity$ with$ normative$

rules$of$optimization$(Kahneman,$Knetsch,$&$Thaler,$1986).$$

Kenneth$ Arrow$ presented$ a$ theoretically$ oriented$ paper,$ arguing$ that$ the$

rationality$principle$in$economics$T$the$idea$that$people$make$decisions$with$the$

goal$ of$ maximizing$ profit$ T$ “is$ neither$ necessary$ nor$ sufficient$ to$ do$ good$

economic$ theory”$ (Thaler,$ 2015,$ p.$ 161).$ Rationality,$ he$ argued,$ was$ not$

necessary$ in$ economics$ for$ rigorous$ economic$ theory$ because$ there$ are$

alternatives$ that$ could$ produce$ theories$ that$ were$ just$ as$ formal.$ Nor$ was$

rationality$ sufficient$ because$ in$ order$ for$ formal$ economic$ theory$ to$ deliver$

predictions$there$are$a$number$of$other$assumptions$that$need$to$be$made.$He$

uses$as$example$the$assumption$that$the$same$utility$function$can$be$applied$to$

everyone.$ Interestingly,$ Arrow$ also$ made$ the$ point$ that$ there$ is$ an$ inherent$

paradox$in$the$phenomenon$that$economic$theorists$can$work$long$and$hard$on$

finding$ the$ optimal$ solution$ to$ complex$ economic$ problems,$ but$ yet,$ see$ no$

difficulty$ in$ assuming$ that$ it$ would$ also$ be$ an$ accurate$ depiction$ of$ the$

behaviour$of$actual$economic$actors.$He$argued$that$economists$end$up$with$the$

“curious$ situation$ that$ scientific$ analysis$ imputes$ scientific$ behavior$ to$ its$

subjects”$(Arrow,$1986,$p.$S391).$

An$example$of$a$contribution$from$the$other$side$of$the$battle$line$was$Merton$

Miller$who$in$his$paper$took$the$opportunity$to$critique$a$paper$by$Shefrin$and$

Statman$(1984).$Shefrin$and$Statman$had$in$their$study$explained$why$firms$

pay$cash$dividends$to$share$holders$despite$the$fact$that$tax$laws$ensure$a$

$ 139$

higher$cost$for$the$shareholder.60$Miller’s$approach$was$to$question$the$validity$

of$the$behavioural$explanation.$He$argued$essentially$that$maximizing$models$

were$descriptively$valid$at$the$aggregate$level,$and$that$while$there$may$be$

instances$of$descriptive$deviations$from$formal$models$of$decision$making,$

there$were$not$enough$of$them$to$warrant$any$changes$to$the$models$of$

equilibrium$in$the$financial$markets:$$

The$ purpose$ of$ this$ paper$ has$ been$ to$ show$ that$ the$ rationalityTbased$ market$

equilibrium$models$ in$ finance$ in$ general$ and$of$dividends$ in$particular$ are$ alive$

and$wellTor$at$least$in$no$worse$shape$than$other$comparable$models$in$economics$

at$ their$ level$ of$ aggregation.$ The$ framework$ is$ not$ so$ weighed$ down$ with$

anomalies$that$a$complete$reconstruction$(on$behavioral/cognitive$or$other$lines)$

is$either$needed$or$likely$to$occur$in$the$near$future$(Miller,$1986,$p.$S466).$

On$ the$ face$of$ it,$ critics$of$ the$rationality$principle$were$ the$underdogs$at$ this$

conference.$ It$was$ early$ days$ in$ the$ formation$ of$ behavioural$ economics$ as$ a$

discipline$and,$in$contrast$to$the$neoTclassical$heavyweights,$proponents$of$the$

behavioural$approach$were$both$more$junior$and$more$eclectic.$However,$as$is$

sometimes$the$case$after$intense$confrontation,$by$all$accounts,$the$conference$

appears$rather$to$have$strengthened$both$the$burgeoning$behavioural$economic$

community$and$their$convictions.$For$example,$Thaler$mentions$the$conference$

with$ fervour$ in$ his$ autobiographical$ account$ of$ the$ making$ of$ behavioural$

economics.$He$relays$the$sense$that$despite$taking$a$beating,$the$confrontation$

felt$ like$ a$ victory$ for$ the$ budding$ behavioural$ economists$ because$ the$ odds$

were$ so$ heavily$ in$ favour$ of$ the$ home$ team$ i.e.$ the$ neoTclassical$ contingent$

(Thaler,$ 2015).$ Still,$ the$ conference$would$have$ instilled$ in$ proponents$ of$ the$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

60$On$ the$ maximizing$ model,$ an$ investor$ should$ be$ indifferent$ to$ the$ choice$ between$ cash$

dividends$ and$ capital$ gains.$ However,$ as$ the$ authors$ put$ it$ “Since$ the$ tax$ on$ cash$ dividends$

exceeds$ the$ tax$ on$ capital$ gains$ for$ most$ investors,$ investors$ should$ prefer$ to$ receive$ no$

dividends$as$long$as$the$firm$has$investment$opportunities$with$yields$equal$to$or$higher$than$

the$ cost$of$ capital”$ (Shefrin$&$Statman,$1984,$p.$253).$With$a$ combination$of$ a$ theory$of$ “self$

control”$ that$ Shefrin$ developed$ in$ collaboration$ with$ Thaler$ (Thaler$ &$ Shefrin,$ 1981)$ and$

prospect$theory$(Kahneman$&$Tversky,$1979),$Shefrin$and$Statman$argued$that$a$preference$for$

cash$dividends$may$be$understood$as$a$willingness$to$pay$a$premium$for$behavioural)reasons,$

for$example$as$a$way$ to$exercise$selfTcontrol,$because$of$a$desire$ to$segregate$dividends$ from$

capital$gains,$or$to$avoid$regret.$$

$ 140$

behavioural$approach$an$understanding$that$much$work$was$still$to$be$done,$if$

they$ were$ to$ convince$ members$ of$ the$ economic$ orthodoxy$ that$ their$

descriptive$project$was$worthwhile.$The$challenge$had$been$made.$Until$ there$

were$ enough$ “anomalies”$ to$ pose$ a$ real$ threat$ to$ the$ rational$models$ of$ neoT

classical$economics,$particularly$to$threatening$the$stability$of$the$market,$there$

would$be$no$behavioural$revolution.$$

Solicitation$using$requests$for$proposals$

Shortly$after$the$conference,$Wanner,$Rees,$Thaler,$Kahneman$and$Tversky,$got$

together$to$talk$about$who$apart$from$themselves$and$the$advisory$committee$

might$ be$ good$ candidates$ for$ the$ new$ Behavioral$ Economic$ Program$

(Heukelom,$ 2009).$ Wanner$ subsequently$ requested$ suggestions$ for$ potential$

programme$participants$in$writing$from$Kahneman,$Tversky,$and$Thaler.$Apart$

from$the$requested$names,$the$letters$contain$expressions$of$concern$about$the$

grounds$ upon$ which$ the$ group$ should$ be$ chosen.$ Kahneman$ in$ his$ letter,$

emphasised$ the$ importance$ of$ populating$ the$ field$ with$ researchers$ spread$

across$institutions$(Kahneman,$Letter$to$Wanner,$May$29th,$1984$SG2,$S7,$B198,$

F1454,$RAC),$Tversky$expressed$concerns$about$limiting$the$number$of$scholars$

to$ ensure$ the$ effectiveness$ of$ their$ prospective$ meetings$ and$ collaborations$

(Tversky,$Letter$ to$Wanner,$May$29th,$1984$SG2,$S7,$B198,$F1454,$RAC),$while$

Thaler’s$ main$ concern$ was$ to$ avoid$ focusing$ solely$ on$ “big$ names”$ to$ the$

exclusion$of$active$researchers$in$order$not$to$just$talk,$but$do$(Thaler,$Letter$to$

Wanner,$June$7th,$1984,$SG2,$S7,$B198,$F1454,$RAC).$$

Between$ the$ three$of$ them,$Kahneman,$Tversky,$and$Thaler$made$suggestions$

for$who$should$be$part$of$what$Wanner$calls$the$“ancillary$group”.$This$ancillary$

group$was$ in$ essence$ a$ core$ set$ of$ scholars$ intended$ to$ aid$ the$ four$member$

advisory$committee$ to$recommend$and$generate$projects$ for$review$(Wanner,$

Letter$to$Advisory$Committee,$July$18th,$1984,$SG2,$S7,$B198,$F1454,$RAC).61$The$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

61$The$combined$list$of$suggestions$is$as$follows$in$alphabetical$order:$Arrow,$Einhorn,$Fischoff$,$

Hogarth,$ Kunreuther,$ McFadden,$ Plott,$ Radner,$ Raiffa,$ Shachter,$ Simon,$ Slovic,$ Smith,$

Williamson,$Winter,$Zeckhauser.$$

$ 141$

group$born$out$of$the$suggestions$made$in$1984$is$a$fairly$good$reflection$of$the$

core$members$throughout$the$life$of$the$programme.62$$

Together$Wanner$and$the$committee$gave$the$program$a$targeted$and$exclusive$

character$ from$ start$ to$ finish.$ Wanner$ opted$ for$ the$ use$ of$ Requests$ for$

Proposals$ (RFPs)$ to$ communicate$ the$ kinds$ of$ research$ that$ he$ and$ the$

committee$ were$ looking$ for.$ The$ RFPs$ were$ sent$ to$ a$ select$ group$ of$

psychologists$and$economists$whose$names$had$been$compiled$in$conversation$

with$Thaler,$Kahneman$and$Tversky.$Uninvited$proposals$did$make$their$way$to$

the$ foundation,$ and$ were$ considered,$ but$ the$ bulk$ of$ the$ proposals$ and$ the$

majority$ of$ approved$ proposals$ were$ ones$ that$ came$ in$ reply$ to$ the$ RFPs$

(Wanner,$Russell$Sage$Foundation$Board$of$Trustees$Docket,$June,$1988$SG2,$S7,$

B195,$F1437,$RAC).$

To$begin$with,$this$tight$hold$on$participation$was$a$way$to$manage$expectations$

of$ the$ funding$ capacity$ of$ a$ relatively$ small$ programme$ and$ to$ control$ the$

quality$of$research$ for$a$relatively$unexplored$area.$At$an$early$stage,$Wanner$

was$ quite$ open$ with$ potential$ grantees$ about$ the$ fact$ that$ the$ foundation$

intended$ to$ keep$ a$ close$ eye$ on$ projects$ funded,$ a$ strategy$ that$ he$ justified$

mainly$in$terms$of$the$exploratory$nature$of$the$programme.$The$exclusivity$of$

membership$ also$meant,$ as$Wanner$ and$ the$ foundation$ board$ predicted,$ that$

many$of$the$projects$during$the$lifetime$of$the$program$would$be$carried$out$by$

the$members$of$the$already$identified$core$set.$

After$a$meeting$on$the$11th$of$October$1985,$Wanner,$Rees$and$the$behavioural$

economics$advisory$committee$recommended$ that$ the$Sloan$board$of$ trustees$

transform$the$behavioural$economics$programme$ from$an$exploratory$project$

to$a$more$substantive$commitment$ in$ the$ form$of$a$series$of$grants.$ (Wanner,$

Letter$ to$Advisory$ Committee,$October$ 2nd,$ 1985$ SG2,$ S7,$ B194,$ F1427,$ RAC).$

The$ suggestion$ was$ approved,$ and$ Wanner$ composed$ the$ programme’s$ first$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

62$One$ notable$ exception$ to$ this$ rule$ is$ Paul$ Slovic,$ who$ had$worked$ closely$ on$ collaborative$

projects$with$Kahneman$and$Thaler,$but$did$not$take$an$active$part$in$the$SloanTSage$Behavioral$

Economics$Program.$$

$ 142$

RFP$ to$ be$ sent$ out$ on$ the$ 18th$ of$ December$ 1985.$ Thus$ the$ more$ extended$

research$ programme$ in$ the$ form$ of$ the$ Behavioral$ Economics$ Program$ was$

officially$launched.$The$first$proposals$to$be$granted$not$surprisingly$had$a$focus$

on$ the$ consequences$ of$ descriptive$ deviations$ on$ the$ stability$ of$ rational$

economic$ models.$ The$ goal$ was$ to$ prove$ that$ descriptive$ deviation,$ what$

behavioural$economists$had$widely$begun$to$call$“anomalies”,$mattered.$$

The$December$ 1985$RFP$ resulted$ in$ the$ approval$ of$ five$ separate$ projects:$ A$

proposal$ by$ Akerlof$ for$ a$ study$ on$ “Near$ Rational$ Behavior$ and$ its$ Market$

Consequences”,$ one$ by$ Einhorn$ and$ Hogarth$ to$ develop$ “A$ New$ Model$ of$

Decision$under$Uncertainty”,$a$proposal$from$Smith$and$Isaac$for$an$experiment$

on$ “Market$ Anomalies,$ Computerized$ Matching$ Markets,$ and$ Public$ Goods$

Provisions”,$and$finally,$another$proposal$from$Thaler$for$“Continued$Research$

on$the$Economic$Consequences$of$Beliefs$about$Fairness”$(Heukelom,$2014).$$

Move$to$Russell$Sage$and$becoming$a$joint$programme$$

In$ 1986$ Wanner$ was$ offered$ and$ accepted$ the$ position$ of$ President$ of$ the$

Russell$ Sage$ Foundation.63$Wanner’s$ move$ to$ Russell$ Sage$ was$ a$ significant$

event$in$the$making$of$behavioural$economics$in$more$ways$than$one.$The$issue$

for$Wanner$concerning$the$Behavioural$Economics$Program$was$how$to$make$

sure$ it$was$kept$afloat$at$ the$Sloan$Foundation$even$after$ the$departure$of$ its$

captain.$His$only$option$to$keep$the$programme$going$was$to$take$it$with$him$as$

he$ transferred$ from$ one$ foundation$ to$ another.$ Wanner’s$ fight$ to$ keep$ the$

program$ going$ even$ after$ his$ promotion$ is$ an$ expression$ of$ how$ close$ the$

project$ was$ to$ his$ heart.$ James$ March$ (b.$ 1928),$ a$ psychologist$ who$ was$ a$

member$ of$ the$ board$ of$ trustees$ at$ the$ Russell$ Sage$ Foundation$ at$ the$ time$

recalls$ in$ an$ email$ to$ Heukelom$ (2012a)$ that$ there$ was$ nothing$ selfTevident$

about$the$programme$being$approved$at$Russell$Sage:$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

63$Wanner’s$official$start$date$was$October$1st$1986.$$

$ 143$

I$ think$ the$ Board$ generally$ felt$ the$ program$ had$ few$ prospects$ for$ social$

usefulness$(i.e.,$did$not$fit$the$general$philosophy$of$the$foundation).$I$and$one$or$

two$others$felt$the$scientific$value$warranted$support$and$argued$for$the$program;$

but$I$think$most$of$the$Board$voted$to$approve$the$program$primarily$as$a$kind$of$

reward$to$Eric$Wanner$for$his$good$work.$If$it$had$not$come$from$Eric,$it$would$not$

have$been$approved$(March,$quoted$in$Heukelom,$2012a,$p.$277).$

Though$ not$ all$ members$ of$ the$ board$ approved$ of$ the$ programme,$ the$

mitigating$circumstances$were$the$support$of$the$bigger$Sloan$Foundation$and$

its$president$Albert$Rees,$ as$well$ as$Wanner$having$been$ the$ instigator$of$ the$

programme$ in$ the$ first$ place.64$What$ resulted$ was$ the$ continuation$ of$ the$

programme$funded$jointly$by$the$Russell$Sage$and$Sloan$Foundations.$

In$ conjunction$with$ the$ start$ of$ the$ Behavioral$ Economics$ Program$ as$ a$ joint$

venture$between$Sloan$and$Russell$Sage,$ James$March$was$made$a$member$of$

the$ advisory$ committee$ to$ meet$ a$ requirement$ of$ the$ Russell$ Sage$ board$ of$

trustees$to$have$a$representative$on$the$committee.$Albert$Rees,$still$president$

of$ the$ Sloan$ Foundation$ was$ also$ added$ in$ order$ to$ balance$ the$

psychologist/economist$ratio,$and,$one$could$speculate,$to$cement$the$continued$

collaboration$with$Sloan.$$

As$Heukelom$ (2012)$ points$ out,$ the$ greatest$ difference$ between$ the$ financial$

support$ of$ the$ two$ foundations$ were$ not$ the$ annual$ sums$ allocated$ to$ the$

programme,$which$ fluctuated$ each$ year.$ Instead$what$ constituted$ the$ biggest$

difference$was$the$percentage$of$the$two$foundations’$total$donations$allocated$

to$ the$ programme$ which$ was$ much$ greater$ for$ the$ Russell$ Sage$ Foundation$

than$it$had$been$at$Sloan.65$The$Russell$Sage$Foundation$spent$close$to$50$%$of$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

64$Echoing$March’s$ assessment,$Wanner$ speculates$ that$ the$ board$may$ have$ approved$ of$ the$

programme$ as$ a$ kind$ of$ gift$ to$ its$ newly$ appointed$ president$ “you$ know,$ it$ was$ like$ a$

housewarming$present$or$something$like$that”$(Wanner,$Interview$with$the$author,$April$23rd,$

2014).$

65$For$ example,$ in$ 1989,$ the$ last$ year$ in$ which$ the$ programme$ ran$ at$ the$ Sloan$ Foundation$

parallel$with$the$Russell$Sage$Foundation$the$greater$amount$of$458,$561$US$dollars$comprised$

only$ 2.7%$ of$ the$ total$ grants$ awarded$ at$ the$ Sloan$ Foundation$ compared$ to$ the$ 342,190$ US$

dollars$of$the$Russell$Sage$Foundation$which$comprised$27%$of$its$total$donations$(Heukelom,$

2014).$$

$ 144$

the$ total$ grants$ awarded$on$ the$Behavioral$Economics$Program$ in$as$ early$ as$

the$ second$ year$ of$ it$ running$ there.$ The$ difference$ in$ proportion$ of$ total$

donations$inevitably$affected$the$status$of$the$programme.$With$Wanner’s$move$

from$Sloan$to$Russell$Sage$the$programme$went$from$a$small$investment$on$the$

part$of$large$foundation$to$a$big$fish$in$a$small$pond.$$

The$two$foundations$were$also$slightly$different$in$that$the$Russell$Sage$was$a$

so$ called$ “operating”$ private$ foundation$ while$ Sloan$ was$ a$ “grant$ making”$

private$foundation.$These$terms$refer$to$differences$in$taxation$rules.$But$it$also$

meant$ that$ Russell$ Sage$ as$ an$ operating$ foundation$ was$ restricted$ to$ giving$

grants$ that$ further$ their$ own$ declared$ institutional$ purposes$ and$ were$

prevented$from$making$grants$to$directly$support$another$institution.$$

The$ format$ of$ a$ joint$ programme$ was$ not$ without$ advantages.$ Fees$ and$

responsibilities$could$be$shared$between$the$ foundations,$and$despite$ it$being$

such$a$big$chunk$of$the$total$grants$awarded$for$Russell$Sage,$the$support$in$the$

venture$ from$ Sloan$ and$ Rees$ likely$ positively$ influenced$ the$ Russell$ Sage$

board’s$attitude$toward$it.$$

Real$world$social$problems$and$the$concerns$of$the$Russell$Sage$Board$$

I$would$argue$that$the$biggest$impact$on$the$programme$by$its$partial$move$to$

Russell$Sage$came$from$the$foundation’s$general$dedication$to$the$improvement$

of$ social$ conditions.$ As$ early$ as$ 1986,$ Wanner$ suggested$ to$ the$ Behavioral$

Economics$ Advisory$ Committee$ that$ they$ might$ extend$ the$ scope$ of$ the$

programme$ from$scholarship$at$ the$ intersection$of$economics$and$psychology$

to$ proposals$ for$ projects$ to$work$ on$ the$ intersection$between$ economics$ and$

sociology$or$economics$and$political$science.$This,$he$proposed$could$be$done$in$

conjunction$ with$ a$ division$ of$ labour$ between$ the$ Sloan$ and$ the$ Sage$

Foundations$where$ the$ Sloan$ Foundation$would$ continue$ to$ fund$ the$ former,$

and$Sage$the$latter$(Wanner,$Letter$to$Advisory$Committee,$October$16th,$1986$

SG2,$ S7,$ B194,$ F1431,$ RAC).$ This$ was$ a$ suggestion$ in$ line$ with$ the$ Sage$

$ 145$

Foundation’s$general$remit$to$fund$work$in$the$social$sciences$with$a$relevance$

to$social$problems.$$

The$ Russell$ Sage$ Foundation$ was$ originally$ established$ with$ the$ goal$ to$

improve$ “the$ social$ and$ living$ conditions$ in$ the$ United$ States”$ (RSF,$ 2016).$

From$its$establishment$in$1907$to$the$midT1940’s$much$of$the$funds$of$the$RSF$

had$ gone$ to$ supporting$ large$ scale$ surveys$ of$ the$ conditions$ of$ selected$

professions$ and$of$ the$working$ class$ generally$ like$ the$Pittsburgh$ Survey,$ the$

earliest$attempt$at$a$comprehensive$survey$of$work$and$living$conditions$of$the$

working$ classes$ in$ a$ sizable$ US$ city$ (Devine,$ 1909;$ RSF,$ 2007).$ The$ period$

before$1945$at$the$RSF$was$also$characterised$by$a$focus$on$aiding$the$efforts$of$

private$social$service$agencies,$and$to$help$establish$social$work$as$a$profession$

(RSF,$2007).$$

The$biggest$change$in$direction$for$the$foundation$came$in$1945,$when$trustee$

Whitney$Debevoise$led$a$reform$of$the$foundation’s$mission$to:$$

work$ to$ strengthen$ the$ basic$ capacities$ of$ social$ science$ in$ order$ to$ provide$

intellectual$and$scientific$support$for$efforts$to$design$and$implement$social$policy$

on$the$front$lines$(RSF,$2007,$p.$$5).$$

This$ change$ in$ mission$ and$ identity$ in$ the$ mid$ 1940s$ allowed$ the$ board$ of$

trustees$ to$ let$ Wanner$ take$ the$ Behavioral$ Economics$ Programme$ with$ him$

from$ the$ Sloan$ Foundation.$ The$ Behavioral$ Economics$ Programme$may$ have$

been$ a$ something$ of$ a$ housewarming$ present$ for$ Wanner,$ but$ 50%$ of$ the$

capital$is$a$significant$commitment$on$behalf$of$the$trustees.$The$added$capital$

from$ the$ continued$ coToperation$ of$ Albert$ Rees$ at$ Sloan,$ together$ with$ the$

justification$ that$ the$ behavioural$ approach$ could$ provide$ a$ significant$

improvement$on$economic$science,$were$enough$for$the$program$to$go$ahead$as$

a$two$foundation$joint$venture.$$

$ 146$

The$Interdisciplinary$Challenge$$

Many$of$ the$ strategies$ employed$ in$ the$behavioral$ economics$program$reflect$

the$ interdisciplinary$ nature$ of$ the$ field.$ Piecing$ together$ evidence$ from$

documented$archives$gives$the$picture$that$Wanner$in$particular$took$the$issue$

of$balancing$participation$between$psychologists$and$economists$very$seriously.$

This$ issue$of$ attempting$ to$maintain$a$balance$between$ the$psychological$ and$

economic$ aspects$ of$ behavioural$ economics$ embodied$ in$ the$ people$ and$ the$

projects$ funded$ is$ also$ the$ main$ topic$ of$ Heukelom’s$ 2012$ paper$ on$ the$

Behavioral$ Economics$ Program$ “A$ Sense$ of$ Mission:$ The$ Alfred$ P.$ Sloan$ and$

Russell$ Sage$ Foundations’$ Behavioral$ Economics$ Program,$ 1984–1992”$

(Heukelom,$2012a).$$

Wanner$ trod$ very$ carefully$ around$ this$ issue.$ In$ a$ letter$ to$ the$ advisory$

committee,$ with$ a$ postscript$ informing$ them$ of$ changes$ to$ the$ remuneration$

scheme,$he$informs$them$that$economists$Baumol$and$Schelling$would$be$paid$

by$ the$ Sloan$ Foundation$ and$ psychologists$ Abelson$ and$ Festinger$ by$ Russell$

Sage$ followed$ by$ the$ parenthesis:$ “Absolutely$ no$ significance$ should$ be$

attached$ to$ the$ fact$ that$ this$ breaks$ down$ along$ disciplinary$ lines”$ (Wanner,$

Letter$to$Advisory$Committee,$April$27th,$1987,$SG2,$S7,$B193,$F1424,$RAC).$$

Concerns$ about$ discrepancies$ in$ expertise$ between$ economists$ and$

psychologists$and$the$difficulty$of$carrying$out$interdisciplinary$research$show$

in$ the$ way$ that$ the$ practicalities$ of$ achieving$ collaborations$ between$

psychologists$ and$ economists$ were$ prioritised.$ The$ lines$ of$ expertise$ were$

drawn$ on$ the$ assumption$ that$ psychologists$ would$ suffer$ from$ a$ deficit$ of$

knowledge$of$economic$theory,$and$economists$of$a$deficit$in$knowledge$about$

empirical$ investigative$ methods.$ In$ order$ for$ potential$ applicants$ not$ to$ be$

deterred$ by$ these$ obstacles,$ Wanner$ and$ the$ advisory$ committee$ pledged$

organisational$ flexibility.$ This$ flexibility$ came$ in$ the$ form$ of$ a$ willingness$ to$

fund$travel$costs$for$collaborative$projects,$to$run$seminars$geared$toward$the$

promotion$ of$ interdisciplinary$ research$ and$ the$ exchange$ of$ skills,$ and$ for$

$ 147$

doctoral$and$postdoctoral$students$who$have$special$skills$that$would$be$of$use$

in$collaborative$projects.$

The$ interdisciplinary$ nature$ of$ behavioural$ economics$ was$ a$ challenge$

throughout.$For$instance$at$a$meeting$on$May$17th$1988$the$advisory$committee$

reviewed$ 15$ proposals$ to$ see$ if$ the$ net$ could$ be$ cast$wider$ than$ before$with$

respect$to$potential$grantees.$Out$of$the$15$proposals$only$one$was$approved$–$a$

study$by$Alan$Blinder$on$price$ setting$behaviour.$The$ low$success$ rate$of$ this$

substantial$ set$ of$ proposals$ prompted$ Wanner$ to$ describe$ the$ meeting$ as$

“undoubtedly$a$frustrating$exercise”$in$a$later$letter$to$the$Advisory$committee$

(Wanner,$Letter$to$Advisory$Committee,$May$31st,$1988,$SG2,$S7,$B194,$F1433,$

RAC).$In$the$1988$Board$of$Trustees$Docket,$Wanner$explained$the$low$success$

rate$ as$ evidence$ that$ the$ “interdisciplinary$ territory$ we$ are$ attempting$ to$

occupy$ in$ behavioral$ economics$ is$ thinly$ populated.$ Theorists$ confine$

themselves$ to$ theory,$ experimentalists$ to$ market$ experiments$ and$

ethnographers$to$descriptive$work”$(Wanner,$Russell$Sage$Foundation$Board$of$

Trustees$Docket,$June,$1988$SG2,$S7,$B195,$F1437,$RAC).$$

Working$groups$$

One$ of$ Wanner’s$ strategies$ for$ overcoming$ the$ difficulties$ of$ funding$

interdisciplinary$ projects$ was$ to$ focus$ on$ funding$ nonTresidential$ working$

groups.$There$was$a$logic$to$this$format,$because$the$members$of$the$extended$

behavioural$ economics$ family$were$ scattered$ at$ difference$ institutions$ across$

the$country.$Wanner$did$attempt$a$residential)working$group$scheme$too$which$

was$less$successful.$The$scheme$tweaked$the$long$standing$tradition$at$Russell$

Sage$to$have$individual$scholars$in$residence$–$extending$the$so$called$“Russell$

Sage$ Visiting$ Scholars$ Program”$ to$ include$ groups$ of$ scholars.$ His$ logic$ once$

again$was$the$facilitation$of$collaborations$that$“might$otherwise$have$difficulty$

forming”$ (Wanner,$ Request$ for$ Proposals$ for$ Residential$ Working$ Groups,$

September$ 1st,$ 1987,$ SG2,$ S7,$ B201,$ F1483,$ RAC).$ The$ tradition$ at$ the$

foundation$ to$ fund$ visiting$ scholars$ also$ made$ it$ easier$ to$ fund$ residential$

working$groups$ than$ to$ fund$nonTresidential$ ones$ (Wanner,$ Letter$ to$Blinder,$

$ 148$

October$19th,$1987,$SG2,$S7,$B201,$F1483,$RAC).$An$RFP$for$residential$working$

groups$was$sent$out$in$September$of$1987$(Wanner,$Request$for$Proposals$for$

Residential$Working$Groups,$September$1st,$1987,$SG2,$S7,$B201,$F1483,$RAC).$It$

is$clear$from$the$responses$that$the$possibility$of$a$residential$collaboration$was$

a$double$edged$sword$for$most$of$the$scholars$concerned.$As$useful$and$fruitful$

as$staying$in$the$same$place$for$a$year$would$be$for$the$collaborative$endeavour,$

family$and$other$obligations$made$it$a$difficult$thing$to$commit$to.$$

In$ contrast,$ the$ nonTresidential$working$ groups$ scheme$was$more$ successful.$

Six$separate$nonTresidential$working$groups$were$set$up$during$the$ life$of$ the$

programme:$ The$ Behavioural$ Finance$ Working$ Group,$ The$ Intertemporal$

Choice$ Working$ Group,$ The$ Working$ Group$ on$ Decision$ Making$ and$

Experimental$Economics,$The$Working$Group$on$Behavioural$Game$Theory,$the$

Working$ Group$ on$ Dispute$ Resolution$ and$ The$Working$ Group$ on$ Economic$

Sociology.$$

Frequency$of$the$meetings$varied$from$once$a$year,$to$monthly,$but$the$format$

of$ the$meetings$was$very$similar$ for$all$ the$Working$Groups.$Participants$who$

wished$to$do$so$would$present$a$paper$or$a$work$in$progress,$which$would$be$

followed$ by$ discussions.$ Memoranda$ of$ the$ various$Working$ Group$meetings$

contain$ many$ discussions$ surrounded$ methodological$ issues$ and$ issues$ of$

research$design.$$

Through$ the$ nonTresidential$ working$ group$ scheme,$ the$ Russell$ Sage$

Foundation$ became$ a$ virtual$ home$ for$ the$ small$ behavioural$ economics$

community.$ The$ informal$ atmosphere$ at$ the$ foundation’s$ nonTresidential$

programme,$as$well$as$the$intimacy$of$the$working$groups,$played$a$significant$

part$in$the$creation$of$the$behavioural$economics$“family”.$Through$the$working$

groups$ and$ the$ visiting$ scholars$ scheme$Wanner$ created$ a$ community$ and$ a$

home$ for$ a$ collection$ of$ neoTclassical$ dissidents$ and$ rogue$ psychologists$who$

would$not$otherwise$be$communicating.$

$ 149$

For$ many$ people$ working$ on$ loosely$ defined$ “guerrilla”$ fields$ (like$ behavioral$

finance),$the$working$groups$represent$the$only$chance$to$talk$with$others$who$are$

both$ sympathetic$ about$ the$ content$of$work$and$hardTnosed$about$methods$and$

the$standards$mainstream$economics$apply$(Camerer,$Participant$Evaluation,$June$

4th,$1992,$SG2,$S7,$B196,$F1442,$RAC,$emphasis$in$the$original).$$

Economist$ Charles$ Lee$ confirms$ this$ sentiment$ when$ he$ writes$ of$ the$

behavioral$ finance$ working$ group,$ referring$ to$ the$ camaraderie$ and$ the$

“common$ identity”$ facilitated$ by$ the$ format$ of$ the$ working$ group.$ He$ is$

especially$clear$about$the$importance$of$the$working$group$functioning$as$a$way$

for$ a$ group$ of$ scholars$ who$ align$ in$ their$ intellectual$ approach$ but$ have$

different$ institutional$ homes$ writing$ “Coming$ as$ we$ do,$ from$ different$

institutions$ across$ the$ country,$ this$ group$ is$ the$ closest$ thing$ to$ a$ common$

identity$that$we$have$[...]$aside$from$the$intellectual$input,$the$comraderie$(sic)$

in$this$group$has$been$a$great$help$to$me”$(Lee,$Participant$Evaluation,$May$30th,$

1992$SG2,$S7,$B196,$F1442,$RAC).$$

Putting$ together$ working$ groups$ was$ also$ a$ way$ to$ generate$ ideas$ and$ to$

stimulate$ work$ by$ putting$ together$ scholars$ with$ shared$ interests$ but$ who$

differed$in$their$areas$of$expertise.$The$working$groups$were$also$importantly$a$

relatively$ inexpensive$way$to$ fund$interdisciplinary$research.$At$the$very$ least$

they$were$a$way$to$get$the$conversation$about$potential$projects$going,$and$to$

facilitate$the$kind$of$collaborative$projects$that$seemed$to$Wanner$to$be$the$key$

to$ the$ success$ of$ behavioural$ economics:$ “Working$ groups$ seem$ to$ me$ a$

relatively$ low$ cost$ way$ of$ pushing$ the$ field$ beyond$ the$ limits$ of$ individual$

research$ agendas”$ (Wanner,$ Letter$ to$ Advisory$ Committee,$ March$ 2nd,$ 1987,$

SG2,$S7,$B193,$F1424,$RAC).$

Funding$the$core$set$

Excluding$ the$ working$ groups$ and$ the$ occasional$ workshop,$ The$ Behavioral$

Economics$Program$consisted$of$a$total$of$63$funded$projects,$divided$between$

41$ scholars$ over$ the$ course$ of$ eight$ years.$ Eleven$ of$ the$ 63$ projects$ were$

$ 150$

collaborations$ between$ two$ or$more$ scholars,$ and$ the$ rest$ were$ individually$

led.$$

This$meant$that$a$number$of$individuals$were$funded$more$than$once$over$the$

eight$years.$66$Richard$Thaler$tops$the$league$with$four$projects$funded$between$

1984$ and$ 1988.$ Thaler’s$ influence$ in$ the$ making$ of$ behavioural$ economics$

through$his$participation$in$the$Behavioral$Economics$Program$was$substantial.$

Thaler$had$a$finger$in$almost$every$behavioural$economic$pie,$especially$when$it$

came$ to$ the$ influential$ nonTresidential$ working$ groups.$ His$ individuallyTled$

projects$were$a$study$of$the$economic$behavior$of$firms$in$1984$and$two$rounds$

of$studies$on$the$effects$of$beliefs$about$fairness$on$economic$decision$making$

in$1985$and$1986$respectively.$He$also$received$just$shy$of$$100$000$in$1988$for$

what$ was$ labelled$ simply$ ‘A$ variety$ of$ empirical$ studies$ on$ behavioral$

economics’$ (Alfred$ P.$ Sloan$ Foundation/Russell$ Sage$ Foundation,$ Behavioral$

Economics$Grants,$1991,$SG2,$S7,$B202,$F1487,$RAC).$$

Tversky$and$Kahneman$were$both$given$grants$for$three$projects,$two$separate$

projects$each$and$for$their$book$Decisions:)Rationality)and)Illusions)in)Judgment)

and)Choice)authored$jointly$in$1986.$Kahneman’s$other$projects$were$to$conduct$

a) review) “of$ experimental$ economics$ and$ the$ claim$ that$ markets$ purge$ nonT

optional$behavior”$in$1986$and$a$field$study$on$loss$aversion$and$the$‘sunk$cost$

effect’$ among$ portfolio$ managers$ in$ 1988.$ Tversky’s$ projects$ were$ a$

psychological$study$of$investment$behaviour$in$1986$and$a$set$of$experimental$

studies$ on$what$ determines$wellbeing$ based$ on$ selfTrating$ in$ 1988$ (Alfred$ P.$

Sloan$Foundation/Russell$Sage$Foundation,$Behavioral$Economics$Grants,$1991,$

SG2,$S7,$B202,$F1487,$RAC).$$

Economist$John$Kagel$also$received$funding$for$three$projects,$two$individually$

led$on$the$so$called$ ‘Winner’s$Curse’,$the$first$in$1986$and$the$second$in$1989.$

He$ was$ also$ funded$ for$ a$ collaboration$ with$ economist$ Dan$ Levin$ on$ a$ field$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

66$The$ four$ scholars$ funded$ more$ than$ ones$ were$ Richard$ Thaler,$ Amos$ Tversky,$ Daniel$

Kahneman$and$John$Kagel.$$

$ 151$

study$on$auctions$in$1987$(Alfred$P.$Sloan$Foundation/Russell$Sage$Foundation,$

Behavioral$Economics$Grants,$1991,$SG2,$S7,$B202,$F1487,$RAC).$$

The$majority$of$the$grantees$were$associated$with$high$status$universities$with$

a$reputation$as$leading$research$institutions.$The$University$of$Chicago$tops$the$

list$with$ seven$grantees$ affiliated$ to$ it$ at$ the$ time$ the$ grants$were$ given.$ It$ is$

followed$ by$ Harvard,$ and$ the$ University$ of$ Michigan$ with$ five$ grantees$ per$

institution.$$

The$distribution$of$representatives$of$psychology$and$economics$among$the$top$

four$ funded$ individuals$ is$ fairly$ balanced,$ Thaler$ and$ Kagel$ both$ being$

economists,$ and$ Kahneman$ and$ Tversky$ firmly$ representing$ psychology$ and$

decision$research.$On$the$whole,$projects$carried$out$by$economists$maintained$

a$ slight$ majority$ over$ projects$ by$ psychologists$ throughout$ the$ programme,$

except$in$1986$when$distribution$was$completely$even.$Figure$10)below$shows$

the$ general$ distribution$ of$ psychologists$ and$ economists$ among$ the$ grantees$

between$1984T1990.$

Figure$ 10:$ Distribution$ between$ psychologists$ and$ economists$ of$ projects$ funded$ by$ the$

Behavioral$Economics$Program$1984a1990$

$

0$

1$

2$

3$

4$

5$

6$

7$

1984$ 1985$ 1986$ 1987$ 1988$ 1989$ 1990$

By$psychologists$or$decision$

researchers$

By$economists$

$ 152$

The$ table$can$only$serve$as$an$ indication$of$ representation$generally.$Some$of$

the$younger$behavioural$ economists$especially$are$difficult$ to$define$as$either$

economist$or$psychologist.$One$such$example$ is$Colin$Camerer$ (b.$1959),$who$

did$ a$ bachelor’s$ degree$ at$ Johns$ Hopkins$ University$ in$ “quantitative$ studies”,$

got$an$MBA$from$the$University$of$Chicago$and$moved$on$to$complete$a$PhD$in$

behavioural$ decision$ theory.$ He$ received$ funding$ as$ early$ as$ 1985$ to$ study$

decision$ making$ under$ uncertainty$ in$ experimental$ insurance$ markets$ in$

collaboration$with$the$much$more$seasoned$economist$Howard$Kunreuther.$$

It$is$understandable$that$Wanner,$Thaler$and$the$committee$were$keen$to$fund$

this$ newer$ generation$of$ economist,$who$not$ only$ had$ spent$ less$ time$ among$

neoTclassicists,$ but$ like$ Camerer,$ may$ already$ have$ an$ interTdisciplinary$

educational$ background.$ However,$ as$ a$ general$ rule$ each$ project$ would$ be$

proposed$ and$ carried$ out$ by$ one$ or$ two$ psychologists$ or$ economists.$

Collaborations$ across$ disciplinary$ lines$ were$ uncommon$ within$ the$ separate$

projects.$$

From$shotgun$to$rifle$

Keeping$ the$Russell$Sage$board$of$ trustees$on$board$was$sometimes$an$uphill$

battle.$Some$sort$of$discussion$about$ the$ future$of$ the$programme$was$on$ the$

agenda$ for$ almost$ every$ meeting$ which$ is$ significant$ considering$ that$ the$

advisory$committee$met$only$twice$or$three$times$a$year$at$most.$67$

In$January$1988,$four$years$after$the$start$of$the$programme,$Wanner$wrote$to$

Albert$Rees$to$elicit$advice$on$the$future$direction$of$the$programme$in$order$to$

prepare$ a$ document$ for$ the$Russell$ Sage$ board$ spelling$ out$ the$ programme’s$

accomplishments.$ Because$ the$ Russell$ Sage$ had$ only$ been$ involved$ in$ the$

programme$for$two$of$those$four$years,$Wanner$at$this$stage$felt$confident$that$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

67$As$mentioned$in$chapter$1,$in$the$interview$Wanner$spoke$to$me$of$keeping$the$programme$

alive$as$one$of$the$biggest$challenges$throughout$(Wanner,$Interview$with$the$author,$April$23rd,$

2014).$Arguably,$ this$ is$a$challenge$for$most$big$ funding$programmes,$but$ it$may$have$proved$

especially$challenging$in$the$case$of$the$Behavioral$Economics$Program$because$it$had$been$as$it$

were$“imported”$from$a$different$foundation.$$$

$ 153$

he$ could$ persuade$ the$ board$ of$ trustees$ of$ another$ three$ to$ five$ years$

involvement.$ This$was$ despite$ the$ general$ strategy$ of$ the$ foundation$ to$ fund$

new$ areas$ of$ research$ for$ a$ limited$ time$ only$ (Wanner,$ Letter$ template$ for$

Albert$Rees,$January$11th,$1988,$SG2,$S7,$B193,$F1424,$RAC).$Wanner’s$concern$

was$ the$position$of$Rees$on$behalf$of$ the$Sloan$Foundation$as$ to$what$kind$of$

substantive$ and$ financial$ involvement$ the$ Sloan$ Foundation$ would$ wish$ to$

continue$ to$ have,$ in$ light$ of$ the$ fact$ that$ his$ plans$ for$ the$ future$ of$ the$

programme$depended$on$continued$collaboration.$In$the$letter$Wanner$refers$to$

“organisational$ uncertainties”$ at$ the$ Sloan$ foundation$ after$ 1989,$ presumably$

because$Rees$was$already$anticipated$to$leave$his$position$as$president$of$Sloan$

the$following$year$(Wanner$Letter$template$to$Albert$Rees,$January$11th,$1988,$

SG2,$ S7,$ B193,$ F1424,).$ Wanner’s$ persuasive$ powers$ once$ again$ proved$

effective$and$an$RFP$was$prepared$to$be$sent$out$on$March$7th$of$1989.$$

The$first$RFP$was$sent$to$a$select$group$of$potential$applicants$with$the$caveat$

that$if$they$could$think$of$someone$that$had$been$neglected,$they$should$pass$on$

the$message.$ As$ the$ programme$ developed$ the$ list$ of$ recipients$ of$ the$ RFP’s$

grew$and$the$March$7th$1989$RFP$had$a$total$of$90$scholars$on$the$mailing$list.$

By$1989,$the$requests$had$also$grown$steadily$shorter,$more$concise$and$had$a$

more$ confident$ tone$ than$ previous$ requests.$ Just$ as$ in$ the$ first$ request,$ the$

1989$ RFP$ expressed$ the$ view$ that$ there$ was$ enough$ evidence$ of$ deviations$

from$mainstream$economic$ theory,$and$ that$what$was$needed$were$economic$

models$ based$ on$ empirically$ tested$ behavioural$ principles$ that$ can$ provide$

“serious$competition$to$standard$approaches”$(Wanner,$Request$for$Proposals,$

March$7th,$1989,$SG2,$S7,$B195,$F1437,$RAC).$$

The$ most$ significant$ change$ was$ that$ the$ areas$ of$ research$ became$ problem$

specific.$ The$ RFP$ included$ an$ appendix$ with$ a$ mention$ of$ specific$ areas$ of$

interest$ including$ “the$ influence$ of$ the$money$ illusion$ on$ economic$ behavior”$

“The$contribution$of$imperfect$investment$on$decision$making”$and$“The$effects$

of$ Intertemporal$biases”$ all$ followed$by$ examples$of$ even$more$ specific$ areas$

through$ which$ these$ could$ be$ approached$ (Wanner,$ Request$ for$ Proposals,$

March$7th,$1989,$SG2,$S7,$B195,$F1437,$RAC).$As$Wanner$put$it$to$the$board$of$

$ 154$

trustees$ the$ change$ is$ “from$ a$ shotgun$ strategy$ to$ a$ rifle$ strategy.$ It’s$ a$

significant$ narrowing$ of$ the$ intent$ of$ the$ program”$ (Wanner,$ Minutes$ of$

Trustees$Meeting,$October$14th,$1988,$SG2,$S7,$B195,$F1437,$RAC).$$

The$change$in$strategy$followed$a$meeting$of$the$Russell$Sage$Board$of$Trustees,$

where,$among$other$things,$the$discussion$had$surrounded$the$kinds$of$studies$

the$board$would$like$to$see$funded$through$the$Behavioral$Economics$Program.$

One$of$ the$ suggestions$was$ “to$ try$ to$develop$ support$ studies$ that$ seemed$ to$

applicable$ to$ real$ economic$ circumstances$with$ important$ economic$ or$ social$

implications”$ (Wanner,$Minutes$ of$ Trustees$Meeting,$ October$ 14th,$ 1988,$ SG2,$

S7,$B195,$F1437,$RAC).$$

The$ more$ targeted$ “rifle$ strategy”$ was$ meant$ to$ comply$ with$ the$ Board$ of$

Trustee’s$ wishes$ to$ fund$ projects$ that$ had$ clear$ practical$ applications.$ In$ the$

Board$of$Trustees$meeting$on$October$1988$Wanner$summarised$ the$kinds$of$

studies$ funded$within$ the$Behavioral$ Economics$ Program$ thus$ far,$ by$ placing$

them$ in$ three$ categories.$ In$ the$ first$ category$ were$ “demonstrations$ that$

economic$assumptions$about$decision$making$may$be$wrong”(Wanner,$Minutes$

of$ Trustees$ Meeting,$ October$ 14th,$ 1988,$ SG2,$ S7,$ B195,$ F1437,$ RAC).$ In$ the$

second$category$were$“observational$studies$of$markets$showing$that$markets$

depart$from$the$expectations$of$inefficiency$in$various$ways”(Wanner,$Minutes$

of$ Trustees$Meeting,$October$ 14th,$ 1988,$ SG2,$ S7,$ B195,$ F1437,$ RAC).$ Thirdly,$

were$the$kinds$of$studies$that$Wanner$called$“efforts$to$construct$behaviourally$

based$models”$(Wanner,$Minutes$of$Trustees$Meeting,$October$14th,$1988,$SG2,$

S7,$B195,$F1437,$RAC).$$

The$ suggestion$ of$ the$ behavioural$ economics$ advisory$ committee$ for$ the$

purposes$of$reassuring$the$Board$of$Trustees$that$the$program$was$going$in$the$

direction$of$funding$studies$that$specifically$addressed$practical$problems,$was$

to$concentrate$efforts$on$the$third$category.$The$result$was$the$inclusion$of$the$

more$specific$ list$of$possible$areas$ for$proposals$ such$as$ the$ “money$ illusion”,$

“imperfect$ investment”,$ and$ “the$ effects$ of$ Intertemporal$ bias”$ mentioned$

$ 155$

above.$The$assumption$here$was$that$these$were$the$kinds$of$studies$that$had$

practical$applicability.$$

So,$ in$ 1988$Wanner$ and$ the$ advisory$ committee$ sent$ out$ a$ clearer$ message$

about$what$ they$ thought$worked$ and$what$ didn’t,$ and$ could$ ask$ for$ projects$

that$ dealt$ with$ specific$ problems.$ The$ major$ changes$ within$ the$ Behavioral$

Economics$ Program$ from$ 1984$ to$ 1992$were$ that$ the$ projects$ became$more$

problem$specific$in$order$to$accommodate$requests$from$the$Russell$Sage$Board$

of$ Trustees$ that$ the$ programme$ focus$ on$ studies$ with$ clear$ practical$

application.$$

Ending$the$programme$in$1992$

The$year$of$1989$ushered$in$a$number$of$changes$for$the$Behavioral$Economics$

Program.$ James$March$ resigned$ from$ the$ committee$ and$Leon$Festinger,$who$

had$ been$ diagnosed$with$ cancer$ the$ year$ before,$ passed$ away$ in$ February$ of$

1989$(Schachter,$1994).$This$was$also$the$year$that$Albert$Rees$retired$from$his$

presidency$at$the$Alfred$P.$Sloan$Foundation,$due$to$ill$health.$He$also$resigned$

from$ his$ duties$ on$ the$ behavioral$ economics$ advisory$ committee.$ Rees’s$

retirement$effectively$ended$both$his$ and$ the$Sloan$Foundation’s$ involvement$

with$the$Behavioral$Economics$Program,$and$in$1990$the$program$became$the$

sole$charge$of$the$Russell$Sage$Foundation.$Kahneman$was$made$a$permanent$

member$ of$ the$ advisory$ committee$ to$ replace$ Festinger$ on$ May$ 19th$ 1989,$

which$meant$ that$ the$ committee$ from$ then$on$consisted$of$Baumol,$ Schelling,$

Abelson$and$Kahneman.$$

By$ the$ early$90’s$ a$ few$of$ the$programme’s$beneficiaries$had$begun$a$ kind$of$

consolidation$process,$creating$compilations$of$the$most$successful$behavioural$

economic$research.$Richard$Thaler$published$his$book$QuasiSRational)Economics)

in$ 1991,$ a$ collection$ of$ essays$ that$ he$ coTauthored$ with$ his$ behavioural$

economics$ colleagues,$ and$ is$ best$ described$ as$ a$ sort$ of$ handbook$ of$

behavioural$ economics$ (Thaler,$ 1991).$ The$ Intertemporal$ Choice$ and$

Behavioral$Finance$working$groups$also$both$had$planned$essay$collections.$$

$ 156$

The$ behavioral$ economics$ program$ continued$ to$ fund$ projects$ and$ working$

groups$between$1989$and$1992,$when$the$Russell$Sage$Board$of$Trustees$called$

the$ duration$ of$ the$ programme$ into$ question$ once$ again.$ Early$ that$ year,$ the$

board$ had$ become$ concerned$ that$ the$ Behavioral$ Economics$ Program$ had$

overstayed$ its$ welcome.$ This$ was$ a$ sensible$ attitude$ for$ the$ board$ to$ have$

considering$Wanner$ had$ estimated$ the$ program$would$ last$ about$ six$ to$ eight$

years$before$the$foundation$would$move$on$to$other$areas.$The$board$had$once$

again$ raised$ concerns$ that$ the$ foundation$ had$ drifted$ from$ its$main$mission,$

namely$research$on$social$problems,$in$particular$poverty$and$the$improvement$

of$public$policy$in$the$area$of$poverty$(e.g.$Loewenstein,$Participant$Evaluation,$

May$14th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

Because$ behavioural$ economics$ for$ Wanner$ was$ still$ largely$ unfinished$

business,$when$the$eight$year$deadline$came$around$he$was$not$quite$ready$to$

let$ it$ go.$ This$ was$ despite$ his$ initial$ estimation$ for$ the$ time$ the$ programme$

would$ carry$ on.68$The$ decision$made$ by$ the$ Russell$ Sage$ board$ of$ trustees$ to$

review$ the$ future$ of$ the$ programme$ at$ the$ foundation$ prompted$Wanner$ to$

send$a$letter$asking$all$the$Behavioral$Economics$Programme$grant$recipients$to$

review$ the$progress$of$behavioural$economics$over$ the$past$8$years$ (Wanner,$

Evaluation$ Request,$ April$ 30th,$ 1992,$ SG2,$ S7,$ B196,$ F1442,$ RAC).$ It$ was$ an$

effort$to$prolong$the$foundation’s$engagement$with$behavioural$economics.$The$

result$of$the$request$sent$by$Wanner$on$April$30th$1992$is$a$collection$of$letters$

that$contain$both$reviews$of$the$achievements$of$the$programme$so$far,$and$of$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

68$In$my$interview$Wanner$was$keen$to$admit$that$his$estimation$of$the$time$it$takes$to$get$a$new$

area$ of$ research$ in$ the$ social$ sciences$ off$ the$ ground$ was$ an$ underestimation.$ After$ his$

experiences$with$ behavioural$ economics$ he$would$ estimate$ it$ taking$ at$ least$ twenty$ years$ to$

engender$ scientific$ change:$ “I$ now$ believe$ that$ if$ you’re$ serious$ about$ scientific$ change,$ you$

need$to$be$ in$there,$ I$would$tell$my$board,$minimum$ twenty$years.$And$I$really$think$that’s$an$

important$take$home$lesson”$(Wanner,$Interview$with$the$author,$April$23rd,$2014).$Still,$what$

Wanner$would$consider$too$short$a$period$of$funding$while$it$spelled$the$end$of$the$Behavioral$

Economics$ Program$ in$ its$ current$ form,$ did$ not$ spell$ the$ end$ of$ the$ discipline$ of$ behavioural$

economics.$ In$ this$ sense,$ in$ so$ far$as$ the$program$was$an$effort$ to$ jump$start$ the$discipline$ it$

cannot$be$considered$a$failure.$$

$

$ 157$

the$direction$that$recipients$believe$that$behavioural$economics$should$take$in$

the$future.$$

After$ the$ Behavioral$ Economics$ Program:$ The$Behavioral$ Economics$ Roundtable$

and$the$Summer$Institute$$

Based$on$the$evaluations$and$recommendations$received$from$the$participants$

of$the$Behavioral$Economics$Program$the$decision$of$the$Russell$Sage$Board$of$

Trustees$ was$ to$ continue$ funding$ for$ behavioural$ economic$ research,$ but$ to$

change$the$process$of$funding.$Instead$of$an$advisory$committee$to$assess$and$

either$approve$or$reject$individual$research$proposals,$Wanner$set$up$what$he$

called$the$Behavioral$Economics$Roundtable.$The$Roundtable$initially$consisted$

of$ten$scholars,$half$of$whom$were$chosen$by$current$and$previous$participants$

of$the$Behavioural$Economics$Program$and$half$of$whom$were$directly$selected$

by$ the$Board$of$Trustees.$The$ first$ ten$members$of$ the$Behavioral$Economics$

Roundtable$ were$ Akerlof,$ Blinder,$ Camerer,$ Elster,$ Kahneman,$ Loewenstein,$

Schelling,$Shiller,$Thaler,$and$Tversky.$The$new$organisation$for$the$funding$was$

for$a$sum$of$a$100$000$dollars$per$annum$to$be$awarded$for$the$members$of$the$

roundtable$to$do$with$as$they$pleased.$$

The$ first$ task$ of$ the$ Roundtable$ was$ to$ decide$ on$ how$ to$ spend$ the$ annual$

stipend.$ No$ longer$ having$ access$ to$ enough$ funds$ to$ sponsor$ large$ research$

projects,$ the$ members$ of$ the$ Roundtable$ agreed$ to$ use$ the$ funds$ in$ three$

different$ ways.$ First,$ they$ administered$ a$ small$ grants$ program$ for$ young$

researchers.$ They$ also$ set$ up$ a$ book$ series$ of$ behavioural$ economic$

publications.$In$addition,$Kahneman$had$the$idea$to$use$the$money$for$a$biennial$

behavioural$ economic$ summer$ institute$ in$ which$ young$ promising$ scholars$

would$spend$ two$weeks$ learning$ the$basics$of$behavioural$economic$research$

focusing$on$methodology$and$operationalizing$potential$areas$of$research.$$

The$ Behavioral$ Economics$ Roundtable$ is$ still$ actively$ engaged$ in$ the$ three$

activities$mentioned$above.$Having$ grown$ significantly$ since$ its$ inception,$ the$

$ 158$

Roundtable$now$consists$of$28$members.$69$Membership$is$lifelong,$and$consists$

of$ several$distinguished$ scholars$who$have$ carried$out$ influential$behavioural$

economic$research,$including$no$less$than$six$NobelTlaureates.$It$is$tempting$to$

muse$ that$ the$ Roundtable$ has$ become$ something$ of$ a$ behavioural$ economic$

"hall$of$fame",$in$addition$to$acting$as$an$administrative$group$in$the$service$of$

the$field$of$Behavioural$Economics.$$

The$ Behavioural$ Economics$ Program$ ended$ in$ 1992,$ when$ the$ Russell$ Sage$

Board$of$Trustees$really$felt$that$the$programme$had$run$its$course.$By$then,$the$

pervasive$ feeling$ was$ that$ significant$ progress$ had$ been$ made$ toward$ the$

establishment$of$a$ field,$but$that$much$work$remained$particularly$ in$order$to$

carve$ out$ a$ piece$ of$ the$ economics$ pie,$ still$ very$ much$ in$ the$ hands$ of$ neoT

classical$economists.$$

My$interview$with$him$left$me$with$the$distinct$impression$that$Wanner$would$

resist$the$idea$that$he$is$behind$the$success$of$the$programme.$Still$there$is$little$

doubt$ that$ as$ the$ vice$ president$ and$ president$ of$ the$ foundations$ that$

sponsored$it,$as)well$as$unofficial$programme$director,$he$played$a$central$role.$

The$documents$he$ left$when$he$retired$bear$witness$to$ the$close$management$

he$practiced$over$the$programme$and$its$participants.$The$program$was$small,$

not$ to$ say$ exclusive,$ from$ start$ to$ finish$ and$ invitations$ for$ potential$ visiting$

scholars$or$requests$for$proposals$were$targeted,$the$lists$drawn$in$consultation$

with$a$core$set$of$the$budding$behavioural$economics$community.$It$meant$that$

Wanner,$ the$advisory$ committee$and$ later$ the$Russell$ Sage$Board$of$Trustees$

could$set$the$agenda$for$the$evolution$of$the$programme.$The$strategy$to$solicit$

proposals$ by$ invitation$ with$ a$ narrow$ limit$ was$ one$ that$ held$ throughout.$

Attempts$were$made$to$widen$the$net,$but$these$were$deemed$unsuccessful$by$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

69$The$ current$members$ of$ the$ Behavioral$ Economic$ Roundtable$ are:$ Henry$ J.$ Aaron,$ George$

Akerlof,$ Linda$ C.$ Babcock,$ Nicholas$ C.$ Barberis,$ Roland$ Bénabou,$ Marianne$ Bertrand,$ Colin$

Camerer,$ Peter$ Diamond,$ Jon$ Elster,$ Ernst$ Fehr,$ Robert$ H.$ Frank,$ Christine$ Jolls,$ Daniel$

Kahneman,$ David$ Laibson,$ George$ Loewenstein,$ Brigitte$ C.$ Madrian,$ Sendhil$ Mullainathan,$

Edward$D.$O’Donoghue,$ Terrence$Odean,$Drazen$Prelec,$Matthew$Rabin,$ Thomas$ C.$ Schelling,$

Eldar$Shafir,$Robert$Shiller,$Cass$R.$Sunstein,$Richard$H.$Thaler,$Jean$Tirole,$Richard$Zeckhauser$

(Retrieved$ from:$ http://www.russellsage.org/research/behavioralTeconomics/behavioralT

economicsTroundtable,$December$14th,$2016).$$

$ 159$

the$ Advisory$ Committee.$ The$ strategy$ was$ based$ on$ a$ belief$ that$ behavioral$

studies$of$economics$were$few$and$far$between$practiced$only$by$a$select$group$

of$scholars,$and$that$a$grant$making$scheme$would$therefore$be$most$effective$if$

it$was$heavily$targeted$at$the$core$group.$$

Behavioural$ economists$ put$ some$ effort$ into$ establishing$ their$ discipline$ as$ a$

subTdiscipline$ of$ the$ economic$ sciences.$ These$ efforts$ are$ the$ topic$ of$ the$

following$ chapter.$ I$ present$ the$ subTdisciplining$ of$ behavioural$ economics$

through$four$main$themes.$Firstly,$just$after$the$Behavioral$Economics$Program$

had$ended,$psychologists$were$gradually$excluded$from$becoming$members$of$

the$ field.$ The$worry$ voiced$by$Thaler$was$ that$ behavioural$ economics$ should$

not$be$perceived$as$an$illTdefined$mix$between$psychology$and$economics,$but$

should$ be$ understood$ as$ a$ kind$ of$ economic$ science.$ This$ was$ most$ clearly$

visible$ in$ discussions$ about$ who$ should$ be$ encouraged$ to$ participate$ in$ the$

Behavioral$Economics$Summer$Institute.$$

Secondly,$ behavioural$ economists$ also$ differentiated$ themselves$ from$

neighbouring$ disciplines,$ namely$ economic$ sociology$ and$ experimental$

economics.$ Studies$ that$ fell$ under$ the$ banner$ of$ experimental$ economics$

eventually$ stopped$ being$ funded$ through$ the$ Behavioral$ Economics$ Program.$

Attempts$were$made$ to$ begin$ a$ strand$ of$ funding$ of$ economic$ sociology,$ but$

those$attempts$were$also$eventually$abandoned.$$

Thirdly,$ behavioural$ economists$ worked$ hard$ to$ establish$ the$ lack$ of$

descriptive$ validity$ of$ neoTclassical$ economics$ by$ focusing$ on$ areas$ of$ the$

economic$sciences$where$the$rationality$principle$was$particularly$strong.$Much$

of$the$Behavioral$Economics$Program$was$centred$on$accumulating$evidence$of$

this$ lack$ of$ descriptive$ validity.$ This$ focus$ is$ exemplified$ by$ Richard$ Thaler’s$

anomalies$column.$$

Finally,$toward$the$end$of$the$programme,$behavioural$economists$began$

concentrating$on$laying$a$path$to$policy.$This$was$an$area$where$neoTclassical$

economists$were$especially$influential.$It$was$also$where$behavioural$

$ 160$

economists$saw$their$field$having$the$most$impact$in$future.$Importantly,$it$was$

the$work$that$had$gone$into$supporting$the$notion$that$rationalist$neoTclassical$

economics$lacked$descriptive$validity$that$allowed$behavioural$economists$to$

take$this$path.$

$ 161$

CHAPTER(5:(ESTABLISHING!BEHAVIOURAL+ECONOMICS+AS!A"SUB"DISCIPLINE)OF)ECONOMICS!

The$contributors$to$the$Behavioral$Economics$Program$formed$the$discipline$of$

behavioural$economics.$More$specifically$they$moulded$behavioural$economics$

into$a$subSdiscipline)of)economics.$Behavioural$economists’$desire$to$ride$under$

the$banner$of$the$economic$sciences$is$understandable$for$reasons$of$access$to$a$

various$ kinds$ of$ resources.$ In$ STS$ terminology,$ this$ was$ a$ process$ of$

disciplinary$formation$that$required$a$good$deal$of$disciplinary$boundary$work$

(Gieryn,$1983,$1995,$1999).$In$a$nutshell,$disciplinary$boundary$work$refers$to$

the$ practices$ of$ a$ community,$ both$ discursive$ and$ otherwise,$ that$ determine$

who$and$what$belong$to$ it.$Behavioural$economists’$strategy$for$defining$their$

discipline$was$fourfold.$$

It$ was$ the$ agenda$ to$ situate$ behavioural$ economics$ within$ economics,$ as$ a$

branch)of)economics,$which$drove$behavioural$economists$to$gradually$exclude$

psychologists$ from$ the$ mix.$ This$ is$ despite$ the$ general$ understanding$ of$ the$

approach$as$a$blend$of$psychology$and$economics$and$despite$Wanner’s$careful$

attention$to$maintaining$a$balance$between$representatives$of$the$disciplines.$I$

begin$ this$ chapter$ with$ a$ discussion$ of$ how$ and$ why$ this$ came$ to$ be.$

Behavioural$ economists$ also$ put$ significant$ effort$ into$ avoiding$ behavioural$

economics$ becoming$ a$ “hybrid”,$ $ as$ in$ a$ mix$ between$ two$ disciplines,$ but$

somehow$outside$the$parameters$of$either.$The$ultimate$consequence$was$the$

gradual$edging$out$of$psychologists$from$the$field,$beginning$with$the$exclusion$

of$psychology$graduates$from$the$summer$institute,$the$behavioural$economics$

training$camp$set$up$when$the$programme$ended.$

Second,$ behavioural$ economists$ disciplined$ behavioural$ economics$ by$

differentiating$ it$ from$ neighbouring$ experimental$ economics$ and$ economic$

sociology.$ Both$ economic$ sociologists$ and$ experimental$ economists$ were$

$ 162$

interested$ in$ interrogating$ the$ descriptive$ validity$ of$ rational$ neoTclassical$

economic$ models$ of$ behaviour.$ But$ economic$ sociology$ and$ experimental$

economics$were$quite$different$from$each$other$in$the$approaches$they$took$to$

do$ so.$ This$ in$ turn,$ meant$ that$ the$ process$ of$ differentiation$ was$ differently$

justified$by$behavioural$economists.$$

Third,$many$of$ the$studies$ that$behavioural$economists$engaged$ in$during$ the$

programme$ concentrated$ on$ areas$ of$ mainstream$ economics$ where$ the$

rationality$ principle$was$ the$ strongest:$ finance$ and$ game$ theory.$ I$ argue$ that$

this$ was$ because$ they$ best$ established$ the$ necessity$ and$ usefulness$ of$ the$

behavioural$approach.$

Fourth,$ the$evidence$ from$the$1992$evaluations$of$ the$Behavioural$Economics$

Program$ show$ that$ the$ most$ common$ recommendations$ for$ behavioural$

economics$ in$ future,$was$ to$ focus$ attention$on$ the$ creation$of$policies.$ In$ this$

chapter$I$once$again$draw$mainly$on$archival$material.$In$particular$I$draw$on$a$

collection$of$assessments$of$ the$progress$and$ future$of$behavioural$economics$

composed$by$participants$of$ the$Behavioural$Economics$Programme,$ in$1992,$

mentioned$in$the$previous$chapter.$$

Avoiding$the$hybrid$$

Behavioural$ economists$ did$ a$ lot$ of$ work$ in$ the$ early$ days$ of$ building$ their$

discipline$to$establish$it$as$a$branch$of$the$economic$sciences.$Thaler$especially$

disliked$ the$ idea$ of$ behavioural$ economics$ to$ turn$ into$ a$ “hybrid$ field”$ but$

instead$ wanted$ it$ to$ be$ understood$ as$ a$ new$ and$ improved$ kind$ of$ micro$

economics.70$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

70$The$term$“hybrid$ field”$comes$directly$ from$my$interview$with$Kahneman.$What$Kahneman$

was$ saying$was$ that$ Thaler$ was$ concerned$ that$ if$ behavioural$ economics$ was$ regarded$ as$ a$

hybrid$ field$ its$ status$would$ be$weakened,$ and$ that$ it$ would$ not$ be$ a$ respected$ field$within$

economics.$ In$ this$ regard$ Kahneman$ thought$ Thaler$ had$ been$ “exactly$ right”$ (Kahneman,$

Interview$with$the$author,$April$29th,$2014).$$$

$ 163$

Thaler$ had$ been$ quick$ to$ drive$ the$ agenda$ for$ making$ the$ behavioural$

economics$ core$ set$ more$ ‘economist$ heavy’$ than$ ‘psychologist$ heavy’.$ In$ his$

letter$from$1984$answering$a$request$from$Wanner$for$suggestions$of$people$to$

invite$to$join$the$new$behavioural$economics$group$he$made$his$case$simply:$“I$

do$think$the$group$should$be$heavier$of$economists$because$the$work$we$have$

in$ mind$ will$ have$ to$ be$ done$ by$ economists$ eventually”$ (Thaler,$ Letter$ to$

Wanner,$ June$ 7th,$ 1984,$ SG2,$ S7,$ B196,$ F1442).$ The$ main$ strategy$ to$ avoid$

developing$ into$ a$hybrid$was$ to$populate$ the$ field$primarily$with$ economists.$

Although$Kahneman$initially$argued$against$Thaler$on$this$point,$in$the$end$he$

eventually$found$Thaler’s$arguments$convincing.$$

Making$ behavioural$ economics$more$ economist$ heavy$went$ against$Wanner’s$

careful$ attention$ to$ include$ representatives$ of$ both$ psychologists$ and$

economists$ throughout$ the$ life$of$ the$Behavioral$Economics$Program.$We$saw$

the$clearest$example$of$this$balancing$act$in$the$considered$composition$of$the$

advisory$committee.$$

Getting$economists’$attention$

The$ desire$ to$ establish$ behavioural$ economics$ as$ a$ subfield$ of$ economics$ to$

some$ extent$ meant$ that$ behavioural$ economists$ needed$ mainstream$

economists$ to$ recognise$ behavioural$ economics$ as$ part$ of$ their$ field.$ The$

journey$of$early$behavioural$economics$is$often$told$by$behavioural$economists$

in$ terms$ of$ the$ struggles$ to$ get$ the$ attention$ of$ mainstream$ economists:$

“economists’$ heads$ turn$ only$ very$ slowly$ and$ with$ great$ difficulty”$ (Farber,$

Participant$Evaluation,$June$3rd$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

By$ the$ early$ 1990’s$ there$ is$ evidence$ that$ this$ kind$ of$ pessimism$ about$ the$

prospects$of$getting$the$attention$of$mainstream$economists$by$some$had$been$

tempered$ by$ a$moderate$ optimism$ founded$ on$ a$ feeling$ that$ there$may$ be$ a$

general$reformation$under$way$within$the$economics$profession:$$

$ 164$

Frankly,$there$is$a$sense$in$which$the$Behavioural$Program$is$in$the$right$place$at$

the$ right$ time.$ Economists$ have$ reached$ the$ point$ where$ they$ have$ turned$

strongly$away$from$the$collection$of$new$data,$and$yet$in$the$profession$there$is$a$

strong$ feeling$ that$ this$ought$ to$be$ changed$ (Ashenfelter,$Participant$Evaluation,$

June$3rd,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

And$while$behavioural$economics$was$not$necessarily$the$cause$of$this$retreat,$

economic$crises$like$the$1987$stock$market$crash$meant$that$economists$were$

coming$ to$ appreciate$ a$ need$ for$ taking$ the$ psychology$ of$ the$ economic$ actor$

more$seriously$(De$Bondt,$Participant$Evaluation,$May$29th,$1992,$SG2,$S7,$B196,$

F1442,$RAC).$The$reason$why$appeals$to$timing$and$crises$worked$as$arguments$

for$behavioural$economics$was$ that$ they$provided$support$ for$ the$notion$ that$

much$ of$ neoTclassical$ theory$ was$ descriptively$ inaccurate:$ “conventional$

economic$ thinking$ is$ long$ on$ elegance$ and$ sometimes$ short$ on$ relevance”$

(Juster,$Participant$Evaluation,$May$28th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

For$ behavioural$ economists,$ this$ provided$ an$ opening$ for$more$behaviourally$

inspired$ research.$ By$ the$ end$ of$ the$ Behavioral$ Economics$ Program$

contributors$ to$ it$ were$ most$ positive$ about$ their$ impact$ on$ mainstream$

economics$ precisely$ when$ it$ came$ to$ having$ provided$ at$ least$ some$ areas$ of$

economic$ research$ with$ much$ needed$ empirical$ rigour.$ The$ idea$ was$ that$

mainstream$economists$through$the$progress$made$since$1984$had$become$at$

the$very$least$a$little$less$aggressive$in$their$dismissal$of$behavioural$economics:$

“No$ more$ burning$ people$ at$ the$ intellectual$ stake”$ (Blinder,$ Participant$

Evaluation,$May$29th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

Over$the$course$of$the$programme$the$agenda$was$established$to$challenge$the$

descriptive$ validity$ of$ neoTclassical$ economics$ and$ establish$ behavioural$

economics$ as$ one$ of$ the$ economic$ sciences.$ The$ boundaries$ drawn$ by$

contributors$ to$ the$ programme$ between$ behavioural$ economics,$ economic$

sociology$ and$ experimental$ economics$ as$ well$ as$ behavioural$ economists’$

choice$to$pay$special$attention$to$finance,$game$theory$and$policy$all$reflect$that$

agenda.$A$focus$on$policy$also$helped$keep$the$programme$in$line$with$the$goals$

of$the$Russell$Sage$Foundation.$$

$ 165$

Ultimately$both$the$small$grants$program$and$Kahneman’s$idea$to$spend$a$large$

part$of$ the$Behavioral$Economics$Roundtable$annual$stipend$on$a$behavioural$

economics$summer$institute$for$young$researchers$became$the$embodiment$of$

the$ strategy$ to$ recruit$ young$ economists$ who$ could$ learn$ the$ methods$ of$

behavioural$ economics$ and$ apply$ them$ in$ a$ way$ that$ economists$ would$

understand.$ It$ was$ in$ conjunction$ with$ the$ summer$ institute$ that$ official$

recruitment$of$psychologists$ to$ the$ field$ came$ to$an$end.$The$ first$ year$ it$was$

run,$a$few$psychology$students$were$included,$but$that$all$ended$by$the$second$

year.$ The$ question$ of$ what$ kind$ of$ students$ should$ be$ included$ in$ the$

recruitment$ pool$ was$ important$ because$ it$ played$ a$ part$ in$ the$ process$ of$

establishing$behavioural$economics$into$a$subTdiscipline$of$economics.$$

Differentiating$Behavioural$Economics$from$Neighbouring$Fields$

Economic$sociology$$

The$mid$1980’s$saw$a$revival$of$work$that$focused$on$applying$sociological$tools$

to$ economic$ phenomena.$ In$ a$ memorandum$ of$ the$ Russell$ Sage$ archival$

collection,$ sociologist$ Mark$ Granovetter$ (b.$ 1943)$ explains$ this$ upswing$ in$

interest$ succinctly$ as$ a$ combination$ of$ three$ elements;$ a$ decline$ of$ structural$

functional$ sociological$ dominance$ in$ sociology,$ decreased$ fear$ of$ complex$

mathematical$ models$ among$ some$ sociologists$ and$ increased$ dissatisfaction$

among$some$ factions$of$economists$concerning$ the$ impact$of$social$ factors$on$

economic$processes$(Granovetter,$Memorandum$Economic$Sociology,$May$29th,$

1991,$SG2,$S7,$B196,$F1443,$RAC).$$

Just$ like$ behavioural$ economists,$ economic$ sociologists$ differentiate$ between$

an$‘old’$and$a$ ‘new’$version$of$their$field.$It$was$Granovetter$who$spearheaded$

this$ new$ wave$ of$ scholarship$ and$ who$ dubbed$ the$ field$ ‘new$ economic$

sociology’$ (M.$ Granovetter,$ 1985,$ 1990).$ Summarised,$ Granovetter’s$ economic$

sociology$was$a$combination$of$his$own$work$on$social$networks$(1973)$and$the$

concept$ of$ ‘embeddedness’.$ The$ most$ important$ difference$ between$ old$ and$

$ 166$

new$ economic$ sociology$ was$ that$ while$ “old$ economic$ sociology”$ was$

concerned$ with$ the$ social) conditions) that$ allow) for$ economic$ phenomena,$

Granovetter’s$approach$encouraged$the$study$of$the$social)construction$of$those$

same$ phenomena.$71$It$ is$ this$ shift$ from$what$ might$ be$ identified$ as$ ‘external$

conditions’$ of$ economic$ processes$ to$ the$ study$ of$ the$ social$ networks$ that$

constitute$ economic$ phenomena$ that$ allows$ Liagouras$ (2007)$ to$ characterise$

“new$ economic$ sociology”$ as$ a$ challenge$ to$ economic$ theory$ from$ “inside$ its$

own$field”$(p.$75).$$

This$ meant$ among$ other$ things$ that$ there$ was$ a$ similarity$ between$ the$

approach$ adopted$ by$ economic$ sociologists$ and$ behavioural$ economists$

concerning$the$way$they$understood$themselves$to$present$a$challenge$to$neoT

classical$economic$theory:$$

Compared$ to$ the$ earlier$ tradition$ in$ economic$ sociology,$ this$ new$ wave$ shows$

much$ more$ interest$ in$ those$ phenomena$ usually$ studied$ exclusively$ by$

economists,$ and$ challenges$ the$ adequacy$ of$ the$ neoTclassical$ account;$ older$

economic$ sociology$ remained$ on$ the$ fringes$ of$ areas$ ceded$ to$ economists—

studying,$ for$ example,$ the$ nature$ of$ social$ interaction$ in$work$ groups—without$

challenging$ the$ correctness$ of$ neoTclassical$ treatments$ of$ production,$

consumption$and$distribution$(Granovetter,$Memoranda$Economic$Sociology,$May$

29th,$1991,$SG2,$S7,$B196,$F1443,$RAC).$$

The$Russell$Sage$Board$of$Trustees$had$over$the$years$pushed$for$not$just$more$

sociological$perspectives$on$economics,$but$historical$and$cultural$ones$as$well.$

Economic$sociology$was$ incorporated$ into$ the$Behavioral$Economics$Program$

as$a$result$of$the$Russell$Sage$Board$of$Trustees$having$urged$Wanner$and$the$

Behavioral$ Economics$ Advisory$ Committee$ to$ think$ of$ incorporating$ social$

sciences$ other$ than$ psychology$ into$ the$ mix$ (Wanner,$ Letter$ to$ Advisory$

Committee,$October$ 16th,$ 1986,$ SG2,$ S7,$ B194,$ F1431,$RAC).$ In$ June$1988$ the$

Board$of$Trustees$provided$points$of$recommendation$for$the$ future$direction$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

71$For$ intellectual$ histories$ of$ economic$ sociology$ see:$ (Beckert$ &$ Swedberg,$ 2001;$ Doud$ &$

Larsson,$2011;$Richard$Swedberg,$1990,$1991;$2010)$

$ 167$

of$the$Behavioral$Economics$Program.$Their$final$point$especially$could$clearly$

be$read$as$encouragement$for$the$inclusion$of$economic$sociologists:$

that$the$programme$avoid$projects$which$focus$on$“toy”$problems$of$little$practical$

or$social$significance$$

$

that$ the$ program$ seek$ projects$ that$make$ a$ stronger$ connection$ between$micro$

studies$of$decision$making$and$their$aggregate$consequences$

$

that$the$program$stick$to$projects$that$have$clear$implications$for$economic$theory$$

$

that$the$program$encourage$studies$of$economic$decision$making$which$recognize$

the$ socially$ embedded$ nature$ of$ the$ decision$ process$ and$ avoid$ an$ exclusive$

emphasis$ on$ individual$ agency.$ (Russell$ Sage$ Foundation$ Board$ of$ Trustees$

Docket,$June$1988,$SG2,$S7,$B195,$F1437,$RAC).$

A$Russell$Sage$Board$of$Trustees$memorandum$from$October$14th$of$1988$has$

Wanner$ summarising$ the$ suggestion$ from$ the$ board$ “to$ get$ away,$ if$ possible,$

from$exclusive$orientation$on$individual$decision$making$and$trying$to$consider$

more$ of$ the$ social$ constraints$ and$ social$ nature$ of$ some$ economic$ decisions$

(Wanner,$ Minutes$ of$ Trustees$ Meeting,$ October$ 14th,$ 1988,$ SG2,$ S7,$ B195,$

F1437,$RAC).$

In$ many$ ways$ then,$ economic$ sociology,$ with$ its$ focus$ on$ critiquing$ neoT

classical$economics,$and$its$sociological$as$opposed$to$individualistic$approach$

could$ have$ been$ a$ perfect$ fit$ for$ the$ Behavioral$ Economics$ Programme$ at$

Russell$Sage.$In$the$years$1988T1989$Wanner$did$substantial$work$to$bring$the$

Advisory$ Committee$ in$ line$with$ the$wishes$ of$ the$ board$ of$ trustees.$ But$ the$

inclusion$ of$ yet$ another$ social$ science,$ and$ yet$ another$ perspective$ proved$

complicated.$ Wanner,$ the$ committee$ and$ the$ rest$ of$ the$ programme$

contributors$ already$ had$ a$ few$ years$ experience$ with$ the$ difficulties$ of$

negotiating$the$boundary$between$two$disciplines,$ let$alone$three$or$ four.$The$

advisory$ committee$ was$ reticent$ about$ extending$ the$ programme$ to$ include$

additional$social$sciences.$For$instance,$Baumol$in$a$letter$to$Wanner$expressed$

a$readiness$to$compromise,$by$funding$collaborations$between$psychologists$or$

economists$ and$ scholars$ of$ other$ disciplines,$ but$ did$ not$ like$ the$ idea$ of$

$ 168$

broadening$the$scope$to$include$proposals$“from$sources$outside$our$two$focal$

disciplines”$ (Baumol,$ Letter$ to$Wanner,$ November$ 17th,$ 1986,$ SG2,$ S7,$ B194,$

F1431,$RAC).$Wanner$too$expressed$some$doubt$as$to$the$intellectual$benefits$of$

including$ sociologists$ in$ the$program,$despite$ the$ sense$ it$made$ in$ relation$ to$

the$internal$politics$of$the$foundation:$$

I$ personally$ think$ we$ have$ enough$ trouble$ already$ on$ the$ border$ between$

psychology$ and$ economics,$ but$ it$ may$ make$ some$ sense$ for$ historical/political$

reasons$to$involve$Russell$Sage$at$the$sociologyTeconomics$intersection.$(Wanner,$

Letter$to$Thaler,$October$20th,$1986,$SG2,$S7,$B198,$F1455,$RAC)$$

Despite$ the$ resistance$ from$ the$ advisory$ committee,$ by$ the$ early$ 1990’s$ the$

Economic$Sociology$Working$Group$was$approved,$put$together$with$the$help$of$

Granovetter.$The$Group$held$a$total$of$seven$seminars$between$1990$and$1991.$

Though$ the$ meetings$ seem$ to$ have$ been$ successful$ in$ terms$ of$ interest$ and$

participation,$ economic$ sociology$ under$ the$ auspices$ of$ Russell$ Sage$ and$ the$

Behavioral$Economics$Program$never$quite$got$off$the$ground.$Thus$the$kind$of$

sociological$approaches$to$economics$developed$by$Granovetter$and$likeminded$

colleagues$were$never$embraced$by$the$behavioural$economic$contingent.$$

The$ failure$ to$ include$ economic$ sociologists$ in$ the$ Behavioral$ Economics$

Program$ultimately$ hinged$ on$ the$ individual$ being$ the$ key$ unit$ of$ analysis$ in$

heuristics$ and$ biases$ inspired$ behavioural$ economics.$ It$ was$ the$ Board$ of$

trustees$wish$to$broaden$the$scope$of$the$programme$beyond$individual$agency$

that$met$with$most$resistance$ from$the$advisory$committee$(Wanner,$Minutes$

of$Trustees$Meeting,$October$14th$1988).$$

The$ issue$ of$ the$ individual$ as$ unit$ of$ analysis$ is$ very$ much$ a$ question$ of$

disciplinary$affiliation.$Wanner$explained$to$the$Board$of$Trustees$that$in$order$

for$ sociologists$ to$ be$ incorporated$ in$ the$ program,$ there$ would$ need$ to$ be$

additions$made$to$the$advisory$committee:$

This$committee$is$made$up$of$two$psychologists$and$two$economists.$I$think$if$we$

are$going$to$reach$out$toward$more$socioTeconomics$we$need$some$representation$

$ 169$

from$ the$ more$ socially$ oriented,$ less$ individually$ oriented$ social$ scientists.$

(Wanner,$Minutes$of$Trustees$Meeting,$October$14th$1988,$SG2,$S7,$B195,$F1437,$

RAC)$$

It$ was$ a$ shared$ focus$ on$ the$ individual$ as$ unit$ of$ analysis$ that$ made$ neoT

classical$economic$theory$especially$compatible$with$cognitive$psychology.72$Of$

course,$ the$ issue$ of$ the$ individual$ as$ unit$ of$ analysis$ is$ precisely$ the$ point$ of$

contention$ with$ neoTclassical$ economists$ for$ economic$ sociologists.$ And$

economic$sociologists$are$not$the$only$kind$of$scholar$that$could$take$issue$with$

methodological$ individualism.$ Below$ is$ an$ extract$ from$ a$ correspondence$

between$ Wanner$ and$ evolutionary$ economist$ Richard$ Nelson$ where$ Nelson$

expands$on$his$ view$of$ the$ consequences$of$ the$methodological$ individualism$

practiced$by$some$psychologists$and$economists:$$

I$ might$ reply$ by$ pointing$ to$ a$ deep$ intellectual$ issue$ that$ cuts$ through$ both$

psychology$and$economics$as$disciplines.$Both$psychologists,$and$economists,$are$

trained$to$see$individuals$as$the$key$units.$Organizations,$and$societies,$tend$to$be$

seen$as$collections$of$these$individuals$operating$as$individuals,$but$constrained$to$

interact$ by$ some$ sort$ of$ organizational$ structure,$ or$ social$ customs$ and$ norms.$

However,$ these$ latter$ constructs$ are,$ in$ a$ sense,$ embarassments$ (sic)$ to$ both$

disciplines$[…]$In$short,$I$think$the$issue$here$is$more$than$simply$about$“truth$in$

labelling”.$ The$ issues$ are$ of$ major$ intellectual$ and$ methodological$ substance$

(Nelson,$Reply$to$Wanner,$October$23rd,$1987,$SG2,$S7,$B201,$F1483,$RAC).$

The$ trepidations$ about$ expanding$ the$ program$ to$ include$ a$more$ sociological$

perspective,$ in$ so$ far$ as$ there$ were$ any,$ centred$ on$ the$ potential$ loss$ of$ the$

focus$on$the$individual$as$unit$of$analysis.$The$concerns$about$discrepancies$in$

units$ of$ analysis$ (individual/social)$ were$ voiced$ by$ both$ programme$

contributors$at$the$time$and$prospective$contributors$to$the$economic$sociology$

branch.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

72$It$ is$worth$noting$ that$ this$was$ an$ argument$ that$Wanner$made$ in$my$ interview$with$him.$

When$I$asked$Wanner$why,$early$on,$he$made$the$decision$to$gear$his$cognitive$psychological$

venture$ specifically$ to$ economics$ to$ the$ exclusion$ of$ other$ social$ sciences,$ he$ stressed$ the$

centrality$ of$ the$ individual$ that$ cognitive$ psychology$ and$ economics$ largely$ share$ –$what$ he$

called$“methodological$individualism”$(Wanner,$Interview$with$the$author,$April$23rd,$2014).$$

$

$ 170$

Experimental$economics$

Arguably,$ behavioural$ economists$ had$ even$more$ in$ common$with$ a$ group$of$

scholars$ who$ gave$ the$ kind$ of$ studies$ they$ were$ engaged$ in$ the$ label$

‘experimental$ economics’.$ The$ two$ approaches$ to$ microeconomics$ have$ in$

common$ the$ drive$ to$ reincorporate$ experimental$ methods$ into$ the$ study$ of$

economics.$ More$ to$ the$ point,$ practitioners$ of$ either$ would$ argue$ that$ their$

mission$ was$ to$ improve$ on$ economic$ theory$ by$ providing$ it$ with$ a$ stronger$

empirical$foundation.$

In$ his$ article$ contrasting$ behavioural$ economics$ and$ experimental$ economics,$

Heukelom$ (2011)$draws$attention$ to$ the$different$ scholarly$ interpretations$of$

the$relationship$between$experimental$economics$and$behavioural$economics.$

A$substantial$group$of$authors$argue$that$the$two$fields$should$be$understood$as$

variations$ of$ a$ general$ trend$ toward$ the$ introduction$ of$ the$ experimental$

method$ in$ economics$ (Bowles,$ 2004;$ Davis$ &$ Holt,$ 1993;$ Friedman,$ 1994;$

Guala,$2005).$Others$see$the$two$fields$as$distinct$projects$despite$their$shared$

commitment$to$the$experimental$method$and$a$close$initial$connection$through$

the$ Sage$ Foundation$ and$ the$ Behavioral$ Economics$ Programme$ (Camerer$ &$

Loewenstein,$ 2004;$ Grether$ &$ Plott,$ 1979,$ 1982;$ Kahneman,$ 2003b;$

Loewenstein,$1999;$V.$L.$Smith,$1989,$2008).$$

Looking$ a$ little$ more$ closely$ at$ who$ is$ arguing$ for$ which$ position$ a$ pattern$

emerges.$ The$ authors$ who$ take$ the$ position$ that$ behavioural$ economics$ and$

experimental$ economics$ are$ variations$ on$ an$ experimental$ theme$ are$ all$

authors$ of$ textbooks$ on$ the$ experimental$ methods$ in$ the$ field$ of$ economics.$

This$ is$ contrasted$ with$ those$ who$ argue$ that$ behavioural$ economics$ and$

experimental$ economics$ are$ distinct$ endeavours.$ These$ authors$ are$ primarily$

experimental$economists$and$behavioural$economists$themselves.$So$why$have$

either$‘camp’$felt$a$need$to$distinguish$themselves$from$the$other?$$

The$experimental$economists$were$spearheaded$by$economist$Vernon$Smith$(b.$

1927)$ who$ had$ used$ experiments$ for$ his$ work$ in$ economics$ since$ the$ late$

1950’s$ (e.$ g.$ V.$ L.$ Smith,$ 1962).$ Smith’s$ experimental$ approach$ inspired$

$ 171$

economists$ David$ Grether$ (1939T)$ and$ Charles$ Plott$ (1938T)$ who$ both$made$

significant$contributions$to$Smith’s$experimental$line$of$inquiry.$$

Grether$and$Plott$had$attempted$to$distinguish$the$Smith$strand$of$experimental$

economics$ from$ the$Kahneman$Tversky$ strand$ of$ experimental$ psychology$ in$

the$ late$ 1970’s.$ They$ went$ so$ far$ as$ to$ deliberately$ replicate$ selected$

experiments$ of$ the$ Heuristics$ and$ Biases$ Programme.$ Their$ intention$ was$ to$

disconfirm$the$results$and$debunk$a$range$of$psychological$theories$put$forward$

to$ explain$ them.$ However,$ their$ project$ succeeded$ instead$ in$ confirming$ the$

results$ of$ Kahneman$ and$ Tversky’s$ previous$ experiments$ (Grether$ &$ Plott,$

1979,$1982).$In$fact,$because$of$the$unusually$long$lagTtime$between$writing$and$

publication$ of$Prospect)Theory$ (1979)$ the$ results$ of$ Grether$ and$ Plott’s$ 1979$

article$were$cited$by$Kahneman$and$Tversky.73$$

Having$ succeeded$ mainly$ in$ confirming$ Kahneman$ and$ Tversky’s$ results$ the$

two$scholars$abandoned$their$belief$ in$the$descriptive$powers$of$ the$theory$of$

preference.$But$their$results$did$not$compel$them$to$abandon$their$belief$that$a$

market$ equilibrium$ could$ be$ reached,$ and$ frequently$ was$ reached,$ despite$

evidence$of$descriptive$deviations$ from$neoTclassical$ rationalism.$Following$ in$

the$line$of$Vernon$Smith,$for$Grether$and$Plott,$confirmation$of$the$descriptive$

deviations$ served$ to$ emphasise$ the$ central$ role$ played$ by$ the$ process$ of$ the$

market$ equilibrium$ for$ counteracting$ irrational$ consumer$ behaviour$

(Heukelom,$2014).$$

Smith’s$ conception$ of$ the$ goal$ of$ experimental$ economics$was$ quite$ different$

from$ the$ goals$ envisioned$ by$ Thaler.$ For$ him$ experimental$ economics$

“documents$a$growing$body$of$evidence$that$is$consistent$with$the$implications$

of$ rational$models$ […]$ The$ result$ is$ to$ deepen$ the$ concept$ of$ rationality$ and$

simultaneously$increase$consistency$between$the$observations$and$the$models”$

(V.$ L.$ $ Smith,$ 1991,$ p.$ 878).$What$ came$ to$ interest$ Smith$was$ the$ differences$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

73$The$ article$ was$ cited$ as$ support$ for$ the$ assertion$ that$ preference$ orders$ are$ different$ in$

situations$where$ there$are$more$ than$ two$alternative$prospects$ to$choose$ from$(Kahneman$&$

Tversky,$1979).$$

$ 172$

between$ the$ outcome$ of$ individual$ decision$ making$ in$ tests$ like$ the$ ones$

psychologists$ like$ to$ carry$ out$ in$ their$ laboratories$ and$ the$ outcome$ of$

individual$decisions$in$social$institutions$like$the$market:$$

Why$ is$ it$ that$ human$ subjects$ in$ the$ laboratory$ frequently$ violate$ the$ canons$ of$

rational$ choice$ when$ tested$ as$ isolated$ individuals,$ but$ in$ the$ social$ context$ of$

exchange$institutions$serve$up$decisions$that$are$consistent$(as$though$by$magic)$

with$predictive$models$based$on$individual$rationality?$(V.$L.$$Smith,$1991,$p.$894).$

Smith$was$willing$to$admit$that$experimental$economists$had$yet$to$conceive$of$

an$explanation$for$the$magic$that$transforms$deviations$from$rational$principles$

into$ a$ rational$ equilibrium,$ but$ appealed$ to$ Lucas’$ notion$ of$ ‘adaptive$

expectations’$ as$ a$ possible$ starting$ point.$ Smith’s$ point$ was$ that$ decision$

making,$ economic$ or$ otherwise,$ was$ not$ just$ a$ process$ of$ calculation$ but$ of$

social$ interaction.$ It$ is$ with$ that$ social$ interaction$ that$ economists$ should$ be$

concerned.$Smith$appealed$to$the$analogy$between$cognition$and$perception$to$

explain$the$“magic”$or$what$he$calls$the$part$of$economic$reality$that$is$“unseen”$

and$happens$outwith$direct$human$awareness.$He$also$equates$the$“unseen”$or$

the$ “unperceived”$ with$ the$ “unconscious”.$ In$ double$ auctions,$ for$ example,$

Smith$believes$that$people$learn$through$repetition$to$correct$decisions$in$a$way$

that$results$in$an$equilibrium,$a$process$he$labels$“unconscious$optimization”$(V.$

L.$ Smith,$1994).$The$process$ for$ Smith$ is$ akin$ to$Adam$Smith’s$ invisible$hand$

and$derives$ inspiration$ from$Hayek’s$ invisible$order$ (Zouboulakis,$2014).$The$

analytical$ task$ of$ experimental$ economics$ was$ to$ shed$ light$ on$ these$

unperceived$repercussions$of$individual$economic$decision$making:$$

Economic$reality$consists$of$both$the$unseen$and$the$seen$–$both$the$indirect$and$

direct$consequences$of$a$decision.$What$economics$brings$to$the$analytical$table$is$

the$ broader$ perspective$ that$ choice$ decisions$ have$ repercussions$ that$ actual$

decision$makers$experience$but$that$may$not$be$perceived$(V.$L.$$Smith,$1991,$pp.$

882T883).$$

The$boundary$between$behavioural$economics$and$experimental$economics$ is$

maintained$by$ the$different$ interpretations$of$ the$ goals$ of$ experimentation$ in$

$ 173$

the$economic$sciences.$Grether$and$Plott,$who$were$following$in$the$footsteps$of$

Smith,$ were$ keen$ to$ preserve$ some$ descriptive$ validity$ for$ neoTclassical$

economic$theory.$Smith$was$interested$in$the$phenomenon$of$market$equilibria,$

and$ in$ using$ experimental$ data$ to$ explain$ phenomena$ like$ the$ market$

equilibrium.$ Smith’s$ attitude$ was$ that$ economics$ should$ be$ data$ driven.$ To$

produce$ empirical$ evidence$with$ the$ sole$ purpose$ of$ refuting$ theory$was$ for$

Smith$to$begin$with$theory$in$a$way$that$was$illegitimate.$

The$ continued$ differences$ between$ Smith$ and$ his$ followers$ and$ the$ more$

Kahneman/Tversky$oriented$behavioural$economists$were$reflected$in$Smith’s$

less$than$optimistic$evaluation$of$the$Behavioral$Economics$Program$in$1992.$In$

it$ he$ referred$ to$ Lakatos,$ to$ make$ the$ point$ that$ the$ theoretical$ work$ of$

behavioural$economists$should$include$both$verification$and$falsification.$Smith$

distinguished$ between$ “experimental$ (market)$ economics$ and$ behavioral$

(choice)$ economics”$ (Smith,$ Participant$ Evaluation,$ May$ 15th$ 1992,$ SG2,$ S7,$

B196,$F1442,$RAC).$He$ considered$ the$ former$ to$have$had$a$ clear$ impact,$ but$

was$considerably$more$dubious$about$the$impact$of$the$latter.$$

Once$again,$a$crucial$point$is$the$focus$of$the$individual$as$unit$of$analysis.$Smith$

was$of$the$opinion$that$there$was$a$lack$of$support$for$experimental$economics$

within$ the$ Behavioral$ Economics$ Program$ particularly$ after$ the$ move$ from$

Sloan$to$Sage.$He$located$the$reasons$for$this$in$what$he$considered$to$be:$

an$ almost$ exclusive$ emphasis$ on$ the$ individual$ in$ isolated$ decision$ making$

situations$ [which]$ simply$ does$ not$ lend$ itself$ to$ addressing$ issues$ that$ are$ of$

interest$to$economists,$policy$makers,$managers,$and$the$worldwide$privatization$

movement$ (Smith,$ Participant$Evaluation,$May$15th,$ 1992,$ SG2,$ S7,$B196,$ F1442,$

RAC).$$

He$did$not$claim$that$individual$choice$had$no$bearing$on$these$areas,$just$that$it$

was$ difficult$ to$ address$ the$ issues$ that$ need$ to$ be$ addressed$ with$ a$ highly$

individualistic$ approach.$ For$ Smith$ the$ focus$ on$ providing$ examples$ of$

deviations$ from$ normative$ economic$ theory$ was$ “just$ dead$ wrong”$ (Smith,$

$ 174$

Participant$ Evaluation,$ May$ 15th,$ 1992,$ SG2,$ S7,$ B196,$ F1442,$ RAC),$ for$ the$

following$reason:$$

You$ have$ to$ know$ both$what$ is$wrong$ and$what$ is$ right$with$ a$ theory$ to$ get$ it$

appropriately$ reformulated.$This$ is$ clear$as$a$general$proposition$ in$ the$work$of$

philosophers$ and$ historians$ (e.g.$ Lakatos)$ of$ science.$ Also,$ that$ there$ is$ no$

refutation$ without$ a$ better$ theory:$ people$ just$ ignore$ or$ excuse$ anomalous$

observations$until$a$new$theory$is$offered$that$is$consistent$with$both$the$verifying$

and$ at$ least$ some$ of$ the$ previous$ falsifying$ data$ (Smith,$ Participant$ Evaluation,$

May$15th,$1992,$SG2,$S7,$B196,$F1442,$RAC,$emphasis$in$the$original).$

The$ issues$ that$ Smith$ had$ with$ the$ exclusive$ focus$ on$ the$ individual$ were,$

unlike$the$economic$sociologists,$to$do$with$sustaining$the$idea$of$the$stabilising$

effect$of$ the$market,$ and$ the$ role$of$ the$market$as$a$ force$ that$diminishes$ the$

effects$ of$ deviations$ from$ the$ rationality$ principle$ in$ individual$ decision$

behaviour.$This$was$also$the$point$at$which$behavioural$economists$diverged.$$

Smith$contributed$to$the$Behavioral$Economics$Programme$when$it$was$first$set$

up$(Cox,$Smith,$&$Walker,$1988;$Kevin$A.$McCabe,$Rassenti,$Reynolds,$&$Smith,$

1989;$ Kevin$ A.$ McCabe,$ Rassenti,$ &$ Smith,$ 1989;$ K.$ A.$ McCabe,$ Rassenti,$ &$

Smith,$1991;$V.$L.$Smith,$1988,$1989;$V.$L.$ $Smith,$1991).$74$Gradually,$however,$

funding$ for$ Smith$ stopped.$ In$ his$ letter$ to$Wanner$ evaluating$ the$ Behavioral$

Economics$ Program,$ Smith$ claims$ ignorance$ as$ to$ why$ his$ proposals$ were$

rejected$and$expresses$some$disapproval$of$what$he$considers$to$be$a$neglect$of$

experimental$economics$of$those$involved$in$the$program.$$

Smith$submitted$three$proposals$for$the$Behavioral$Economics$Program$after$it$

had$ moved$ to$ the$ Russell$ Sage$ Foundation,$ none$ of$ which$ was$ accepted$ for$

funding$ despite$ arguably$ falling$ under$ the$ remit$ of$ the$ foundation’s$ research$

objectives$(Smith,$Participant$Evaluation,$May$15th,$1992,$SG2,$S7,$B196,$F1442,$

RAC).$Behavioural$economists$did$considerable$work$policing$the$boundaries$of$

the$ field.$ It$was$ the$desire$ to$position$behavioural$economics$as$a$ subTfield$of$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

74$These$studies$were$supported$by$funding$from$a$Sloan$foundation$grant$within$the$Behavioral$

Economics$Program$named$“New$directions$in$Experimental$Economics”$(Smith,$Note$on$CV$for$

Vernon$L.$Smith,$March$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

$ 175$

economics$ and$ to$ gain$ on$ the$ intellectual$ territory$ of$ mainstream$ economics$

that$made$behavioural$ finance,$ behavioural$ game$ theory$ and$ economic$ policy$

strong$contenders$as$fields$for$behavioural$economists$to$focus$their$attention.$$

Establishing$the$Lack$of$Descriptive$Validity$of$NeoNclassical$Economics$

Economists’$and$psychologists’$respective$deficit$$

The$ Behavioral$ Economics$ Program$ had$ been$ a$ place$ both$ literally$ and$

figuratively$where$psychologists$ could$ learn$ to$ speak$ in$ economists’$ language$

and$ economists$ could$ learn$ the$ basics$ of$ psychological$ methods$ for$ data$

collection.$ There$ was$ amongst$ the$ participants$ of$ the$ Behavioral$ Economics$

Program$ a$ shared$ conception$ about$ the$ different$ learning$ needs$ of$

psychologists$ and$ economists$ and$ of$ the$ disciplinary$ divisions$ of$ labour$

generally.$ Economists$ provided$ the$ technical$ language$ of$ economics$ deemed$

necessary$for$persuading$economists$of$the$value$of$the$behavioural$approach.$

Psychologists$contributed$with$method.$$

For$example,$in$his$proposal$for$a$working$group$in$behavioural$finance$Thaler$

provided$ a$ diagnosis$ of$ the$weaknesses$ of$ the$ field$which$ is$ illustrative.$ The$

problem$for$him$was$insufficient$depth$in$the$merger$between$psychology$and$

economics,$ because$ of$ a$ lack$ of$ researchers$ who$ had$ had$ formal$ training$ in$

both:$“the$research$by$economists$ is$psychologically$shallow,$and$the$research$

by$psychologists$economically$naive”$(Thaler,$Proposal$for$Behavioural$Finance$

Working$Group,$n.$d.$SG2,$S7,$B201,$F1481,$RAC).$$

These$kinds$of$comments$also$help$identify$economists$as$the$primary$audience$

for$ behavioural$ economics.$ Psychologist$ Richard$Herrnstein$who$ changed$ the$

direction$of$his$ research$ from$reinforcement$ theory$ to$behavioural$economics$

in$ conjunction$ with$ the$ establishment$ of$ the$ Behavioral$ Economics$ Program,$

reflected$on$the$most$important$impact$of$his$residency$at$the$RSF.$Herrnstein$

had$been$granted$funds$to$be$a$resident$scholar$at$the$RSF$to$undertake$studies$

on$ the$ application$ of$ reinforcement$ theory$ on$ micro$ economic$ theory.$ He$

$ 176$

reflected$in$his$assessment$of$his$time$there$that$one$of$its$greatest$benefits$was$

“in$ “getting$more$of$ a$ sense$of$ the$questions$ economists$ ask$of$ behavior,$ and$

about) the) answers) they) accept”$ (Herrnstein,$ Participant$ Evaluation,$ May$ 18th,$

1992,$SG2,$S7,$B196,$F1442,$RAC,$emphasis$mine).$$

The$ goal$ of$ early$ behavioural$ economists$was$ to$ show$graduate$ students$ and$

assistant$professors,$especially$of$economics$that$behavioural$approaches$were$

a$ viable$ option,$ and$ that$ it$ was,$ as$ Thaler$ puts$ it$ “OK$ to$ take$ psychology$

seriously”$(Thaler,$Participant$Evaluation,$May$27th,$1992,$SG2,$S7,$B196,$F1442,$

RAC).$He$was$not$alone$in$his$analysis$that$much$of$the$success$of$behavioural$

economics$was$directly$related$to$having$successfully$enlisted$economic$‘heavy$

hitters’.$The$working$group$scheme$was$arguably$the$most$successful$strategy$

of$ the$ programme.$ Areas$ of$ behavioural$ economics$ like$ behavioural$ finance,$

Intertemporal$ choice$ and$ behavioural$ game$ theory$ began$ as$ working$ groups$

and$continue$to$define$the$field$of$behavioural$economics$to$this$day.$

Finance$and$game$theory:$Hard$targets$of$neo>classical$economic$theory$

Both$ finance$ and$ game$ theory$ provided$ good$ target$ fields$ for$ behavioural$

economists$ because$ they$ are$what$ one$might$ call$ “strongholds$ of$ rationality”.$

They$were$areas$where$the$rationality$principle$played$an$important$role.$In$the$

study$ of$ finance$ the$ rationality$ principle$ is$ protected$ by$ the$ notion$ of$ the$

market$equilibrium.$Crudely$summarised,$ in$the$theory$of$market$equilibrium,$

the$market$ is$ assumed$ to$ function$as$a$mechanism$ for$offsetting$any$negative$

impact$ caused$ by$ nonTrational$ or$ semiTrational$ behaviour$ on$ the$ part$ of$

individual$economic$decision$makers.$$

This$ is$why$ the$ area$ of$ finance$ could$ be$ considered$ one$ of$ the$most$ effective$

avenues$ for$ convincing$ neoTclassically$ trained$ economists$ of$ the$ value$ of$ the$

behavioural$approach.$Evidence$of$the$effects$of$nonTrational$behaviour$on$the$

financial$market$would$ be$ effective$ because$ it$was$ “the$ hardest$ case”$ of$ neoT

classical$economic$theory.$As$Thaler$put$it:$$

$ 177$

Finance$ is$ a$ great$ place$ to$ begin$ if$ one$wishes$ to$ have$ an$ impact$ on$ Economics$

because$of$ the$assumption$of$the$efficiency$of$ the$market.$ Just$ like$New$York$–$ if$

you$ can$make$ it$ there…$ (Thaler,$ Participant$Evaluation,$May$27th,$ 1992,$ SG2,$ S7,$

B196,$F1442,$RAC).$$

The$logic$then,$was$that$evidence$that$behaviour$affects$the$financial$market$in$a$

way$ that$ disrupts$ the$ market$ equilibrium$ would$ be$ particularly$ difficult$ for$

economists$to$overlook.$In$this$sense$behavioural$finance$was$very$much$part$of$

behavioural$ economists’$ general$ efforts$ to$ highlight$ the$ flaws$ of$ neoTclassical$

economics.$In$other$words,$a$behavioural$invasion$of$the$rationality$stronghold$

that$is$finance$would$be$a$significant$victory.$Still,$the$focus$on$finance$was$both$

strategic$ and$ pragmatic$ on$ behalf$ of$ the$ behavioural$ economists.$ To$ target$

finance$also$had$practical$advantages$in$terms$of$availability$of$data.$As$Thaler$

pointed$out$in$his$bid$for$behavioural$finance$there$was$a$substantial$amount$of$

readily$ available$ stock$ price$ data$ compiled$ on$ magnetic$ tape$ (Thaler,$

Participant$Evaluation,$May$27th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

Finance$ was$ not$ the$ only$ area$ that$ presented$ an$ effective$ hard$ target$ for$

behavioural$ economists.$ Like$ behavioural$ finance,$ behavioural$ game$ theory$

promised$ ample$ opportunity$ for$ behavioural$ economists$ to$ demonstrate$ the$

power$of$combining$experimental$evidence$with$already$sophisticated$theory.$$

Game$theory$has$had$a$very$strong$normative$element$since$Von$Neumann$and$

Morgenstern$helped$launch$it$as$a$recognized$field$with$the$publication$of$their$

Theory)of)Games)and)Economic)Behavior$ in$ 1944.$ The$ goal$ of$ normative$ game$

theory$ is$ to$ calculate$ the$ optimal$ action$ of$ any$ given$ player$ in$ any$ given$

scenario.$ This$ makes$ for$ an$ unmatched$ specificity$ of$ normativity$ in$ game$

theory.$Very$few$other$kinds$of$decision$studies$provide$such$narrowly$defined$

rules$with$which$to$compare$actual$behaviour.$$

Accumulating$anomalies:$Early$behavioural$economics$as$"Kuhn$in$action"$

After$ the$ initial$ exploratory$ period$ of$ 1983T1984,$ Wanner$ and$ the$ Advisory$

Committee$were$keen$to$create$a$substantive$research$programme$that$took$the$

$ 178$

failure$of$ the$ rationality$principle$ for$ granted.$The$ first$RFP$of$ the$Behavioral$

Economics$ Program$ sent$ on$ December$ 18th$ 1985$ makes$ clear$ that$ the$

identification$of$deviations$from$the$neoTclassical$rationality$principle,$was$seen$

as$ the$ springboard$ for$ the$ programme$ (Wanner,$ Request$ For$ Proposals,$

December$18th,$1985,$SG2,$S7,$B194,$F1427,$RAC).$Despite$these$ambitions$to$a$

large$ extent$ the$ Behavioral$ Economics$ Program$ functioned$ much$ like$ an$

anomalies$mining$company.$Continuing$the$project$of$identifying$anomalies$was$

understood$as$a$frustrating$but$necessary$first$step$in$the$establishment$of$the$

field$justified$by$how$deeply$rooted$the$rationality$principle$was$perceived$to$be$

in$mainstream$economics.$Thaler$writes$that:$$

the$ 80’s$ was$ a$ frustrating$ period$ in$many$ways$ because$ so$much$ of$ our$ efforts$

were$ focused$ on$ legitimizing$ our$ enterprise.$ In$ 1980$ the$ rational$ expectations$

school$of$macroeconomics$was$in$its$glory,$at$(sic)$this$line$of$thinking$reflected$a$

common$ aesthetic$ in$ economics:$ rationality$ is$ good,$ and$more$ is$ better$ (Thaler,$

Letter$to$Wanner,$May$27th,1992,$SG2,$S7,$B196,$F1442,$RAC).$$

The$ prime$ expression$ of$ this$ was$ Thaler’s$ so$ called$ anomalies$ column.$ The$

anomalies$column$was$for$Thaler$quite$deliberately$a$way$to$cement$the$notion$

that$ the$ rationality$ principle$ lacked$ descriptive$ validity.$ The$ idea$ was$ that$

enough$ examples$ of$ deviations$ from$ normative$ models$ of$ decision$ making$

applied$to$economic$decisions$would$force$economists$to$take$the$psychology$of$

the$consumer$seriously,$and$eventually$create$a$paradigm$shift$for$economics:$$

defense$was$usually$ to$pick$apart$any$given$result$and$explain$why$ it$was$not$as$

critical$ as$ it$ seemed.$ If$ necessary,$ defenders$ of$ the$ traditional$ paradigm$ could$

always$ find$ some$ economics$ version$ of$ an$ epicycle$with$which$ to$ rationalize$ an$

otherwise$ embarrassing$ fact.$ And$ each$ single$ anomaly$ could$ be$ dismissed$ as$ a$

oneToff$puzzle,$for$which$a$satisfactory$explanation$was$sure$to$exist$if$one$looked$

hard$enough.$To$create$a$real$paradigm$shift,$I$felt$that$we$would$require$a$whole$

series$of$anomalies,$ each$calling$ for$ its$own$ad$hoc$explanation$ (Thaler,$2015,$p.$

170).$

The$ column$was$ one$ of$ Thaler’s$more$ famous$ contributions$ to$ spreading$ the$

behavioural$economic$gospel.$ It$was$made$up$of$a$series$of$short$articles$each$

$ 179$

explaining$one$or$more$flaws$in$neoTclassical$economic$theory$and$spelling$out$

the$experimental$evidence$that$supported$the$deviation.$$

Table$3$The$anomalies$Column$Journal$of$Economic$Perspectives75$

$

$

$

$

$

$

$

$

$

$

$

The$ column$ was$ published$ in$ the$ Journal) of) Economic) Perspectives$ (1987T

present)$ run$by$ the$American$Economic$Association.$The$ Journal$of$Economic$

Perspectives$ was$ established$ in$ 1987,$ and$ the$ first$ instalment$ of$ Thaler’s$

column$appears$in$its$very$first$edition.$Thaler$had$come$up$with$the$idea$from$

an$ informal$ conversation$with$economist$Hal$Varian$who$had$been$appointed$

advisory$editor$for$the$journal.$Varian$informed$Thaler$that$the$editorial$board$

was$ considering$ commissioning$ a$ series$ of$ regular$ short$ features$ to$ be$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

75$Some$of$these$were$coTauthored:$Ziemba$(1988,$2:$2)$De$Bondt$(1989,$3:1)$

Loewenstein$ (1989,$ 3:4)$ Tversky$ (1990,$ 4:2)$ Froot$ (1990,$ 4:3)$ Kahneman,$ D$&$Knetsch,$ J.$ L.$

(1991,$5:5).$

Year%% Title% Vol.%

%

1987%

)

The)January)Effect)

%

1:1%

1987% Seasonal)Movements)in)Security)Prices)II) 1:2%

1988% The)Winner’s)Curse) 2:1%

1988% Parimutual)Betting)Markets)Racetracks)and)Lotteries) 2:2%

1988% The)Ultimate)Game) 2:4%

1989% A)Meanreverting)Walk)Down)Wall)Street) 3:1%

1989% Interindustry)Wage)Differentials) 3:2%

1989% Intertemporal)Choice) 3:4%

1990% Saving,)Fungibility,)and)Mental)Accounts) 4:1%

1990% Preference)Reversals) 4:2%

1990% Foreign)Exchange) 4:3%

1991% The)Endowment)Effect,)Loss)Aversion,)and)Status)Quo)Bias) 5:5%

$ 180$

published$in$the$journal.$Together$they$ran$the$idea$of$a$feature$on$“anomalies”$

by$the$editor$Joseph$Stiglitz,$who$approved$it$(Thaler,$2015).$

The$ selfTproclaimed$ purpose$ of$ the$ journal$ was$ to$ “fill$ a$ gap$ between$ the$

general$ interest$ press$ and$ most$ other$ academic$ economics$ journals”$

(Perspectives,$n.$d.).$According$ to$ the$American$Economic$Association$website$

the$aims$of$the$journal$are:$$

to$publish$articles$that$will$serve$several$goals:$to$synthesize$and$integrate$lessons$

learned$ from$ active$ lines$ of$ economic$ research;$ to$ provide$ economic$ analysis$ of$

public$ policy$ issues;$ to$ encourage$ crossTfertilization$of$ ideas$ among$ the$ fields$ of$

thinking;$ to$ offer$ readers$ an$ accessible$ source$ for$ stateTofTtheTart$ economic$

thinking;$ to$ suggest$ directions$ for$ future$ research;$ to$ provide$ insights$ and$

readings$ for$ classroom$ use;$ and$ to$ address$ issues$ relating$ to$ the$ economics$

profession$(Perspectives,$n.$d.).$$

These$aims$go$hand$in$hand$with$Thaler’s$ in$writing$the$anomalies$column.$In$

his$letter,$Thaler$reiterated$that$the$goal$of$the$anomalies$column$was$to$show$

economists$ that$ the$ rational$ choice$ theory$ was$ plagued$ by$ more$ than$ one$

problem$ and$ that$ behavioural$ approaches$ provided$ “the$ most$ parsimonious$

explanation”$to$those$problems$(Thaler,$Participant$Evaluation,$May$27th,$1992).$

Thaler’s$allusion$to$Kuhn$in$naming$the$column$was$deliberate.$The$first$of$the$

twelve$ features$ entitled$ “The$ January$Effect”$ began$with$ a$ quote$ from$Kuhn’s$

1962$ The) Structure) of) Scientific) Revolutions$ “Discovery$ commences$ with$ the$

awareness$ of$ anomaly,$ i.e.,$ with$ the$ recognition$ that$ nature$ has$ somehow$

violated$the$paradigmTinduced$expectations$that$govern$normal$science”$(Kuhn,$

1962,$ p.$ 52).$ The$ feature$ continued$with$ a$ presentation$of$ a$ cognitive$puzzle,$

followed$by$a$statement$about$the$aims$of$the$column:$$

This$feature$will$report$successful$searches$for$disconfirming$evidence—economic$

anomalies.$ As$ suggested$ by$ Thomas$ Kuhn,$ an$ economic$ anomaly$ is$ a$ result$

inconsistent$ with$ the$ present$ economics$ paradigm.$ Economics$ is$ distinguished$

from$other$social$sciences$by$the$belief$that$most$(all?)$behavior$can$be$explained$

by$assuming$that$agents$have$stable,$wellTdefined$preferences$and$make$rational$

choices$ consistent$with$ those$ preferences$ in$markets$ that$ (eventually)$ clear.$ An$

empirical$ result$ is$ anomalous$ if$ it$ is$ difficult$ to$ “rationalize,”$ or$ if$ implausible$

$ 181$

assumptions$ are$ necessary$ to$ explain$ it$ within$ the$ paradigm$ (Thaler,$ 1987,$ p.$

198).$$

With$his$brief$clarified$–$to$report$on$evidence$that$disconfirmed$the$rationality$

principle$–$Thaler$admits$that$whether$or$not$the$evidence$can$be$rationalised$

and$whether$alternative$"rational"$explanations$are$implausible$is$a$question$of$

judgment.$For$this$reason$he$invites$readers$to$submit$their$explanations$of$any$

of$ the$ anomalies$ that$ he$ reports$ in$ the$ column,$ which$ he$ will$ consider$ for$

publication$with$ the$stipulation$that$ the$suggested$explanations$are$at$ least$ in$

principle$ falsifiable$ (Thaler,$ 1987).$ This$ was$ a$ really$ interesting$ way$ of$

signalling$ trust$ in$ his$ own$ convictions,$ effectively$ “daring”$ the$ reader$ to$ find$

ways$of$defending$the$rationality$principle.$$$

What$ Thaler$ seems$ to$ have$ been$ saying$ with$ his$ reference$ to$ Kuhn$ and$ his$

conception$of$scientific$progress,$specifically$making$use$of$his$ideas$about$the$

accumulation$ of$ anomalies$ with$ its$ association$ with$ the$ preamble$ to$ crisis,$

revolution$ and$ paradigm$ shift,$ is$ that$ the$ economic$ orthodoxy$ needed$ to$ be$

made$ aware$ of$ these$ anomalies$ (i.e.$ deviations$ from$ neoTclassical$ theory)$ for$

which$ there$was$already$significant$evidence.$As$such,$ the$column$would$be$a$

first$stage$in$a$much$longer$process,$and$it$may$be$an$unpleasant$experience$for$

the$ reader,$ especially$ so$ for$ the$ readership$ that$ insisted$ on$ clinging$ to$ the$

current$paradigm.$$

Thaler$was$a$vocal$advocate$of$the$anomalies$tactic,$using$the$term$anomalies$to$

refer$to$the$deviations$from$the$neoTclassical$model$that$he$summarised$for$his$

celebrated$ Anomalies) Column.$ The$ column$ is$ a$ representation$ of$ a$ notion$ of$

behavioural$economics$as$‘Kuhn$in$action’.$Kahneman$is$one$among$a$fair$few$of$

the$ participants$ of$ the$ programme$ who$ attributed$ no$ small$ part$ of$ the$

improvement$ in$ the$ standing$of$behavioural$ economists$ to$ the$ column,$which$

he$ doubts$ would$ have$ existed$ without$ the$ support$ of$ the$ Russell$ Sage$

Foundation$(Kahneman,$Participant$Evaluation,$May$25th,$1992,$SG2,$S7,$B196,$

F1442,$RAC).$

$ 182$

The$anomalies$column$showcased$the$most$successful$work$in$the$field$in$easy$

to$digest$biteTsize$chunks.$In$this$sense$Thaler’s$anomalies$column$was$a$literal$

expression$ of$ economist$ Alan$ Blinder’s$ assessment$ of$ ‘anomalies$ piling$ up’,$

designed$to$make$the$case$for$the$inadequacy$of$the$rationality$assumption.$$

The$influence$of$behavioural$economists$on$mainstream$economics$was$centred$

on$driving$home$the$point$about$the$inadequacy$of$the$rationality$assumption.$A$

large$ majority$ of$ the$ participants$ made$ the$ argument$ that$ the$ enterprise$ of$

critiquing$ standard$ neoTclassical$ economic$ models,$ with$ Kahneman$ and$

Tversky’s$prospect$theory$as$exemplar,$had$been$successful$and$that$significant$

progress$has$been$made$ in$ that$area$(Arrow,$Participant$Evaluation,$May$18th,$

1992$ SG2,$ S7,$ B196,$ F1442,$ RAC;$ Blinder,$ Participant$ Evaluation,$ May$ 29th,$

1992,$SG2,$S7,$B196,$F1442,$RAC;$Farber,$Participant$Evaluation,$June$3rd,$1992,$

SG2,$S7,$B196,$F1442,$RAC;$Froot,$Participant$Evaluation,$May$7th,$1992,$SG2,$S7,$

B196,$F1442,$RAC;$Juster,$Participant$Evaluation,$May$28th,$1992,$SG2,$S7,$B196,$

F1442,$RAC;$Lakonishok,$Participant$Evaluation,$May$29th,$1992,$SG2,$S7,$B196,$

F1442,$ RAC;$ Poterba,$ Participant$ Evaluation,$ May$ 20th,$ 1992,$ SG2,$ S7,$ B196,$

F1442,$RAC).$By$1992$some$behavioural$economists$would$even$make$the$claim$

that$economics$has$been$permanently$altered:$

New$generations$of$economists$cannot$just$assume$that$the$rationalistic$model$of$

individual$behavior$is,$even$approximately,$a$valid$theory$of$human$behavior.$The$

proper$ role$ of$ the$ rational$ choice$ model$ will$ become$ purely$ normative$

(Herrnstein,$Participant$Evaluation,$May$18th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

Still$Thaler’s$own$discussion$of$the$column$follows$the$same$general$sentiment$

of$a$need$to$do$more$constructive$work,$echoing$his$assessment$of$behavioural$

economic$ work$ in$ the$ 1980’s$ generally:$ “The$ anomalies$ mining$ exercise$ was$

primarily$ destructive.$ I$ feel$ that$ the$ program$ in$ the$ 90’s$ can$ be$ much$ more$

constructive”$ (Thaler,$ Participant$ Evaluation,$ May$ 27th,$ 1992,$ SG2,$ S7,$ B196,$

F1442,$RAC).$The$overall$sentiment$expressed$is$that$critique$alone$does$not$a$

subTdiscipline$make.$$

$ 183$

Statements$ about$ progress$ in$ this$ area$ are$ often$ followed$ by$ a$ call$ for$

behavioural$ economists$ to$ shift$ attention$ from$ the$ deconstruction$ of$ neoT

classical$models,$by$identifying$behavioural$deviations$to$them,$to$constructive$

knowledge$ making.$ The$ general$ gist$ of$ this$ line$ of$ argument$ is$ that$ moving$

forward$ behavioural$ economists$ should$ go$ beyond$ critiquing$ neoTclassical$

economic$ models$ and$ the$ rationality$ assumption,$ and$ begin$ to$ focus$ on$

constructive$ theorizing$ and$ model$ building$ based$ on$ the$ empirical$ evidence$

supported$by$the$experimental$methods$used$to$justify$the$critique.$$

Kenneth$ Arrow’s$ assessment$ was$ that$ behavioural$ economics$ “has$ not$

produced$ a$ systematic$model$ for$ explaining$ economic$ phenomenon”$ and$ that$

“so$far$the$main$role$of$behavioral$economics$has$been$to$serve$as$criticism$of$

the$ mainstream$ hypothesis$ on$ the$ reasoning$ of$ economic$ agents”$ (Arrow,$

Participant$Evaluation,$May$18th$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

Alan$ Blinder$ largely$ agreed$ with$ Arrow’s$ assessment,$ but$ added$ that$ he$

understood$ this$ focus$on$discovering$deviation$ considering$ that$ opposition$ to$

the$behavioural$approach$to$economics$in$the$early$days$of$the$programme$was$

substantial.$ Still$ in$ 1992$ he$ saw$ the$ commencement$ of$ a$ “positive$ phase”$ for$

behavioural$economics:$$

Surely,$ the$ accomplishments$ of$ behavioral$ economics$ are$ mainly$ curmudgeonly$

and$negative$up$ to$now.$But$ I$ think$ that’s$natural.$Why$should$economists$move$

one$ inch$ away$ from$ their$ cherished$ paradigm$ until$ at$ least$ some$ of$ them$ are$

convinced$that$there$are$Kuhnian$anomalies?$On$the$other$hand,$the$anomalies$are$

piling$ up$ and$ getting$ noticed.$ And$ the$ outlines$ of$ a$ positive$ phase$ are$ coming$

dimly$ into$ view$ (Blinder,$ Participant$ Evaluation,$May$ 29th,$ 1992,$ SG2,$ S7,$ B196,$

F1442,$RAC).$

By$ 1992$ some$ of$ the$ participants$ of$ the$ Behavioral$ Economics$ Program$ had$

become$convinced$that$behavioural$economists$needed$to$not$just$demonstrate$

areas$where$the$neoTclassical$models$lacked$empirical$foundation$but$to$explain$

the$ reasons$ why$ that$ may$ be.$ This$ shift$ from$ identification$ of$ anomalies$ to$

building$alternative$models$of$decision$making$was$directly$related$to$wishing$

the$behavioural$approach$to$have$an$impact$on$policy.$$

$ 184$

From$DescriptiveNpredictive$to$NormativeNprescriptive$$

Laying$a$path$to$policy$

In$the$1992$evaluations,$policy$was$by$far$the$most$common$suggestion$as$area$

for$future$behavioural$economists$to$focus$on.$Generally$there$were$at$least$two$

reasons$ behind$ this$ call$ for$ policyToriented$ behavioural$ economics;$ that$ it$

satisfied$ the$ explicit$ goals$ of$ the$ Russell$ Sage$ Foundation$ and$ that$ it$was$ the$

most$effective$way$to$change$the$field$of$economics$from$within$by$joining$the$

economic$voices$in$the$policy$sphere$without$displacing$the$economic$monopoly$

on$policy$research.$$

Importantly$for$the$early$behavioural$economists,$a$focus$on$policy$also$helped$

justify$ the$ behavioural$ approach$ generally.$ Efforts$ to$ identify$ deviations$ from$

neoTclassical$ economic$ models$ could$ be$ rationalised$ as$ a$ first$ step$ toward$ a$

more$realistic$understanding$of$the$nature$of$social$problems.$Appeals$to$more$

realistic$ ideas$ of$ social$ problems$ in$ turn$ provided$ an$ even$ closer$ connection$

between$the$behavioural$economics$programme$and$the$Russell$Sage$agenda$of$

sponsoring$work$that$tackles$social$problems:$

I$ believe$ that$ the$ Sage$Foundation$has$done$ a$ tremendous$ service$ in$ supporting$

the$behavioral$line$of$inquiry.$It$may$appear$to$some$that$this$activity$is$different$if$

not$at$odds$with$the$Foundation’s$traditional$emphasis$on$social$issues$and$public$

policy.$But$it$is$becoming$increasingly$clear$to$me$that$quite$the$opposite$is$true.$A$

proper$ fashioning$of$public$policy$responses$ to$social$problems$requires$ that$we$

understand$the$anatomy$of$the$problem.$(Shefrin,$Participant$Evaluation,$May$20th,$

1992,$SG2,$S7,$B196,$F1442,$RAC).$$

Much$ the$ same$ argument$ could$ be$ made$ by$ appealing$ to$ the$ Russell$ Sage$

Foundation’s$ commitment$ to$ fostering$ high$ quality$ research$ on$ poverty$ and$

policy:$$

The$ standard$ assumptions$ in$ neoTclassical$ economics$ lead$ to$ theory$ which$

minimizes$the$importance$of$social$problems$like$poverty,$is$mute$about$its$causes,$

and$ leave$ an$ atheoretical,$ minimal$ role$ for$ government$ intervention.$ By$

questioning$ these$ assumptions,$ behavioral$ economics$ can$ be$ essential$ in$

$ 185$

generating$ an$ economics$ which$ has$ something$ to$ say$ about$ poverty$ and$ its$

solutions$ (Camerer,$ Participant$ Evaluation,$ June$ 4th$ 1992,$ SG2,$ S7,$ B196,$ F1442,$

RAC).$$

Camerer’s$ allusion$ here$ to$ an$ assumed$ relationship$ between$ nonT

interventionist$ government$ policy$ and$ neoTclassical$ economic$ theory$ is$

intriguing.$ My$ research$ generally$ suggests$ that$ the$ Behavioral$ Economics$

Program$ was$ set$ up$ primarily$ to$ forge$ a$ new$ area$ of$ research.$ This$ was$

especially$ clear$ in$ the$ intentions$ behind$ Wanner’s$ decision$ to$ launch$ the$

programme$in$the$first$place,$and$in$the$focus$throughout$on$carving$a$place$for$

behavioural$ approaches$ to$ economic$ problems$ by$ creating$ a$ roster$ of$

“anomalies”$to$the$behavioural$portfolio.$$

$The$majority$of$the$appeals$for$behavioural$economists$to$focus$on$policy$were$

made$in$conjunction$with$arguments$about$improving$the$empirical$foundations$

of$economic$theory,$policy$being$an$obvious$area$where$that$theory$is$applied.$

Camerer’s$ assertion$ that$ neoTclassical$ economics$ had$ led$ to$ minimal$

government$ intervention$ in$ the$ prevention$ of$ poverty$ as$ a$ justification$ for$

behavioural$economics$is$one$of$very$few$comments$of$this$sort$to$be$found$in$

the$archival$material$that$I$examined.$It$is$an$interesting$comment$in$the$context$

of$ both$ the$Russell$ Sage$Foundation$ and$ the$ trickle$down$ “Reaganomics”$ that$

characterised$the$economics$policies$in$the$USA$at$the$time.76$

The$lack$of$explicit$justification$for$the$need$for$behavioural$approaches$to$the$

study$of$economics$in$terms$of$the$political$situation$in$1980’s$USA$may$have$a$

certain$significance$of$ its$own.$The$makeTup$of$ the$Alfred$P.$Sloan$and$Russell$

Sage$ Foundations’$ respective$ boards$ of$ trustees,$ populated$ by$ heads$ of$ large$

banks$ and$big$multinational$ companies,$ also$most$ likely$ played$ a$ role$ in$ how$

explicit$the$participants$could$be$in$their$criticism$of$prevailing$economic$policy.$

It$is$no$great$leap$of$the$imagination$to$suspect$that$the$programme$participants$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

76$“Reaganomics”$ is$ a$ vernacular$ umbrella$ term$ for$ the$ economic$ policies$ of$ the$ Reagan$ era$

(1981T1989).$ In$brief,$ these$policies$were$ characterised$by$ sweeping$ tax$ cuts,$deregulation$of$

the$domestic$market,$increases$in$defense$spending$and$decreases$in$social$welfare$spending.$$$$$

$ 186$

needed$ to$ tread$ a$ little$ carefully$ when$ critiquing$ the$ economic$ policy$ of$ the$

current$ government.$ Justifying$ and$ arguing$ for$ the$ importance$ of$ behavioural$

economics$ in$ terms$ of$ progress$ of$ ‘science’$ and$ improving$ the$ quality$ of$ the$

discipline$of$economics,$which$ is$ the$official$ line$ in$ the$majority$of$ the$project$

proposals$and$correspondences,$would$have$been$a$much$safer$option$ for$ the$

programme$contributors.$$

Wanner’s$role$model$for$foundation$work$was$Warren$Weaver$who$is$generally$

attributed$ with$ having$ initiated$ the$ formation$ of$ molecular$ biology$ while$

director$of$the$Natural$Sciences$division$of$the$Rockefeller$Foundation$between$

1932$and$1955.$Weaver$and$Wanner,$though$involved$in$very$different$scientific$

fields,$do$share$an$approach$to$funding$that$consists$of$giving$out$small,$shortT

term$grants,$as$opposed$to$larger$long$term$ones$common$to$American$funding$

policy$ before$ Weaver$ (AbirTAm,$ 2002).$ It$ could$ be$ that$ with$ Wanner$ at$ the$

helm,$ the$ motivation$ to$ reform$ Raeganomic$ trickle$ down$ policies,$ though$

present,$took$secondary$place$behind$the$project$of$discipline$building.$$

The$interest$from$the$Sage$Board$to$fund$projects$with$direct$relevance$to$social$

problems$ and$ policy$ was$ particularly$ positive$ for$ the$ area$ of$ behavioural$

economics$known$as$ Intertemporal$Choice.$ Intertemporal$choice$ is$part$of$ the$

general$ idea$ behind$ behavioural$ economics$ of$ making$ standard$ economic$

models$more$dynamic.$This$ is$done$by$adding$ the$dimension$of$ time,$ and$ the$

psychological$ effects$ of$ time$ on$ behaviour.$ Simply$ explained,$ Intertemporal$

Choice$ is$ the$ field$of$study$that$ focuses$on$the$consequences$of$decisions$over$

time.$More$specifically,$it$is$the$study$of$decisions$where$the$consequences$lie$at$

least$ partly$ in$ the$ future,$ such$ as$ saving,$ dieting,$ exercising,$ smoking,$

undergoing$ painful$ medical$ treatments,$ committing$ a$ crime,$ dropping$ out$ of$

school$etc.$The$idea$is$that$this$kind$of$decision$has$both$immediate$and$delayed$

consequences$ that$ need$ to$ be$ considered$ by$ the$ decision$maker.$ Understood$

like$ this,$ Intertemporal$ choice$ potentially$ covers$ all$ individual$ choices.$ As$

Loewenstein$ reflects$ in$ his$working$ group$proposal$ it$ is$ almost$ impossible$ to$

imagine$an$ “atemporal”$decision$ (Loewenstein,$ Intertemporal$Choice$Working$

Group$proposal,$February$26th,$1987,$SG2,$S7,$B201,$F1481,$RAC).$$

$ 187$

Just$like$all$other$aspects$of$behavioural$economics,$Intertemporal$Choice$is$the$

study$of$the$factors$that$affect$the$decision:$$

situational$ factors,$ such$ as$ the$ concreteness$ and$ certainty$ of$ the$ delayed$

consequences,$ the$ temporal$ and$ physical$ proximity$ of$ alternatives,$ the$ way$ in$

which$ alternatives$ are$ expressed$ or$ displayed;$ and$ personal$ factors$ such$ as$ the$

individual’s$ tastes,$ and$ intangibles$ such$ as$ “willTpower”$ or$ “selfTcontrol”$

(Loewenstein,$Intertemporal$Choice$Working$Group$Proposal,$February$26th,$1987,$

SG2,$S7,$B201,$F1481,$RAC).$$

The$ Working$ Group$ on$ Intertemporal$ Choice$ was$ spearheaded$ by$ George$

Loewenstein$ and$ Jon$ Elster.$ The$ strength$ of$ Intertemporal$ Choice$was$ that$ it$

was$a$research$area$directly$justifiable$in$terms$of$real$world$relevance,$and$not$

confined$to$the$improvement$of$existing$economic$models,$which$could$in$turn$

have$ an$ impact$ on$ the$world$ only$ on$ the$ condition$ that$ economists$ could$ be$

made$to$pay$attention.$

Neo>classical$economics$as$justification$for$the$normative>prescriptive$agenda$

Kahneman$was$one$of$ the$most$avid$proponents$of$behavioural$economists$ to$

begin$ focusing$more$heavily$on$policy.$ In$harmony$with$ the$arguments$above,$

for$ Kahneman$ the$ importance$ of$ the$ cross$ disciplinary$ conversation$ that$ is$

behavioural$ economics$ lay$ precisely$ in$ the$ fact$ that$ economic$ theory$ informs$

policy.$ For$ Kahneman$ the$ influence$ of$ the$ discipline$ of$ economics$ on$ policy$

could$not$be$overstated:$“In$practice$economics$is$the$only$science$of$domestic$

policy”$ (Kahneman,$ Participant$ Evaluation,$ May$ 25th,$ 1992,$ SG2,$ S7,$ B196,$

F1442,$RAC).$$

In$a$‘heuristics$and$biasesTlike’$diagnosis$of$the$art$of$policy$making,$Kahneman$

argued$ that$ in$ light$of$ the$complexity$and$uncertainty$ involved,$policy$makers$

are$ correctly$ guided$ by$ the$ general$ assumptions$ upon$which$ they$make$ their$

educated$ guesses.$ Policy$makers,$ so$ the$ argument$went,$were$ currently$using$

the$ only$ heuristic$ they$ know,$ which$ to$ a$ significant$ degree$ was$ based$ on$

assumptions$imported$from$neoTclassical$economic$theory.$Because$this$was$the$

case$ the$ assumptions$ of$ neoTclassical$ economic$ theory$ become$ a$ concern$ for$

$ 188$

everyone$ who$ wished$ to$ inform$ social$ policy.$ To$ summarize$ his$ line$ of$

argument$ he$ borrowed$ the$modified$ slogan$ coined$ by$ Amitai$ Etzioni$ and$ his$

group$of$ socioTeconomists$ that$ “economic$policy$ is$ too$ important$ to$be$ left$ to$

economists”$(Kahneman,$Participant$Evaluation,$May$25th,$1992,$SG2,$S7,$B196,$

F1442,$RAC).$$

Importantly$ however,$ policy$ also$ provided$ an$ area$where$ a$ balance$ could$ be$

struck$ between$ challenge$ and$ coToperation.$ An$ interdisciplinary$ field$ like$

behavioural$economics$was$a$way$ to$challenge$ the$neoTclassical$monopoly,$by$

changing$aspects$of$the$economic$status$quo$from$within$the$discipline,$rather$

than$attempting$to$“wrestle$economics$for$control”$on$the$policy$stage:$

Although$ I$ share$many$ of$ Etzioni’s$ doubts$ about$ the$wisdom$ or$ (sic)$ relying$ on$

economics$ as$ the$ sole$basic$ science$of$policy,$ I$ think$ that$ the$ attempt$ to$wrestle$

economics$for$control$is$futile.$On$the$assumption$that$economics$will$remain$the$

science$ of$ policy$ for$ the$ foreseeable$ future,$ the$ only$ way$ to$ “humanize”$ or$

“socialize”$ the$ intellectual$ foundations$ of$ policy$ is$ by$ an$ internal$ change$ in$ the$

presuppositions$of$the$discipline.$In$my$view,$this$is$one$of$the$principle$missions$

of$the$behavioural$economics$program$at$RSF$(Kahneman,$Participant$Evaluation,$

May$25th$1992,$SG2,$S7,$B196,$F1442,$RAC).$

This$mission,$to$change$economics$from$within$the$discipline$of$economics$and$

not$in$opposition$to$it,$was$an$attitude$that$Kahneman$credited$Eric$Wanner$for$

having$ had$ since$ the$ programme’s$ inception$ (Kahneman,$ Participant$

Evaluation,$May$25th$1992,$SG2,$S7,$B196,$F1442,$RAC).$But$ the$success$of$ the$

balancing$ act$ that$ is$ improving$ a$ discipline$ without$ being$ perceived$ as$ a$

challenge$ is$ very$ much$ connected$ to$ issues$ of$ disciplinary$ hierarchy.$

Disciplinary$hierarchy$also$has$implications$for$reaching$the$intended$audience$

of$an$intellectual$product.$Economists$were$ultimately$the$intended$audience$for$

the$ early$ behavioural$ economists$ and$ finding$ways$ to$ capture$ the$ interest$ of$

mainstream$economics$needed$to$be$part$of$behavioural$economists’$agenda.$In$

Kahneman’s$ analysis$ because$ the$ status$ of$ economics$ is$ higher$ than$ “the$

disciplines$ from$ which$ it$ could$ learn$ something”$ publication$ in$ journals$ of$

specific$ disciplinary$ allegiance$ is$ necessary.$ According$ to$ Kahneman,$ Thaler’s$

anomalies$column$was$an$exemplar$of$this$strategy:$

$ 189$

Like$ the$ status$ of$ economists$ in$ policy$making$ […]$mildly$ arrogant$ attitudes$ are$

not$a$useful$topic$of$complaint;$they$are$simply$a$fact$of$life.$My$impression$is$that$

Eric$ was$ very$ wise$ in$ adopting$ the$ view$ that$ economists$ are$ the$ ultimate$

consumers$of$ the$ intellectual$ product$ of$ the$behavioral$ economics$program,$ and$

that$it$is$necessary$to$accommodate$their$current$tastes$in$the$hope$of$eventually$

improving$ their$ tolerance$ of$ new$ intellectual$ flavors$ (Kahneman,$ Participant$

Evaluation,$May$25th,$1992,$SG2,$S7,$B196,$F1442,$RAC).$$

The$ question$ of$ the$ intended$ audience$ of$ the$ intellectual$ products$ of$

behavioural$economics$was$closely$connected$to$the$question$of$who$should$be$

recruited$ to$ the$ field$ and$ what$ skills$ were$ required$ of$ them.$ Opinions$ about$

recruitment$ differed$ amongst$ the$ contributors$ to$ the$ behavioural$ economics$

programme,$ taking$ two$ separate$ directions.$ One$ camp$ was$ in$ favour$ of$

recruiting$more$social$psychologists$and$sociologists$in$a$bid$to$emphasise$field$

research.$ In$ the$ opposing$ camp$were$ behavioural$ economists$who$ argued$ for$

recruiting$ economists,$ and$ only$ economists,$ particularly$ young$ scholars$ who$

had$been$ trained$ in$economics.$The$argument$ in$ support$of$ this$ line$was$ that$

trained$economists$were$simply$better$suited$to$making$other$economists$take$

them$seriously$because$they$understood$and$spoke$the$language$of$economists.$$

In$ this$ way,$ the$ issue$ of$ recruitment$ was$ closely$ connected$ to$ a$ general$

perception$of$divisions$of$labour.$Economist$Robert$Shiller$argued$against$wide$

recruitment$ from$psychology$ and$ sociology$ except$ as$ coTauthors$ of$ particular$

research$projects$on$the$grounds$that$the$two$fields$were$too$remote$from$the$

concerns$ of$ economics$ (Shiller,$ Participant$Evaluation,$ June$5th$ 1992,$ SG2,$ S7,$

B196,$ F1442,$ RAC).$ Kahneman,$ when$ arguing$ the$ case$ for$ recruiting$ social$

psychologists$ and$ sociologists$ did$ worry$ slightly$ about$ social$ psychologists’$

abilities$ to$ “wield$ axioms”$ but$ trusted$ that$Wanner$ and$ the$ foundation$ could$

overcome$ such$ difficulties$ (Kahneman,$ Participant$ Evaluation,$May$ 25th$ 1992,$

SG2,$S7,$B196,$F1442,$RAC).$$

The$ issue$ of$ differences$ in$ methodological$ training$ between$ economists$ and$

psychologists$was$interestingly$a$point$that$was$broached$early$on$in$the$life$of$

the$programme$ in$a$ letter$ from$Herbert$Simon$to$Eric$Wanner$ from$the$5th$of$

December$ 1984.$ Simon$ had$ been$ invited$ to$ the$ first$ official$ meeting$ of$ the$

$ 190$

Behavioral$Economics$Program$on$the$7th$of$December$that$year.$He$was$unable$

to$ attend,$ but$ instead$ sent$Wanner$ a$ letter$ two$ days$ before$ the$meeting$was$

scheduled$ to$ take$ place.$ In$ it$ he$ explained$ that$ he$ was$ positive$ about$ the$

programme$in$general$and$hoped$to$be$of$use$to$it$in$the$future,$he$only$wished$

to$ make$ one$ point$ which$ he$ considered$ important$ enough$ to$ bring$ to$ the$

attention$of$Wanner$and$the$participants$before$their$discussion.$His$point$was$

that$ a$major$ obstacle$ to$ young$ students$ of$ economics$ fostering$ an$ interest$ in$

behaviour$was$that$they$were$unfamiliar$with$the$methods$of$psychology:$

Psychologists$ run$experiments$because$ that$ is$what$ they$ learn$ to$do$ in$graduate$

school.$ Sociologists$ do$ field$ research$ and$ opinion$ studies$ because$ those$ are$ the$

techniques$with$which$they$feel$comfortable.$Economists$run$regressions$and$spin$

out$mathematical$ theories$ for$ the$ same$ reason.$ Research$ in$ all$ of$ these$ fields$ is$

almost$dictated$by$the$research$tools$the$practitioners$do$and$don’t$have$(Simon,$

Letter$to$Wanner,$5th$December,$1984,$SG2,$S7,$B194,$F1428,$RAC).$$

The$ implications$ of$ all$ this$ for$ Simon$was$ that$ the$majority$ of$ the$ focus$ of$ a$

programme$in$behavioural$economics$should$be$on$teaching$young$economists$

how$ to$do$ fieldwork,$ conduct$ interviews$and$surveys$and$set$up$and$perform$

psychological$experiments$(Simon,$Letter$to$Wanner,$5th$December,$1984,$SG2,$

S7,$ B194,$ F1428,$ RAC).$ This$was$ an$ idea$ that$ Simon$ had$ advocated$ since$ the$

1950’s$(Heukelom,$2012a).$$

Pressure$on$economists$to$stay$within$the$mainstream$of$the$discipline$and$to$

develop$the$kinds$of$expertise$that$was$likely$to$advance$their$careers$

remained.$The$rewards$for$economists$to$venture$into$behavioural$approaches$

were$still$considerably$less$substantial.$The$process$of$correcting$what$Shiller$in$

economic$terms$calls$the$“overinvestment$in$purely$quantitative$methods”$had$

been$slow$and$difficult$to$achieve$(Shiller,$Participant$Evaluation,$June$5th$1992,$

SG2,$S7,$B196,$F1442,$RAC).$

$ 191$

CHAPTER'6:"THE$ANALYTICAL$PURCHASE$OF#THE#PSYCHOLOGY!OF#ERROR!

The$Purchase$of$Using$the$Psychology$of$Error$as$Analytical$Tool$

In$ the$ introduction$ I$ discussed$how$ the$psychology$of$ error$became$a$ central$

analytical$ thread$ in$my$ thesis.$The$ following$ chapter$ is$ dedicated$ to$outlining$

the$purchase$of$the$psychology$of$error$as$an$analytical$tool.$This$is$followed$by$

a$ section$ in$ which$ I$ clarify$ the$ reasons$ why$ Kahneman$ and$ Tversky’s$

psychological$ programme$ applied$ by$ behavioural$ economists$ to$ the$ study$ of$

economic$ decision$making$ can$ legitimately$ be$ understood$ as$ a$ psychology$ of$

error.$

The$ aim$ of$ the$ chapter$ is$ to$ make$ the$ argument$ that$ the$ notion$ of$ the$

psychology$ of$ error$ finds$ its$ analytical$ purchase$ in$ the$ consequences$ of$

restricting$psychological$explanation$to$deviations$from$a$norm,$and$that$those$

consequences$ lie$ not$ so$ much$ what$ is$ inferred$ about$ deviation$ but$ what$ is$

implied$ about$ the$ norm.$ It$ is$ those$ consequences$ that$ are$ the$ focus$ of$ the$

concluding$chapter$where$I$discuss$how$analysing$the$making$of$heuristics$and$

biases$ and$behavioural$ economics$ as$ psychologies$ of$ error$ contributes$ to$ our$

understanding$of$their$historical$development.$$

The$rationale$behind$the$sociology$of$error$and$its$consequences$$

The$analytical$purchase$of$the$notion$of$a$psychology$of$error$is$best$explained$

through$a$closer$look$at$the$rationale$behind$Bloor’s$rejection$of$the$sociology$of$

error$in$the$Sociology$of$Scientific$Knowledge$(SSK).$The$notion$of$symmetry$is$

crucial$to$the$more$fundamental$argument$of$SSK$that$all)knowledge)making)is)a)

social)process.$If$knowledge$making$is$a$social$process$it$needs$to$be$understood$

as$ such$ regardless$of$whether$ that$knowledge$ is$deemed$correct$or$ incorrect.$

The$point$ is$ this:$ an$ adequate$ social$ account$ of$ knowledgeTmaking$ requires$ a$

symmetrical$analysis$of$knowledge$in$which$correctness,$incorrectness$and$the$

$ 192$

distinction$between$them$are$all$regarded$as$empirical$questions.$If$applied$only$

to$ erroneous$ knowledge$ the$ argument$ for$ the$ social$ character$ of$ knowledge$

making$ is$ undermined.$ The$ asymmetrical$ argument$would$ go$ something$ like:$

knowledge$ making$ is$ not$ a$ social$ process$ but$ there$ are$ social$ factors$ that$

sometimes$interfere$with$it$to$produce$incorrect$knowledge.$Clearly,$these$two$

stances$are$quite$different.$$

In$ Knowledge) and) Social) Imagery$ (Bloor,$ 1991)$ Bloor$ addresses$ some$ of$ the$

possible$ objections$ to$ a$ sociological$ investigation$ of$ scientific$ knowledge.$ The$

set$of$objections$that$is$of$most$interest$for$this$chapter,$ is$the$one$concerning$

the$ ‘autonomy$ of$ knowledge’.$ This$ is$ because$ it$ addresses$ not$ just$ the$

procedure$ entailed$ in$ doing$ sociology$ of$ science$within$ the$ framework$ of$ the$

Strong$Programme,$but$ the$consequences$ of$ limiting$ the$ sociology$of$ scientific$

knowledge$to$a$sociology$of$error.$$

Bloor$ used$ the$ concept$ of$ a$ “sociology$ of$ error”$ in$ order$ to$ clarify$ the$

explanatory$project$of$what$he$dubbed$the$Strong$Programme$of$the$Sociology$

of$Scientific$Knowledge$(SSK).$The$point$that$he$makes$repeatedly$from$the$very$

first$paragraph$of$ the$ introductory$chapter$ laying$out$ the$ tenets$of$ the$Strong$

Programme$is$that$all)knowledge)is)within)the)scope)of)sociological)investigation)

(Bloor,$1991).$For$Bloor,$the$Strong$Programme$is$a$departure$from$traditional$

history$and$sociology$of$knowledge$in$that$it$is$not$a$sociology$of$error:$

All$ knowledge,$ whether$ it$ be$ in$ the$ empirical$ sciences$ or$ even$ in$ mathematics,$

should$be$treated,$through$and$through,$as$material$for$investigation$[…]$There$are$

no$ limitations$ which$ lie$ in$ the$ absolute$ or$ transcendent$ character$ of$ scientific$

knowledge$itself,$or$in$the$special$nature$of$rationality,$validity,$truth$or$objectivity$

(Bloor,$1991,$p.$1).$

One$of$the$crucial$consequences$of$the$sociology$of$error$is$that$it$leaves$some$

kinds$ of$ knowledge$ unexplained.$ When$ explanation$ is$ restricted$ to$ error,$

correctness$ (truth)$ is$ construed$as$ an$autonomous$ class$of$ knowledge$ claims.$

Sociologies$ (and$ psychologies)$ of$ error$ insulate$ correct$ knowledge$ from$ any$

$ 193$

causal$explanation$that$does$not$pertain$to$the$conventional$knowledge$itself.$It$

creates$what$Bloor$calls$an$autonomous$realm$of$knowledge$(Bloor,$1991).$

The$ reasoning$ behind$ the$ sociology$ of$ error$ goes$ something$ like$ this:$ to$ be$

logical$and$rational$is$simply$to$follow$the$rules$of$reason$and$logic,$which$then$

serves$as$its$own$explanation.$Bloor$invokes$the$metaphor$of$an$engine$on$rails,$

where$ the$ rails$ (logic)$ dictate$ the$ direction$ of$ the$ engine$ (Bloor,$ 1991).$

However,$ as$Bloor$points$out,$ according$ to$ this$ rationale,$ logic$ cannot$ also$be$

the$ explanation$ for$ deviations$ from$ it.$ The$ result$ is$ that$ it$ is$when,$ and$ only$

when$ deviations$ occur$ that$ explanation$ appears$ necessary.$ Bloor$ exemplifies$

this$ approach$ with$ Lakatos’$ (1970)$ theory$ about$ how$ to$ do$ the$ history$ of$

science.$Lakatos’$framework$consisted$of$first$creating$what$he$called$a$‘rational$

reconstruction’$or$an$‘internal$history’$of$an$episode$of$science,$leaving$the$task$

of$explaining$all$the$scientific$practices$that$fail$to$correspond$with$that$rational$

reconstruction$to$the$sociologist$or$‘external’$historian$(Bloor,$1991).$

One$of$the$points$that$Bloor$draws$attention$to$is$that$in$this$way$of$proceeding,$

apart$ from$ the$ statement$ it$ makes$ about$ divisions$ of$ labour$ between$

researchers$of$different$disciplinary$affiliation,$the$task$of$investigating$the$nonT

rational$ elements$ of$ the$ rational$ reconstruction$ cannot$ proceed$ until$ the$

rational$ reconstruction$ is$ in$ place.$ This$ creates$ a$ hierarchy$ where$ rational$

reconstruction$takes$priority$over$nonTrational$explanation.$ It$also$means$ that$

rational$ reconstruction$ has$ no$ explanation$ except$ that$ it$ stems$ from$ rational$

practices.$ One$ of$ Bloor’s$ goals$ is$ to$ question$ the$ idea$ that$ so$ called$ rational$

scientific$practice$is$outside$the$scope$of$explanation.$He$asks:$

What$can$it$mean$to$say$that$nothing$makes$people$do$or$believe$things$which$are$

rational$ or$ correct?$Why$ in$ that$ case$does$ the$behaviour$ take$place$ at$ all?$What$

prompts$the$internal$and$correct$functioning$of$an$intellectual$activity$if$the$search$

for$psychological$and$sociological$causes$is$only$deemed$appropriate$in$the$case$of$

irrationality$or$error?$The$theory$that$must$ tacitly$underlie$ these$ ideas$ is$a$goalT

directed$or$teleological$vision$of$knowledge$and$rationality$(Bloor$1991,$p.$7).$

$ 194$

Another$crucial$consequence$of$leaving$rational$behaviour$without$explanation$

is$that$ it$requires$a$view$of$humans$as$creatures$who$have$a$natural$ tendency$

toward$the$rational:$

Suppose$that$it$is$assumed$that$truth,$rationality$and$validity$are$our$natural$goals$

and$ the$direction$of$ certain$natural$ tendencies$with$which$we$ are$ endowed.$We$

are$rational$animals$and$we$naturally$reason$justly$and$cleave$to$the$truth$when$it$

comes$ within$ our$ view.$ Beliefs$ that$ are$ true$ then$ clearly$ require$ no$ special$

comment.$For$them,$their$truth$is$all$the$explanation$that$is$needed$of$why$they$are$

believed$(Bloor,$1991,$p.$7).$

So$what$does$Bloor$say$about$the$choice$between$the$teleological$and$the$causal$

model$ for$ the$ history$ of$ science?$ First$ he$ allows$ that$ there$ may$ not$ be$ any$

logical$ reason$ why$ a$ researcher$ should$ choose$ one$ over$ the$ other.$ The$

considerations$are$methodological:$

If$explanation$ is$allowed$to$hinge$on$prior$evaluations,$ then$the$causal$processes$

that$are$ thought$ to$operate$ in$ the$world$will$come$to$reflect$ the$pattern$of$ these$

evaluations.$Causal)processes)will)be)made)to)etch)out)the)pattern)of)perceived)error,$

throwing$ into$ relief$ the$ shape$ of$ truth$ and$ rationality.$ Nature$will$ take$ on$ a$

moral$ significance,$ endorsing$ and$ embodying$ truth$ and$ right$ (p.$ 9,$ emphases$ in$

bold$and$italics$are$mine).$

Once$ again,$ the$ key$ to$ the$ concept$ of$ a$ sociology$ of$ error$ is$ the$ scope$ of$

sociological$ explanation.$ The$ researcher$ always$ makes$ choices$ about$ which$

phenomena$to$explain.$When$those$choices$are$based$on$a$distinction$between$

correct$or$incorrect$knowledge$what$is$thrown$into$relief$is$that$very$distinction$

itself.$This$is$the$case$regardless$of$how$the$distinction$was$created$in$the$first$

place.$Leaving$phenomena$unexplained$gives$them$a$special$status.$It$is$the$very$

act$ of$ not$ explaining$ that$ creates$ the$ assumption$ that$ the$unexplained$ is$ selfT

evident,$natural,$correct,$and$true.$

It$ is$helpful$when$trying$ to$understand$the$notion$of$a$sociology$of$error$(and$

why$ it$ should$ be$ avoided)$ to$ try$ and$ understand$ what$ might$ be$ behind$ the$

argument$ for$ being$ selective$ about$ which$ phenomena$ to$ sociologize.$ The$

rationale$ behind$ the$ sociology$ of$ error$ is$ the$ idea$ that$ the$ very$ act$ of$

$ 195$

sociologizing$ is$ to$ inevitably$undermine$ the$stability$and$authority$of$absolute)

truth.$ The$ reticence$ to$ sociologize$ certain$ phenomena$ comes$ from$ the$ feeling$

that$any$sociologizing$is$in$and$of$itself$a$kind$of$act$of$rebellion.$In$this$train$of$

thought,$ sociologizing$ undermines$ the$ truth$ (objectivity,$ rationality)$ of$

whatever$phenomenon$happens$to$be$the$target$of$the$sociologist.$A$sociology$

of$ science,$ would$ on$ this$ logic$ be$ equated$ with$ antagonism,$ it$ turns$ the$

sociology$of$science$into$antiTscience.$

In$ an$ article$ on$ the$ conventions$ of$ the$ sociology$ of$ religion,$ Hamnett$ (1973)$

gives$his$readers$a$clear$description$of$this$view$in$relation$to$the$sociology$of$

religion:$

The$antiTreligious$character$of$the$sociology$of$religion$derives$from$the$fact$that$

every$ ‘special$ sociology’$ is,$ in$ some$ sense,$ a$ sociology$ of$ error.$ In$ the$ simplest$

sense,$we)only)start)to)‘sociologize’)about)something)that)does)not,)or)does)not)seem)

to)us)to,)bear)its)explanation)on)its)face.$Where$beliefs$are$involved,$this$means$that$

we$ do$ not$ invoke$ sociology$ when$ we$ find$ people$ asserting,$ or$ acting$ on$ the$

assumption,$ that$ two$ and$ two$make$ four,$ or$ that$ twins$ are$ not$ birds$ (Hamnett,$

1973$p.$2,$emphasis$mine).$

Hamnett’s$use$of$examples$of$scientific$knowledge$to$contrast$with$that$which$is$

‘sociologizable’$ is$ not$ a$ coincidence.$ Nor$ is$ it$ necessarily$ surprising$ that$ this$

defence$ of$ the$ sociology$ of$ error$ should$ come$ from$ a$ sociologist$ of$ religion.$

Truth$(with$a$capital$T),$whether$scientific$or$religious,$takes$its$authority$from$

the$Absolute,$the$ultimate$exemplar$of$which$is$God.$

Hamnett’s$ reasoning$ is$ that$ the$ sociology$ of$ religion$ is$ and$ will$ remain$ a$

sociology$ of$ error$ in$ so$ far$ as$ it$ is$ committed$ to$what$ he$ calls$ “strong$ causal$

explanations”$ (Hamnett,$ 1973).$What$ Hamnett$means$ to$ say,$ in$ a$ nutshell,$ is$

that$ to$ treat$ a$ phenomenon$ as$ an$ effect,$ that$ is,$ any$ phenomenon$ that$ is$

supposed$to$have$a$cause,$is$to$treat$it$as$error.$Again,$this$is$a$sharp$description$

of$ the$ deeper$ consequences$ of$ the$ logic$ of$ the$ error$ approach.$ Remember$

Bloor’s$questioning$of$it:$what$does$it$mean$to$treat$a$phenomenon$as$if$ it$had$

no$cause?$What$does$it$mean$for$Truth$to$say$of$it$that$nothing$caused$it?$This$is$

full$ circle$ back$ to$ the$ notion$ of$ a$ teleological$ vision,$ the$ inevitability$ of$ the$

$ 196$

progression$of$Truth,$which$needs$no$explanation$and$has$no$engine$aside$from$

its$own$inevitability.$

I$ strongly$ disagree$with$ Hamnett,$ and$ so$ by$ the$way$would$ Bloor.$ To$ do$ the$

sociology$of$science$(or$religion)$is$precisely$to$invoke$sociological$explanation$

for$ all$ knowledge,$ including$ statements$ like$ two$ and$ two$make$ four,$ or$ twins$

are$not$birds.$However$Hamnett$is$helpful$in$that$he$draws$out$the$idea$that$to$

sociologize$ (unless$ it$ is$ a$ sociology$of$ error)$ is$ somehow$ to$negate$notions$of$

selfTevidence.$ Sociologizing$ is$ problematizing,$ and$ just$ as$ the$ sociology$ of$

religion$ problematizes$ the$ very$ notion$ of$ religion,$ sociologists$ of$ science$

problematize$ the$ notion$ of$ science.$ In$ alignment$ with$ the$ tradition$ of$ SSK,$

knowledgeTmaking$does$not$seem$to$me$to$bear$its$explanation$on$its$face.$$

Heuristics$and$Biases$as$the$Right$Sort$of$Promise$$

I$began$the$thesis$with$a$quote$from$philosopher$Gilbert$Ryle$(1900T1976).$The$

quote$comes$from$the$last$chapter$of$Concept)of)Mind)first$published$in$1949)in$

which$Ryle$gives$his$views$on$ “the$programme$of$psychology”.$The$ chapter$ is$

there$ to$ declare$ his$ own$ project$ as$ philosophical$ (as$ opposed$ to$ scientific)$

psychology.$In$his$view,$the$parameters$of$scientific$psychology$are$confined$to$

the$ study$ of$ abnormal$ ratiocination,$ while$ his$ philosophical$ psychology$ is$

founded$ on$ the$ analysis$ of$ ordinary$ language$ use,$ hence$ the$ line$ “let$ the$

psychologist$tell$us$why$we$are$deceived”$(Ryle,$2009,$p.$299).$

I$have$ in$my$readings$come$across$the$quote$ in$two$different$places.$First,$ the$

quote$can$be$found$in$the$first$chapter$of$Bloor’s$Knowledge)and)Social)Imagery)

(1991).$There$it$ is$intended$to$illustrate$the$kind$of$rationale$that$gives$rise$to$

sociologies$and$psychologies$of$error.$The$same$quote$by$Ryle$at$the$beginning$

of$ this$ chapter$ also$ appears$ in$ the$ late$ Stuart$ Sutherlands’$ Irrationality:) The)

enemy)within$ (2007).$ Sutherland$ (1927T1998)$ was$ a$ psychology$ professor$ at$

Sussex$ for$ most$ of$ his$ life$ whose$ field$ of$ research$ was$ in$ experimental$

comparative$ psychology.$ Still,$ it$ seemed$ to$ him$ such$ a$ fascinating$ strand$ of$

$ 197$

psychology$that$he$decided$that$he$would$write$a$book$compiling$psychological$

studies$of$human$irrationality,$originally$published$in$1992$(Sutherland,$2007).$$

Just$ like$ Bloor,$ Sutherland$ uses$ the$ quote$ as$ an$ example$ of$ an$ eminent$

philosopher$who$holds$the$belief$that$rationality,$not$irrationality,$is$the$norm,$

and$ need$ not$ be$ explained.$ Sutherland’s$ point$ is$ that$ contrary$ to$ this$ view,$

irrationality$ is$ the$norm.$Sutherland$was$not$wrong$ in$deducing$that$ the$most$

significant$ consequence$ of$ the$ science$ of$ irrationality$ is$ the$ death$ of$ rational$

man:$ “Pace$ Aristotle,$ it$ can$ be$ argued$ that$ is$ the$ norm,$ not$ the$ exception”$

(Sutherland,$2007$p.$xi).$$

The$interesting$thing$about$Ryle’s$quote$appearing$in$Sutherland’s$book$on$the$

psychology$of$ irrationality$ is$ that$ it$helps$support$ the$ idea$ that$heuristics$and$

biases$ and$ behavioural$ economics$ as$ sciences$ of$ irrationality,$ are$ built$ from$

operationalizing$the$psychology$of$error$because$it$supports$the$idea$that$they$

can$be$understood$as$following$Ryle’s$instructions$to$the$letter.$Kahneman$and$

Tversky$and$ the$behavioural$economists$who$mobilised$ their$work$ took$upon$

themselves$to$tell$us$why$we$are$deceived.$$

Bloor$used$the$notion$of$a$sociology$of$error$in$order$to$make$a$methodological$

point:$ all$ knowledge$ is$ a$ social$ institution$ and$ as$ such$ all$ knowledge$ can$ and$

should$ fall$ under$ the$ purview$ of$ sociological$ explanation$ (Bloor,$ 1991).$ My$

argument$is$that$because$of$the$way$that$the$scope$of$psychological$explanation$

was$ demarcated$ in$ Heuristics$ and$ Biases$ Programme$ and$ behavioural$

economics,$they$qualify$as$psychologies$of$error.$$

Bloor’s$ description$ of$ the$ explanatory$ framework$ produced$ by$ sociologies$ of$

error$ could$ have$ been$ a$ description$ of$ either$ the$ Heuristics$ and$ Biases$

Programme$ or$ behavioural$ economics.$ Consider$ the$ following$ extract$ on$ the$

structure$ of$ sociologies$ of$ error$ from$ Knowledge) and) Social) Imagery) (Bloor,$

1991):$

The$ general$ structure$ of$ these$ explanations$ stands$ out$ clearly.$ They$ all$ divide$

behaviour$ or$ belief$ into$ two$ types:$ right$ and$ wrong,$ true$ or$ false,$ rational$ or$

$ 198$

irrational.$ They$ then$ invoke$ sociological$ or$ psychological$ causes$ to$ explain$ the$

negative$ side$of$ the$division.$ Such$causes$explain$error,$ limitation$and$deviation.$

The$positive$side$of$the$evaluative$divide$is$quite$different.$Here$logic,$rationality$

and$ truth$ appear$ to$ be$ their$ own$ explanation.$Here) psychoSsocial) causes) do) not)

need)to)be)invoked$(1991$p.$6,$emphasis$mine).$

I$have$already$emphasised$that$ the$key$component$to$a$psychology$of$error$ is$

that$it$limits$the$scope$of$psychological$explanation$to$deviation$from$a$norm$i.e.$

error.$ I$ did$ this$ in$ order$ to$ argue$ that$ heuristics$ and$ biases$ and$ behavioural$

economics$ were$ psychologies$ of$ error.$ But$ to$ understand$ the$ work$ that$ the$

notion$of$a$psychology$of$error$can$do$ in$ the$analysis$of$heuristics$and$biases$

and$ behavioural$ economics,$ it$ is$ not$ enough$ to$ accept$ that$ they$ can$ be$

understood$ as$ psychologies$ of$ error.$ Once$ again,$ the$ analytical$ value$ of$ the$

notion$ lies$ in$ understanding$ the$ consequences$ of$ a$ psychology$ of$ error.$ The$

crucial$ consequence$ of$ a$ sociology$ of$ error$ is$ that$ it$ leaves$ unexplained$ that$

which$is$considered$not$to$be$error.$

Kahneman$ and$Tversky$ in$ divorcing$ the$ descriptive$ study$ of$ decision$making$

from$ the$ normative$ study$ of$ decision$ making$ did$ nothing$ to$ diminish$ the$

normativity$ of$ the$ normative.$ On$ the$ contrary,$ I$ argue$ that$ the$ separation,$

because$ it$ shielded$ normative$ decision$ theory$ from$ psychological$ and$

sociological$ factors,$ strengthened$ its$ normative$ character.$ This$ deserves$ to$ be$

emphasized$because$it$is$a$key$element$of$the$sociology$of$error$argument,$that$

sociologies$of$error$are$seen$to$work$in$the$service$of$a$norm,$in$so$far$as$they$

work$ in$ the$ service$ of$ the$ distinction$ between$ error$ and$ correctness.$

Sociological$or$psychological$explanation$work$ in$ the$service$of$ the$normative$

by$ throwing$ into$ relief$ the$distinction$between$ the$normative$benchmark$and$

deviations$from$that$normative$benchmark.$

When$ Kahneman$ and$ Tversky$ modified$ the$ methods$ of$ traditional$ decision$

theory$ for$ the$ creation$ of$ heuristics$ and$ biases,$ they$ fortified$ the$ separation$

between$ normative$ decision$ theory$ and$ descriptive$ decision$ making.$ This$

fortification$of$the$separation$insulated$normative$decision$theory.$It$meant$that$

normative$theories$of$decision$making$(how$decisions$should$be$made)$were$no$

$ 199$

longer$ subject$ to$ changes$ based$ on$ descriptive$ evidence$ of$ decision$ making$

(how$people$actually$make$decisions).$In$the$Modus)Operandi$of$heuristics$and$

biases$ the$ normative$ kernel$ played$ exactly$ the$ role$ of$ the$ rational$

reconstruction$in$Lakatos’$theory.$$

If$ the$ concept$ of$ a$ sociology$ of$ error$ primarily$makes$ a$ statement$ about$ the$

scope$of$the$sociological$explanation$then$the$concept$of$a$psychology$of$error$

does$the$same$for$the$scope$of$psychological$explanation.$What$I$am$doing$when$

I$claim$that$heuristics$and$biases$and$behavioural$economics$are$psychologies$of$

error$ is$ arguing$ that$ Kahneman$ and$ Tversky$ and$ behavioural$ economists$

systematically$limited$the$scope$of$psychological$explanation$to$deviations$from$

a$set$of$norms.$

What$makes$heuristics$and$biases$a$psychology$of$error$is$tightly$bound$up$with$

the$ distinction$ between$ normative$ and$ descriptive$ decision$ theory$ that$

Kahneman$and$Tversky$mobilised$for$their$fledgling$research$programme.$The$

notion$ of$ the$ normative/descriptive$ distinction$ appears$ in$ almost$ all$ of$ their$

collaborative$publications$like$a$mantra.$The$following$is$an$example$from$their$

widely$cited$1984$“Choices,$Values$and$Frames”:$

The$ study$of$ decisions$ addresses$ both$normative$ and$descriptive$ questions.$ The$

normative$ analysis$ is$ concerned$ with$ the$ nature$ of$ rationality$ and$ the$ logic$ of$

decision$making.$The$descriptive$analysis,$ in$contrast,$ is$concerned$with$people’s$

beliefs$ and$ preferences$ as$ they$ are,$ not$ as$ they$ should$ be.$ The$ tension$ between$

normative$ and$ descriptive$ considerations$ characterizes$ much$ of$ the$ study$ of$

judgment$and$choice$(Kahneman$&$Tversky,$1984$p.$341).$

The$quote$ is$a$useful$reminder$of$the$function$of$normative$decision$theory$in$

the$ study$ of$ decision$making.$ Normative$ theories$ prescribed$which$ decisions$

should$ be$ made$ under$ a$ given$ set$ of$ circumstances.$ Those$ circumstances$

included$the$goals$that$the$decision$maker$has$and$the$information$available$to$

the$decision$maker.$$

Here$ Kahneman$ and$ Tversky$ characteristically$ begin$ their$ article$ by$ spelling$

out$ the$ meaning$ of$ normative$ decision$ making$ as$ the$ choices$ people$ should)

$ 200$

make$ contrasted$ with$ descriptive$ decision$ making$ as$ the$ choices$ people$

actually$make.$The$use$of$the$word$‘tension’$acknowledges$that$they$represent$

different$ways$ of$ understanding$ choice,$ and$ that$ those$ different$ways$ do$ not$

map$straightforwardly$on$to$one$another.$$

As$I$discussed$in$chapter$2,$this$distinction$between$normative$and$descriptive$

analysis$was$first$introduced$to$the$field$of$decision$making$by$Leonard$Savage$

in$ his$ The) Foundations) of) Statistics$ (1954)$ under$ the$ labels$ ‘normative’$ and$

‘empirical’$ interpretations$ of$ decision$ making.$ Savage’s$ use$ of$ the$ label$

‘empirical’$was$a$clue$to$the$division$of$labour$that$he$envisioned$for$the$study$

of$decision$making.$He$considered$the$empirical$study$of$decision$making$to$be$

the$domain$of$psychologists.$$

Kahneman$ and$ Tversky’s$ empirical$ approach$ to$ decision$ making$ was$ an$

enactment$of$Savage’s$prescribed$division$of$labour.$This$hard$division$of$labour$

was$part$of$ their$creation$of$a$psychology$of$error.$The$key$characteristic$of$a$

psychology$ of$ error$ is$ how$ explanation$ is$ limited,$ that$ is,$ what$ kinds$ of$

phenomena$are$explained$and$what$kinds$are$not.$Kahneman$and$Tversky$were$

explicit$ about$ being$ concerned$with$ people’s$ beliefs$ and$ preferences$ “as$ they$

are,$ not$ as$ they$ should$ be”$ (Kahneman$ &$ Tversky,$ 1984,$ p.$ 341),$ with$ the$

implication$that$beliefs$as$they$should$be$was$the$work$of$others$.$

This$ was$ a$ crucial$ difference$ between$ the$ kind$ of$ experimental$ decision$

research$ that$ Edwards$ had$ initiated$ and$ Kahneman$ and$ Tversky’s$ Heuristics$

and$ Biases$ Programme.$ For$ the$ making$ of$ The$ Heuristics$ and$ Biases$

Programme,$ Kahneman$ and$ Tversky$ chose$ to$ limit$ their$ psychological$

explanations$to$instances$where$actual$decision$making$deviated$from$the$rules$

prescribed$by$formal$decision$making$theory.$Decision$researchers$before$their$

collaboration$ who$ had$ engaged$ in$ the$ empirical$ study$ of$ human$ decision$

making$ had$ been$ working$ on$ the$ assumption$ that$ people$ were$ flawed$

normative$decision$makers$(conservative$Bayesians),$who$nevertheless$largely$

reasoned$ within$ the$ framework$ of$ normative$ decision$ theory.$ In$ contrast,$

$ 201$

Kahneman$ and$ Tversky’s$ working$ hypothesis$ was$ that$ people$ were$ not$

normative$decision$makers$at$all.$

This$ separation$ between$ the$ normative$ and$ the$ descriptive$ relieved$ the$

‘tension’$between$the$ two$domains$of$decision$theory,$because$ it$set$aside$ the$

question$of$the$extent$to$which$people’s$actual$beliefs$and$preferences$embody$

the$rules$of$rationality$and$logic.$It$was$a$subtle,$but$important$shift$in$how$the$

relationship$ between$ the$ normative$ and$ the$ descriptive$ was$ viewed.$ Using$

Kuhnian$ vocabulary$ one$ could$ say$ that$ the$ tension$was$ resolved$ by$ changing$

the$ ‘puzzleTsolution’$ from$asking$how)well$ people$ followed$normative$ rules$of$

decision$making,$to$discovering$instances$when$people$did$not$follow$normative$

rules$ of$ decision$ making$ and$ providing$ psychological$ explanations$ for$ those$

instances.$$

The$Modus$ Operandi$ of$ Heuristics$ and$ Biases$ and$ the$ role$ of$ the$ ‘normative$

kernel’$$

The$ originality$ of$ the$ approach$ to$ reasoning$ of$ Kahneman$ and$ Tversky’s$

Heuristics$and$Biases$Programme$lay$in$the$subtle$but$significant$shift$that$they$

made$ in$ the$kind$of$questions$ they$asked$ themselves.$Kahneman$and$Tversky$

could$draw$ from$previous$ studies$on$deviations$ from$statistical$ inference$ like$

the$Allais$paradox$without$conflict$because$like$Allais,$they$were$working$with$

the$ hypothesis$ that$ normative$ decision$ rules,$ including$ normative$ probability$

theory,$were$not$descriptively$valid.$$

The$Heuristics$and$Biases$Programme$was$the$psychology$of$error$in$action.$It$

consisted$ of$ a$ gradual$ accumulation$ of$ results$ that$ supported$ the$ notion$ that$

humans$systematically$broke$the$rules$of$normative$decision$theory$when$they$

made$ decisions.$ A$ recurring$ theme$ in$ Kahneman$ and$ Tversky’s$ joint$

publications$ was$ to$ open$ with$ situating$ their$ approach$ in$ relation$ to$ the$

normative/descriptive$distinction.$$

$ 202$

The$word$“tension”$quoted$in$the$paragraph$on$page$201$above,$was$indicative$

of$what$set$the$Heuristics$and$Biases$Programme$apart$from$traditional$studies$

of$ judgment$ and$ decision$ making$ that$ maintained$ a$ reciprocal$ relationship$

between$ the$ normative$ and$ the$ descriptive.$ This$ meant$ that$ the$ normative$

models$ of$ decision$ making$ were$ subject$ to$ changes$ as$ a$ consequence$ of$ the$

discovery$ of$ inconsistencies$ between$ the$ normative$ models$ and$ descriptive$

data.$Having$ turned$ the$psychological$ study$of$ reasoning$ into$a$psychology$of$

error,$ Kahneman$ and$ Tversky$ could$ jettison$ any$ necessity$ to$ modify$ the$

normative$ element$ of$ decision$making$ theory.$ By$ the$ time$ the$Heuristics$ and$

Biases$ Programme$ had$ been$ crystalized,$ Kahneman$ and$ Tversky$ were$ clear$

about$the$division$of$labour$in$the$study$of$decision$making.$When$you$address$

the$normative$element$you$are$no$longer$doing$psychology:$$

To)address)the)normative)issue)we)turn)from)psychology)to)decision)theory.$Modern$

decision$ theory$ can$ be$ said$ to$ begin$with$ the$ pioneering$work$ of$ von$Neumann$

and$Morgenstern$(1947),$who$laid$down$several$qualitative$principles,$or$axioms,$

that$ should$ govern$ the$ preferences$ of$ a$ rational$ decision$ maker$ (Kahneman$ &$

Tversky,$1984,$p.$343).$

The$notion$ that$ there$ is$ tension$ between$ the$normative$and$ the$descriptive$ is$

central$to$the$justification$of$the$error$approach.$Errors$require$a$norm$against$

which$ they$ may$ be$ established.$ They$ also$ require$ a$ consensus,$ implicit$ or$

explicit,$that$deviation$from$that$norm$is$in$some$way$problematic.$In$order$to$

explain$what$I$mean$by$that,$I$have$chosen$to$refer$to$the$collection$of$norms$in$

relation$ to$ which$ psychological$ deviation$ are$ identified$ as$ the$ ‘normative$

kernel’.$$

I$could,$probably$to$more$or$less$equal$effect,$have$called$the$normative$kernel$

say,$ the$ ‘normative$ yardstick’$ or$ the$ ‘normative$ benchmark’$ as$ others$ have$

before$ me$ (Bloor,$ 2010;$ Heukelom,$ 2014;$ Sent,$ 2004).$ The$ reason$ I$ prefer$

‘kernel’$ is$ that$ it$ invokes$ a$ sense$ of$ a$ central$ mass,$ a$ collection$ of$ norms$ as$

opposed$ to$ a$ straight$ line$ or$ measuring$ rod$ most$ readily$ associated$ with$

yardstick$ or$ benchmark.$ The$ normative$ theories$ placed$within$ the$ normative$

kernel$ in$ heuristics$ and$ biases$ and$ behavioural$ economics$ was$ an$ eclectic$

$ 203$

collection$ of$ formal$ statistical$ and$mathematical$ rules.$ I$ think$ the$ notion$ of$ a$

kernel$ has$ the$ capacity$ to$ invoke$ the$ idea$ of$ a$ source$ of$ growth,$ the$ organic$

results$of$which$depend$on$the$precise$elements$it$happens$to$comprise$and$the$

kind$of$attention$it$is$given.$$

Another$reason$for$preferring$‘kernel’$over$the$alternatives$was$that$I$wanted$to$

find$ a$ metaphor$ that$ could$ invoke$ a$ sense$ of$ something$ that$ could$ be$

simultaneously$both$stable$and$flexible.$The$point$of$the$kernel$for$the$notion$of$

a$ psychology$ of$ error$ (or$ indeed$ any$ error$ approach)$ is$ that$ it$ is$ considered$

autonomous,$ in$ need$ of$ no$ explanation.$ This$ to$me$makes$ it$ both$ stable$ and$

flexible$ in$ its$ content.$ Stable,$ because$ it$ is$ exempt$ from$ scrutiny.$ Flexible,$

because$what$is$placed$within$it$is$determined$by$the$knowledge$producer.$$

When$I$refer$to$the$kernel$as$normative,$I$mean$by$normative$what$Kahneman$

and$ Tversky$ and$ the$ behavioural$ economists$ that$ followed$ meant$ by$ it,$

understood$ as$ the$ philosophical$ should.$ One$ might$ want$ to$ contrast,$ as$

Heukelom$(2009)$does$briefly,$the$notion$of$a$statistical$norm$as$the$statistical$

‘normal$ distribution’$ with$ that$ of$ Kahneman$ and$ Tversky’s$ norm$ of$ the$

normative/descriptive$distinction.$In$psychology,$the$former$is$created$through$

statistical$analysis$of$psychological$phenomena,$by$taking$measurements$across$

a$ population$ and$ establishing$ a$ value$ based$ on$ the$ combined$ value$ of$ each$

individual$case.$All$individual$values$deviate$from$each$other,$but$together$they$

create$ the$ norm.$ In$ contrast,$ Kahneman$ and$ Tversky$ began$ with$ norms$

constructed$through$statistical$calculation$or$formal$logic$and$used$those$norms$

to$identify$deviation$in$the$reasoning$of$human$subjects.$In$heuristics$and$biases$

the$normative$kernel$consisted$of$logic,$statistics$and$probability$theory.$For$the$

making$ of$ behavioural$ economics,$ behavioural$ economists$ focused$ their$

attention$on$placing$neoTclassical$rationalistic$theory$in$the$normative$kernel.$

In$practice$the$content$of$the$normative$kernel$evolved$throughout$the$making$

of$ both$ the$Heuristics$ and$Biases$ Programme$ as$ a$ result$ of$ changes$made$ by$

Kahneman,$Tversky$and$the$behavioural$economists.$However,$importantly$the$

role$that$the$normative$kernel$played$in$knowledge$production$remained$stable.$

$ 204$

In$ a$ psychology$ of$ error$ like$ the$ Heuristics$ and$ Biases$ Programme$ and$

behavioural$ economics,$neither$ the$meaning$of$ the$normative$ core,$nor$of$ the$

deviations$are$static.$Sent$(2004)$makes$the$comment$that$there$is$a$possibility$

that$ the$ normative$ element$may$ still$ be$ evolving$ and$ that$ in$ the$ future$what$

counts$ as$ rational$ in$ behavioural$ economics$ may$ well$ change.$ My$ research$

would$indicate$that$the$flexibility$of$the$content$of$the$normative$kernel$is$key$

to$the$transition$between$heuristics$and$biases$and$behavioural$economics.$The$

psychology$of$error$allowed$for$this$flexibility$because$the$stability$of$the$error$

approach$does$not$ lie$ in$ the$ consistent$nature$of$ the$normative$kernel,$but$ in$

the$practice$of$confining$explanation$to$deviations$from$the$normative$kernel.$In$

a$psychology$of$ error$on$ a$purely$operational$ level,$ the$process$of$ identifying$

and$ explaining$ deviations$ from$ the$ normative$ kernel$ is$ independent$ of$ the$

precise$prescription$of$the$norms$placed$within.$$

The$ point$ is$ that$ a$ psychology$ of$ error$ is$ flexible$ in$ relation$ to$ how$ both$

benchmark$and$deviation$are$defined.$ In$theory$anything$will$serve,$ though$in$

practice$convention$will$always$provide$constraints.$The$normative$kernel$can$

consist$of$anything$that$the$collective$can$agree$is$correct$in$one$way$or$another,$

and$ the$ identification$ and$ explanation$ of$ deviations$ can$ be$ achieved$ through$

any$ means$ deemed$ reasonable.$ Kahneman,$ Tversky$ and$ the$ behavioural$

economists$ that$ followed$ in$ their$ footsteps$ were$ scientists$ who$ provided$

psychological$ explanations$ for$ erroneous$ beliefs.$ Crucially$ they$ defined$ those$

erroneous$beliefs$in$relation$to$a$set$of$rules$whose$normativity$they$could$take$

for$ granted$ and$ that$ they$ left$ unexplored$ and$ unexplained.$ This$ also$ left$

unexplored$the$consequences$of$the$correct$application$of$normative$rules.$$

It$ was$ because$ of$ the$ way$ in$ which$ Kahneman$ and$ Tversky$ dealt$ with$ the$

normative/descriptive$ distinction$ that$ the$ Heuristics$ and$ Biases$ Programme$

merits$ the$ classification$ of$ a$ psychology$ of$ error.$ The$ intellectual$ move$ that$

Kahneman$ and$Tversky$made$ from$an$ investigation$ of$ Edward’s$ conservative$

Bayesian$ to$an$ investigation$of$ the$nonTintuitive$Bayesian$was$ ‘pivotal’.$ It$was$

pivotal$ because$ it$ made$ up$ a$ crucial$ characteristic$ of$ the$ way$ that$ their$

psychological$knowledge$was$produced.$$

$ 205$

The$ move$ that$ Kahneman$ and$ Tversky$ made,$ pooling$ their$ respective$

intellectual$ resources$may$ seem$ like$ a$modest$ intellectual$ turn.$ However,$my$

argument$ is$ that$ it$ is$ precisely$ this$ pivot$ that$ warrants$ considering$ the$

Heuristics$and$Biases$Programme$as$a$psychology$of$error.$The$intention$behind$

the$Heuristics$and$Biases$Programme$was$not$(as$it$was$for$Tversky$before$the$

collaboration),$to$improve$on$formal$decision$making$theory$using$insights$from$

the$ intuitive$ statistician$ as$ a$ viable$ way$ toward$ reaching$ normative$ goals.$

Instead$Kahneman$and$Tversky$focus$attention$on$the$ways$in$which$intuition$

sometimes$steers$humans$away$from$those$normative$goals.$$

For$ the$ sake$ of$ clarification$ it$ is$ worth$ comparing$ Kahneman$ and$ Tversky’s$

project$ to$ others$ who$ were$ investigating$ the$ difference$ between$ human$

cognition$and$human$inference$and$the$rules$of$statistics$and$formal$logic.$The$

difference$ between$ their$ work$ and$ the$ work$ of$ others$ (e.g.,$ Ellsberg,$ 1961;$

Allais$ and$ Hagen,$ 1979;$ Baumol,$ 1951,$ 1958;$ Simon,$ 1955,$ 1959;$ Slovic$ and$

Lichtenstein,$ 1971) was$ that$ they$ never$ took$ their$ results$ to$ mean$ that$ the$

formal$rules$needed$to$be$reworked.$They$stayed$within$the$realm$of$cognitive$

error.$As$Heukelom$puts$it:$

where$ many$ of$ their$ contemporaries$ took$ similar$ experimental$ falsifications$ of$

individuals’$capacity$to$reason$along$scientific$lines$as$proof$that$something$had$to$

be$ wrong$ with$ the$ science,$ Kahneman$ and$ Tversky$ took$ it$ as$ evidence$ of$ a$

cognitive$ failure$ of$ the$ individuals$ tested.$ They$ found$ it$ appalling$ and$

fundamentally$ disturbing$ to$ see$ that$ even$ trained$professionals$ failed$ to$ behave$

according$to$the$dictates$of$normative$theory$(Heukelom,$2014$p.$113).$$

Their$intellectual$move$was$also$pivotal$in$the$sense$that$it$was$a$move$fixed$to$

a$ focal$ point:$ the$ normative/descriptive$ distinction.$ Together$ Kahneman$ and$

Tversky$produced$a$ research$programme$based$on$ the$difference)between$ the$

two.$The$pivotal$move$ that$Kahneman$and$Tversky$made$was$ to$restrict$ their$

investigations$ to$ deviations$ from$ a$ norm,$ treating$ the$ norm$ as$ given.$ An$

understanding$ of$ what$ that$ pivotal$ move$ consists$ of$ requires$ a$ comparison$

between$ the$ notion$ of$ the$ normative/descriptive$ distinction$ in$ traditional$

decision$research$and$how$the$distinction$came$to$be$viewed$by$Kahneman$and$

$ 206$

Tversky.$ Their$ claim$ was$ that$ normative$ decision$ making$ was$ not$ and$

importantly$ need) not$ be$ descriptively$ accurate.$ This$ was$ not$ an$ intellectual$

move$ that$ discarded$ normative$ decision$ theory.$ On$ the$ contrary,$ normative$

decision$ theories$ played$ a$ crucial$ role$ in$ the$ discovery$ of$ deviations,$ as$ the$

benchmark$from$which$those$deviations$could$be$measured.$$

Kahneman$ and$ Tversky’s$ project$ was$ to$ provide$ experimental$ evidence$ to$

support$the$hypothesis$that$the$impact$of$deepTseated$intuition$is$greater$than$

the$ impact$ of$ normative$ decision$ rules$ on$ human$ reasoning.$ Their$ choice$ of$

subjects$ who$were$well$ versed$ in$ statistics$ in$ their$ initial$ exploration$ of$ this$

hypothesis$ published$ in$ “Belief$ in$ the$ Law$ of$ Small$ Numbers”$ (Tversky$ &$

Kahneman,$ 1971)$ was$ deliberate.$ It$ was$ designed$ to$ test$ the$ validity$ of$ the$

hypothesis$ even$ where$ subjects$ had$ extensive$ training$ that$ should$ provide$

them$ with$ sufficient$ knowledge$ of$ normative$ rules$ to$ follow$ them.$ Once$ the$

spotlight$had$shifted$ to$ the$deviations$ from$normative$decision$making$so$did$

the$explanatory$project.$Their$goal$became$restricted$to$explaining$the$reasons$

why$intuition$deviated$from$formal$decision$making$rules.$$

Figure$ 11$ below$ is$ an$ attempt$ at$ illustrating$ the$ relationship$ between$ the$

‘normative$ kernel’$ and$ the$ deviations$ from$ it$ as$ the$ area$ where$ the$

psychological$ explanations$ are$ invoked$ in$ both$ the$ Heuristics$ and$ Biases$

Programme$and$in$behavioural$economics:$

$ 207$

Figure$11:$The$psychology$of$error$in$heuristics$and$biases$and$behavioural$economics$

$

$

I$want$to$make$it$clear$that$it$would$be$illegitimate$and$misleading$to$argue$that$

Kahneman$ and$ Tversky$were$ under$ the$ impression$ that$ all$ human$ judgment$

and$decision$making$deviated$from$normative$decision$theory$all$the$time.$As$I$

mentioned$ in$ chapter$ three$ on$ the$ making$ of$ the$ Heuristics$ and$ Biases$

Programme,$ Kahneman$ and$ Tversky$ intended$ the$ term$ heuristics$ to$ be$ a$

neutral$ term$ for$ human$ intuitive$ cognition,$ and$ that$ these$ heuristics$ only$

sometimes$lead$to$error.$They$introduced$the$majority$of$their$publications$with$

a$statement$emphasising$that$they$understood$heuristics$to$be$mostly$useful$in$

order$ to$ underscore$ this$ point$ (e.$ g.$ Kahneman$ &$ Tversky,$ 1979;$ Tversky$ &$

Kahneman,$1973,$1974,$1981).$

Nevertheless,$what$I$intend$to$illustrate$in$the$figure$with$the$ring$closest$to$the$

kernel,$ was$ that$ Kahneman$ and$ Tversky$ were$ concerned$ to$ emphasise$ that$

descriptive$ deviations$ from$ normative$ decision$ theory,$ while$ they$ were$

systematic$and$predictable,$were$not$ubiquitous.$These$statements$are$there$to$

clarify$the$important$point$that$a$heuristic$does$not$necessarily$lead$to$biases,$in$

fact,$ the$ point$ about$ heuristics$ as$ intuitive$ rules$ of$ thumb$ is$ that$ they$ are$

$ 208$

intuitive$precisely$because$they$lead$to$decisions$that$allow$the$decision$maker$

to$achieve$their$intended$goals,$most$of$the$time.$$

By$ 1972$ Kahneman$ and$ Tversky$ began$ using$ language$ that$ expressed$ more$

clearly$ the$ justification$ of$ their$ descriptive$ explanatory$ project:$ the$ lack$ of$

descriptive$ validity$ of$ the$ normative$ approach$ to$ decision$making.$ Under$ the$

heading$ “Normative$ models$ and$ descriptive$ heuristics”$ they$ also$ explain$ a$

significant$ conclusion$ of$ their$ experiments$ to$ date,$ difference$ between$ their$

nonTBayesian$subjects$and$Edwards’$conservative$Bayesian$subjects:$$

The$ usefulness$ of$ the$ normative$ Bayesian$ approach$ to$ the$ analysis$ and$ the$

modelling$of$ subjective$probability$depends$primarily$not$on$ the$accuracy$of$ the$

subjective$ estimates,$ but$ rather$ on$ whether$ the$ model$ captures$ the$ essential$

determinants$ of$ the$ judgment$ process.$ The$ research$ discussed$ in$ this$ paper$

suggests$that$it$does$not$[…]$In$his$evaluation$of$evidence,$man$is$apparently$not$a$

conservative$Bayesian:$he$is$not$a$Bayesian$at$all.$(Kahneman$&$Tversky,$1972$p.$

450)$

The$ essential$ determinant,$ in$ the$ case$ of$ the$ article$ quoted$ above,$ was$ the$

heuristic,$ representativeness,$ not,$ for$ example,$ sample$ size$ as$ it$ would$ be$ in$

Bayesian$probability.$Kahneman$and$Tversky$also$ took$ the$ time$ to$defend$ the$

hypothesis$ against$ the$ most$ salient$ possible$ criticism:$ that$ perhaps$ the$

questions$were$ too$difficult,$ and$ the$situations$were$ too$contrived.$Kahneman$

and$Tversky$cited$their$own$earlier$article$targeted$at$“sophisticated$scientists”$

who$also$showed$signs$of$being$ruled$by$the$representativeness$heuristic.$They$

also$ pointed$ out$ that$ everyday$ life$ consists$ of$many$ random$processes$ of$ the$

kind$presented$ in$ the$article.$ “Apparently”,$ they$wrote,$ “extensive$exposure$ to$

numerous$ examples$ alone$ does$ not$ produce$ optimal$ behavior”$ (Kahneman$&$

Tversky,$1972).$$

Kahneman$ and$ Tversky$ maintained$ a$ bleak$ view$ of$ the$ possibility$ of$

counteracting$bias.$The$notion$that$the$Heuristics$and$Biases$Programme$was$a$

psychology$ of$ error$ helps$ explain$ their$ insistence$ on$ this$ point.$ If$ the$ biases$

could$ be$ counteracted,$ then$ the$ division$ between$ the$ descriptive$ and$ the$

normative$ would$ dissolve.$ The$ strength$ of$ the$ explanation$ of$ the$ error$ as$ a$

$ 209$

result$of$heuristic$reasoning$relied$on$upholding$the$realm$of$the$normative$as$

nonTdescriptive.$$

The$insistence$that$heuristics$only$led$to$biases$some$of$the$time$was$consistent$

with$ their$ claims$ that$ their$goal$was$never$ to$promote$a$notion$of$ the$human$

being$as$irrational.$The$idea$of$the$nonTBayesian$was$about$how$people$did$not$

reason$as$Bayesian$inference$dictates.$It$was$intended$as$a$statement$about$the$

lack$of$descriptive$validity$of$normative$theories$of$decision$making.$Kahneman$

and$Tversky$did$not$intend$their$experimental$results$in$support$of$the$notion$

of$ humans$ as$ nonTBayesian$ to$ imply$ that$ humans$ are$ irrational.$ Despite$ this$

intention$ the$ Heuristics$ and$ Biases$ Programme$ generated$ a$ debate$ about$

human$rationality.$Some$commentators$of$this$debate$have$labelled$it$the$“Great$

Rationality$Debate”$(Tetlock$&$Mellers,$2002).$Other$authors$use$the$even$more$

sensational$ ‘rationality$ wars’$ (Samuels,$ Stich,$ &$ Bishop,$ 2002;$ Sturm,$ 2012).$

Understanding$heuristics$and$biases$as$a$psychology$of$error$helps$explain$the$

reason$why$this$was$the$case$because$the$very$act$of$focusing$on$deviation$and$

leaving$ normativity$ out$ of$ the$ equation$ threw$ open$ the$ doors$ to$ the$

overthrowing$ the$ notion$ that$ rationality$ (adherence$ to$ the$ dictates$ of$ formal$

rules)$was$a$foundational$characteristic$of$the$human$mind.$

To$ summarise$ I$ have$ argued$ that$ the$ way$ that$ the$ research$ programme$ of$

Heuristics$ and$ Biases$ was$ set$ up$ to$ restrict$ explanation$ to$ deviation$ from$ a$

norm$ justifies$ understanding$ it$ a$ psychology$ of$ error.$ The$ notion$ of$ the$

psychology$ of$ error$ finds$ its$ analytical$ purchase$ in$ the$ consequences$ of$

restricting$ psychological$ explanation$ to$ deviations$ from$ a$ norm.$ Those$

consequences$ lie$ not$ so$ much$ what$ is$ inferred$ about$ deviation$ but$ what$ is$

implied$ about$ the$ norm.$ With$ the$ mobilisation$ of$ the$ Heuristics$ and$ Biases$

Programme$ to$ establish$ the$ discipline$ of$ behavioural$ economics,$ those$

behavioural$economists$also$mobilised$the$psychology$of$error.$The$focus$of$the$

following$ concluding$ chapter$ is$ to$ discuss$ the$ lessons$ that$ can$ be$ learned$ by$

analysing$ the$ historical$ development$ of$ the$Heuristics$ and$Biases$ Programme$

and$behavioural$economics$as$psychologies$of$error.$$

$ 211$

CHAPTER(7:"LESSONS$FROM$A$SOCIOLOGICAL!HISTORY(OF(THE(MAKING%OF!A"PSYCHOLOGY"OF"ERROR!

In$ this$ final$ chapter$ I$ aim$ to$ clarify$ how$ analysing$ the$ Heuristics$ and$ Biases$

Programme$and$behavioural$economics$as$psychologies$of$error$contributes$to$

an$understanding$of$their$development$within$their$respective$institutional$and$

disciplinary$ contexts.$ I$ begin$ by$ summarising$ my$ claims$ about$ how$ the$

institutional$environment$of$the$new$state$of$Israel$and$the$Hebrew$University$

of$Jerusalem$and$the$intellectual$trends$in$the$sciences$of$decision$making$help$

explain$ how$ the$ Heuristics$ and$ Biases$ Programme$ began$ as$ a$ psychology$ of$

error$(chapter$2).$I$then$go$on$to$discuss$how$Kahneman$and$Tversky’s$moves$

to$ strengthen$ their$ core$ premise$ also$ strengthened$ the$ psychology$ of$ error$

approach$ because$ it$ established$ the$ role$ of$ psychological$ explanation$ of$

instances$of$deviation$from$formal$decision$rules$for$enhancing$the$descriptive$

accuracy$of$normative$decision$making$theory$(chapter$3).$$

I$then$move$on$to$discuss$the$analytical$purchase$of$the$psychology$of$error$for$

understanding$the$development$of$behavioural$economics$as$a$subTdiscipline.$$I$

do$so$in$two$stages,$beginning$with$a$discussion$of$the$role$of$the$psychology$of$

error$ in$shaping$ the$Behavioral$Economics$Programme,$emphasising$ the$early$

focus$ on$ accumulating$ ‘anomalies’$ and$ targeting$ what$ I$ call$ ‘rationality$

strongholds’,$ and$ of$ differentiating$ behavioural$ economics$ from$ economic$

sociology$and$experimental$economics$(chapters$4$and$5).$$

The$ final$part$of$ the$argument$about$ the$analytical$purchase$of$understanding$

behavioural$ economics$ as$ a$ psychology$ of$ error$ (chapter$ 6)$ centres$ on$ how$

behavioural$economists$used$the$psychology$of$error$approach$as$a$resource.$I$

argue$that$an$understanding$of$behavioural$economics$as$a$psychology$of$error$

sheds$light$on$the$complicated$relationship$between$behavioural$economics$and$

neoTclassical$ economics$ because$ it$ helps$ explain$ how$ behavioural$ economists$

$ 212$

managed$to$strike$a$careful$balance$between$critiquing$the$descriptive$claims$of$

neoTclassical$economists$and$reinforcing$their$ambitions$to$establish$the$field$as$

an$economic$discipline$and$of$applying$their$knowledge$to$the$policy$arena.$$$

Summary:$The$Beginnings$of$the$Psychology$of$Error$in$the$Heuristics$

and$Biases$Programme$

As$ we$ saw$ in$ chapter$ 2,$ the$ Heuristics$ and$ Biases$ Programme$ was$ created$

through$ close$ collaboration$ between$ Kahneman$ and$ Tversky.$ The$ newly$

established$state$of$Israel$that$helped$forge$Kahneman’s$particular$approach$to$

the$ differences$ between$ intuition$ and$ formal$ reasoning,$ together$ with$ the$

intellectual$ tradition$ of$ the$ sciences$ of$ decision$ making$ familiar$ to$ Tversky,$

provide$the$context$necessary$for$understanding$how$the$Heuristics$and$Biases$

Programme$began$life$as$a$psychology$of$error.$In$other$words,$I$argue$that$it$is$

through$ a$ consideration$ of$ the$ particular$ context$ in$ which$ the$ collaboration$

began$ that$ the$ psychology$ of$ error$ as$ a$ viable$ research$ programme$ becomes$

understandable.$$

Kahneman$acquired$an$appreciation$for$the$difference$between$human$intuition$

and$more$formal$methods$of$analysis,$statistics$in$particular,$which$grew$out$of$

his$early$work$as$a$psychologist$for$the$Israeli$Defense$Forces.$Conceptualising$a$

measurable$ difference$ between$ formal$ and$ informal$ cognition$was$ a$mode$ of$

reasoning$ that$ he$ continued$ to$ develop$ throughout$ his$ career.$ Some$ of$

Kahneman’s$ work$ before$ his$ collaboration$ with$ Tversky,$ exemplified$ by$ his$

work$ on$ ‘Training$ Agents$ of$ Change”$ together$with$ his$ colleague$Ozer$ Schild,$

also$ show$ how$ institutionTbuilding$ from$ the$ ground$ up$ could$ be$ used$ as$ a$

justification$for$this$mode$of$reasoning,$because$it$could$serve$to$make$sure$that$

those$institutions$reflected$actual$human$traits$as$opposed$to$idealised$abstract$

models$of$behaviour.$

The$ collaboration$ between$ Kahneman$ and$ Tversky$ was$ the$ result$ of$ a$

combination$between$Kahneman’s$approach$to$the$difference$between$intuition$

$ 213$

and$ formal$ reasoning$ and$ Tversky’s$ training$ in$ the$ tradition$ of$ decision$

research$ that$ conceptualised$ a$ tension$ between$ normative$ and$ descriptive$

decision$ theory.$ As$ we$ saw$ in$ chapter$ 3,$ Kahneman$ and$ Tversky$ built$ their$

research$ programme$ through$ a$ series$ of$ moves$ that$ strengthened$ their$ core$

premise$that$informal$human$reasoning$is$guided$by$deepTseated$intuitions$that$

differ$ from$the$rules$of$ formal$ logical$and$statistical$ inference.$ In$so$doing$ the$

pair$simultaneously$established$a$role$for$psychological$explanation$to$enhance$

the$descriptive$accuracy$of$normative$decision$making$theory.$Importantly,$they$

also$ shored$ up$ the$ psychology$ of$ error$ as$ method$ by$ reserving$ focus$ on$

providing$psychological$explanation$for$instances$when$human$decision$making$

deviated$from$formal$decision$rules.$$$

By$ extending$ the$ methods$ that$ they$ had$ perfected$ for$ the$ making$ of$ the$

Heuristics$and$Biases$Programme,$Kahneman$and$Tversky$were$able$to$produce$

an$ alternative$ model$ of$ preference$ under$ risk$ that$ they$ eventually$ dubbed$

prospect$ theory.$ Prospect$ theory$ was$ a$ reworking$ of$ expected$ utility$ theory.$

Expected$ utility$ theory$ is$ best$ described$ as$ a$ normative$ model$ based$ on$

mathematical$axioms$that$dictate$how$a$risky$decision$should$be$made$with)the)

additional)intention$of$being$descriptively$valid.$As$such$it$was$a$perfect$target$

for$ the$application$of$ the$Heuristics$and$Biases$Programme.$Through$prospect$

theory,$Kahneman$and$Tversky$extended$ the$psychology$of$ error$ approach$of$

the$Heuristics$and$Biases$Programme$by$investigating$deviations$from$a$model$

that$was$widely$used$in$neoTclassical$micro$economics.$In$this$way$it$provided$

behavioral$ economists$with$ an$ example$ of$ how$ to$ use$ neoTclassical$ economic$

models$as$the$normative$element$of$the$psychology$of$error$approach,$and$of$a$

way$ to$ justify$ the$ necessity$ of$ psychological$ explanation$ for$ improving$ the$

descriptive$accuracy$of$neoTclassical$economic$theory.$$

$ 214$

Summary:$The$Development$of$the$Psychology$of$Error$in$Behavioural$

Economics$

While$ the$ seeds$of$ the$psychology$of$ error$were$planted$ in$ the$making$of$ the$

Heuristics$ and$Biases$ Programme,$ the$ style$was$ significantly$ emphasised$ and$

strengthened$in$the$making$of$behavioural$economics.$This$was$because$it$was$

an$indispensable$tool$for$allowing$behavioural$economists$to$maintain$a$balance$

between$ critiquing$ the$ neoTclassical$ economic$ approach$ and$ securing$ a$ place$

for$behavioural$economics$within$the$economic$sciences.$$

The$psychology$of$error$was$adopted$by$behavioural$economists$in$the$form$of$

the$ relationship$ between$ the$ normative$ and$ the$ descriptive$ developed$ by$

Kahneman$and$Tversky$for$the$making$of$the$Heuristics$and$Biases$Programme.$

Its$ clearest$ expression$ was$ in$ the$ way$ that$ empirical$ rigour$ (psychological$

knowledge)$was$pitted$against$the$mathematical$sophistication$and$precision$of$

neoTclassical$ economic$ theory.$ Thus$ behavioural$ economists$ mobilised$ the$

normative/descriptive$ distinction,$ but$ replaced$ formal$ decision$ theory$ with$

neoTclassical$ economics$ theory.$ The$ models$ of$ neoTclassical$ economics$ could$

then$ be$ compared$ to$ actual$ economic$ decision$making,$ in$ the$ same$way$ that$

Kahneman$ and$ Tversky$ had$ compared$ actual$ behaviour$ to$ formal$ decision$

theory$before$them.$

The$psychology$of$error$as$justification$for$a$behavioural$economics$

As$we$saw$in$chapter$4,$the$psychology$of$error$that$began$with$the$Heuristics$

and$Biases$Programme$was$ imported$ into$ the$behavioural$economics$ through$

the$ work$ of$ the$ participants$ recruited$ to$ the$ Behavioral$ Economics$ Program$

supervised$ by$ Wanner,$ and$ funded$ by$ the$ Alfred$ P.$ Sloan$ and$ Russell$ Sage$

foundations.$ The$ makeTup$ of$ the$ Behavioral$ Economics$ Program$ and$ the$

disciplinary$ landscape$ of$ the$ economic$ sciences$ had$ an$ impact$ on$ how$ the$

psychology$of$error$developed$in$the$hands$of$the$program$participants.$$

$ 215$

Kahneman$and$Tversky$produced$evidence$of$people’s$ choices$deviating$ from$

statistical$norms$in$systematic$and$predictable$ways.$It$meant$establishing$that$

such$deviation$took$place$and$explaining$why$that$might$be.$It$was$a$procedure$

that$ behavioural$ economists$ adopted,$ as$ a$ “recipe”$ for$ building$ their$ subT

discipline:$

Early$ papers$ established$ a$ recipe$ that$ many$ lines$ of$ research$ in$ behavioral$

economics$have$followed.$First,$identify$normative$assumptions$or$models$that$are$

ubiquitously$used$by$economists,$such$as$Bayesian$updating,$expected$utility,$and$

discounted$utility.$Second,$identify$anomalies—i.e.,$demonstrate$clear$violations$of$

the$ assumptions$ or$ model,$ and$ painstakingly$ rule$ out$ alternative$ explanations,$

such$ as$ subjects’$ confusion$or$ transaction$ costs.$ And$ third,$ use$ the$ anomalies$ as$

inspiration$to$create$alternative$theories$that$generalize$existing$models.$A$fourth$

step$ is$ to$ construct$ economic$ models$ of$ behavior$ using$ the$ behavioral$

assumptions$from$the$third$step,$derive$fresh$implications,$and$test$them$(Camerer$

&$Loewenstein,$2004$p.$7).$

Identifying$ and$ explaining$ deviation$ relied$ crucially$ on$ having$ a$ set$ of$ norms$

from$which$to$proceed.$When$behavioural$economists$mobilised$heuristics$and$

biases$ they$ kept$ the$ psychology$ of$ error$ and$ began$ placing$ neoTclassical$

economic$ theory$ in$ the$ ‘normative$ kernel’.$ The$ necessity$ of$ the$ normative$

kernel$ for$ identifying$ deviation$ is$ the$ reason$why$ neoTclassical$ theory$ can$ be$

described$ as$ “not$ just$ useful$ but$ indispensable$ to$ the$ behavioral$ enterprise”$

(Angner,$2014$p.$3567).$$

The$behavioural$economics$programme$was$set$up$to$promote$the$application$

of$cognitive$psychological$methods$and$theories$to$the$discipline$of$economics.$

The$ first$ request$ for$proposals,$put$ together$by$ the$advisory$committee$of$ the$

Behavioral$Economics$Program$took$ the$existence$of$deviations$ from$the$neoT

classical$models$of$ rationality$as$a$given,$and$began$ the$work$of$accumulating$

empirical$evidence$of$these$descriptive$deviations.$Thaler’s$“Anomalies$Column”$

was$perhaps$ the$prime$ iteration$of$ this$ first$step$ in$ justifying$ the$discipline$of$

behavioural$economics.$$

Understanding$ behavioural$ economics$ as$ a$ psychology$ of$ error$ helps$ explain$

this$ focus$ on$ accumulating$ instances$ of$ deviation$ from$neoTclassical$ norms$ in$

$ 216$

the$early$development$of$the$Behavioral$Economics$Program.$Just$as$Kahneman$

and$Tversky’s$focus$on$deviations$was$tied$up$with$the$project$of$arguing$for$the$

value$ of$ psychological$ explanation$ to$ the$ descriptive$ accuracy$ of$ decision$

theory,$ deviations$ remained$ at$ the$ core$ of$ behavioural$ economics$ because$

justifying$ the$ need$ for$ behavioural$ economics$was$ closely$ tied$ to$ establishing$

the$value$of$psychological$explanation$in$the$economic$sciences.$The$production$

of$evidence$to$support$the$lack$of$descriptive$validity$of$neoTclassical$economic$

theory$ and$ the$ notion$ that$ adding$ psychological$ knowledge$ was$ the$ way$ to$

increase$ that$ descriptive$ validity,$ was$ thus$ an$ essential$ component$ of$ the$

project$of$justifying$the$discipline.$$

Strengthening$the$error$approach$by$targeting$"rationality$strongholds"$

As$ I$argued$ in$chapter$5,$when$providing$evidence$ for$ the$ lack$of$prescriptive$

validity$of$neoTclassical$economic$theory,$behavioural$economists$aimed$at$the$

hardest$ targets$of$normative$neoTclassical$economics.$By$designating$them$the$

hardest$targets,$I$do$not$mean$that$they$made$producing$evidence$of$descriptive$

deviations$difficult$ (quite$ the$ opposite)$ but$ that$ they$were$ the$ strongholds$ of$

the$rationality$principle$in$neoTclassical$economics.$The$project$of$critiquing$the$

descriptive$validity$of$neoTclassical$economics$was$possible$in$part$because$neoT

classical$economics$had$come$to$rely$so$heavily$on$sophisticated$mathematical$

models$developed$over$decades$(Sent,$2004).$

These$strongholds$of$rationality$were$also$the$areas$that$worked$the$best$for$the$

psychology$of$error$approach.$The$logic$is$fairly$simple:$the$narrower,$the$more$

precise$ or$ mathematically$ sophisticated$ the$ norm,$ the$ more$ impactful$ the$

deviation.$On$the$importance$of$the$“narrowness”$of$narrow$norms,$Laibson$and$

Zeckhauser$(1998)$write:$$

The$ rational$ actor$model$makes$ sharp,$ testable$ predictions.$ Rationality$ also$ has$

important$normative$ implications.$ In$ the$absence$of$ externalities,$ the$ confluence$

of$ rational,$ maximizing$ individual$ actions$ generates$ an$ efficient$ outcome$ for$

society$as$a$whole.$(p.7)$

$ 217$

For$Camerer$and$Loewenstein,$the$mathematical$sophistication$and$precision$of$

neoTclassical$ economic$ theories$ like$ expected$ utility$ theory$ makes$ it$ a$ “hard$

target”$ for$behavioural$economics,$not$because$ it$makes$criticism$difficult,$but$

because$it$provides$a$solid$testable$core$from$which$behavioural$economists$can$

proceed$with$their$investigations$(Camerer$&$Loewenstein,$2004$p.$6).$$

Behavioural$ economists$ targeted$ game$ theory$ and$ finance$ precisely$ because$

they$ contained$ precise$ rules$ with$ precise$ predictions.$ When$ it$ came$ to$ subT

fields$of$economics,$finance$had$the$added$bonus$of$being$both$popular$and$high$

status.$ It$was$ also$ an$ area$ of$ economics$where$ the$market$ figured$ heavily.$ It$

included$ a$ fair$ amount$ of$ mathematical$ sophistication,$ and$ it$ provided$ large$

amounts$of$useful$data$for$behavioural$economists$to$dig$their$teeth$into.$$

As$ the$ mathematical$ basis$ of$ probability$ theory,$ game$ theory$ represented$

perhaps$ the$ ‘hardest$ case’$ for$ behavioural$ economists.$ Game$ theory,$ with$ its$

association$with$Neumann$and$Morgenstern,$is$an$exemplar$of$rational$decision$

theory.$No$other$economics$related$ field$had$decision$rules$ that$were$quite$so$

well$ defined$ as$ the$ ones$ produced$ by$ game$ theorists.$ There$ was$ unmatched$

specificity$of$normativity$in$game$theory.$As$such$it$was$useful$for$behavioural$

economists$ because$ producing$ evidence$ of$ descriptive$ deviations$ from$ game$

theory$meant$shaking$some$of$the$foundations$of$neoTclassical$economic$theory.$$

To$ show$ the$descriptive$ inaccuracy$of$highly$ abstracted$models$was$ in$ a$way$

easier$than$with$a$model$with$a$less$narrowly$defined$predictive$function.$These$

kinds$ of$ fields$ showcased$ the$ power$ of$ psychological$ explanation,$ because$

descriptive$ deviations$ were$ both$ easy$ to$ come$ by,$ and$ impactful.$ This$ was$

partly$ the$ reason$ why$ behavioural$ game$ theory$ began$ to$ be$ developed$ by$

behavioural$economists$during$the$Behavioral$Economics$Program.$Similarly$to$

the$ focus$ on$ accumulating$ “anomalies”,$ understanding$ behavioural$ economics$

as$a$psychology$of$error$sheds$ light$on$ the$ focus$on$rationality$strongholds$ in$

the$ early$ stages$ of$ the$ Behavioral$ Economics$ Program.$ This$ was$ because$ the$

stronger$the$rationality$principle$–$and$the$more$influential$in$micro$economic$

theory$–$the$stronger$the$claim$that$psychological$explanations$were$necessary.$

$ 218$

And$the$stronger$the$claim$that$psychological$explanations$were$necessary,$the$

stronger$ the$ justification$ for$ the$ creation$ of$ a$ discipline$ engaged$ in$ providing$

them.$$

Differentiation$from$economic$sociology$and$experimental$economics$

It$ was$ important$ for$ early$ behavioural$ economists$ that$ their$ work$ be$

understood$as$an$effort$to$ improve$on$mainstream$economics$as$opposed$to$a$

complete$ overhaul$ of$ economic$ theory.77$As$ I$ argued$ in$ chapter$ 5,$ one$ of$ the$

strategies$for$behavioural$economists$to$establish$their$field$as$a$subfield$of$the$

economic$ sciences$ was$ the$ deliberate$ recruitment$ of$ economists.$ Thaler$

especially$was$of$the$opinion$that$economists$could$learn$how$to$do$behavioural$

economics$ by$ applying$ the$ methods$ of$ psychology$ generally,$ and$ of$ the$

Heuristics$ and$ Biases$ Programme$ in$ particular,$ but$ that$ the$ transition$ for$

psychologists$ would$ be$ harder,$ because$ of$ their$ lack$ of$ knowledge$ of$ neoT

classical$economics.$This$kind$of$attitude$is$once$again$tied$up$with$the$idea$that$

staying$ close$ to$ and$ ensuring$ accurate$ knowledge$ of$ neoTclassical$ economic$

theory$was$considered$as$important$for$the$success$of$behavioural$economics$as$

the$ production$ of$ psychological$ explanation$ of$ deviations$ from$ neoTclassical$

models.$$

During$ the$ Behavioral$ Economics$ Program$ both$ economic$ sociologists$ and$

experimental$ psychologists$ were$ gradually$ prevented$ from$ inclusion$ in$ what$

was$to$be$understood$as$behavioural$economics.$This$was$despite$the$fact$that$

they$were$both$made$up$of$social$scientists$who$were$interested$in$challenging$

the$descriptive$validity$of$the$rational$model$of$neoTclassical$economics.$$

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

77$This$assessment$was$supported$by$Wanner$in$my$interview$with$him:$“It$occurred$to$a$bunch$

of$us,$that$there$was$a$chance$given,$not$to$blow$up$economics,$because$nothing$of$what$we$did$

tried$to$blow$it$up,$but$to$improve$it$by$means$of$altering$our$basic$assumptions$about$how$the$

psychology$ of$ decisionTmaking$ works$ (Eric$ Wanner,$ Interview$ with$ the$ author,$ April$ 23rd,$

2014).$$

$

$ 219$

The$major$stumbling$block$to$the$incorporation$of$economic$sociology$into$this$

group$of$ critics$of$ rationalist$ economic$ theory,$ as$we$have$ seen,$was$ the$very$

notion$of$ the$ individual$as)unit)of)analysis.$M.$Granovetter$ (1990)$ emphasised$

that$ ‘new$ economic$ sociology’$was$ about$ introducing$ sociological$ explanation$

into$economic$theory.$In$the$case$of$economic$sociology$it$was$anchored$on$the$

social$ construction$of$ the$market.$Granovetter’s$object$of$ study$was$ the$ social$

institution$of$the$market,$not$the$individual$consumer.$$

In$ the$case$of$behavioural$economics$ the$critique$of$ the$descriptive$validity$of$

neoTclassical$notions$of$the$economic$decision$maker$centred$on$the$psychology$

of$ the$ decision$ maker.$ The$ methods$ that$ behavioural$ economists$ used$ to$

provide$empirical$evidence$of$actual$decision$making$had$been$imported$from$

Kahneman$and$Tversky’s$Heuristics$and$Biases$Programme,$also$centred$on$the$

individual$as$unit$of$analysis.$$

Here$too$an$analysis$of$behavioural$economics$as$at$psychology$of$error$sheds$

light$ on$ behavioural$ economists’$ desire$ to$ draw$ a$ boundary$ between$ their$

discipline$and$economic$sociology.$$The$focus$on$the$individual$that$allowed$the$

heuristics$and$biases$approach$to$be$applied$to$rational$agent$micro$economics$

would$ not$ be$ easily$ abandoned.$ This$ was$ because$ it$ was$ closely$ tied$ to$ the$

modus) operandi$ of$ the$ psychology$ of$ error$ at$ the$ heart$ of$ the$ behavioural$

economic$venture.$While$a$critique$of$the$neoTclassical$rational$actor$can$be$just$

as$ successfully$ carried$ out$ on$ the$ grounds$ that$ economic$ behaviour$ is$

fundamentally$ social,$ such$ a$ critique$ does$ less$ to$ preserve$ the) normativity$ of$

neoTclassical$ economic$ theory,$ because$ it$ involves$ a$ critique$ of$ the$ rational$

agent$as$individual.$When$the$unit$of$analysis$is$other$than$individual$then$the$

project$of$a$psychology$of$error$ fails.$When$the$normativity$of$ the$norms$ from$

which$actual$behaviour$ is$ said$ to$deviate$ is$based$on$ the$ individual$ as$unit$of$

analysis,$a$critique$of$the$individual$as$unit$of$analysis$undermines$it.$$

Behavioural$economists$also$eventually$differentiated$themselves$from$another$

closely$related$field,$that$of$experimental$economics$spearheaded$by$economist$

Vernon$ Smith$ (as$ shown$ in$ chapter$ 5).$ Smith’s$ experimental$ economics$

$ 220$

presented$ a$ slightly$ different$ but$ related$ problem$ for$ behavioural$ economists$

than$ the$ challenge$ to$ the$ normativity$ based$ on$ the$ individual$ that$ economic$

sociologists$represented.$$

While$ experimental$ economists$ argued$ fervently$ for$ taking$ psychological$

knowledge$ from$ experimental$ and$ field$ research$ seriously,$ they$ were$ never$

convinced$that$the$behavioural$deviations$from$normative$decision$rules$posed$

a$ real$ threat$ to$ the$ stability$ of$ the$ market.$ They$ too$ observed$ economically$

irrational$ behaviour,$ but$ unlike$ behavioural$ economists$ like$ Thaler$ who$ was$

concerned$ to$ argue$ that$ the$ rationality$ of$ the$ market$ was$ not$ enough$ to$

counteract$ irrational$ behaviour$ on$ the$ part$ of$ the$ individual,$ experimental$

economists$ were$ concerned$ with$ explaining$ the$ phenomenon$ of$ the$ market$

equilibrium$ despite$ economically$ irrational$ behaviour$ of$ individual$ decision$

makers.$$

In$relation$to$behavioural$economists’$distancing$from$experimental$economics,$

once$ again$ the$ psychology$ of$ error$ helps$ illuminate$ the$ reasons$ for$ it.$ This$ is$

because$ understanding$ behavioural$ economics$ as$ a$ psychology$ of$ error$ helps$

explain$the$necessity$for$behavioural$economists’$to$highlight$how$psychological$

deviations$ on$ the$ individual$ level$ affect$ he$ 'rationality'$ of$ the$ market.$ If$ the$

psychological$ explanations$ had$ served$ to$ support$ rational$ conclusions$ at$ the$

level$ of$ the$ market,$ in$ the$ logic$ of$ the$ psychology$ of$ error,$ the$ necessity$ for$

psychological$explanation$would$be$undermined.$In$other$words,$in$a$situation$

where$ the$ normatively$ derived$ models$ of$ neoTclassical$ economics,$ though$

descriptively$ “poor”$ at$ the$ level$ of$ individual$ behaviour$ nevertheless$worked$

perfectly$well$as$explanations$for$economic$behaviour$at$the$aggregate$level,$the$

justification$for$adding$behavioural$insights$becomes$more$difficult$to$sustain.$$$$

$

$ 221$

The$ Psychology$ of$ Error$ and$ the$ Relationship$ Between$ Behavioural$

Economics$and$NeoNclassical$Economics$

The$apparent$paradox$$

By$mobilising$the$psychology$of$error,$behavioural$economists$could$argue$that$

psychological$ explanation$ was$ necessary$ to$ increase$ the$ rigour$ of$ economic$

theory$only) in)so) far)as$ economic$decision$making$deviated$ from$neoTclassical$

economic$theory.$This$meant,$perhaps$paradoxically$that$defending$the$value$of$

neoTclassical$ economic$ theory$as)a)normative$ theory,$was$ as$ important$ to$ the$

behavioural$ economic$project$as$ successfully$and$convincingly$ critiquing$ it$on$

the$basis$of$descriptive$flaws.$$

In$the$making$of$the$Heuristics$and$Biases$Programme,$the$psychology$of$error$

was$ bound$ up$ with$ the$ notion$ that$ psychological$ explanation$ would$ be$ less$

elegant$and$less$precise$than$formal$theory.$This$made$sense$to$Kahneman$and$

Tversky$because$part$of$ their$reasoning$was$ that$actual$decision$making$ from$

formal$decision$theory$was$to$be$expected$because$formal$decision$theory$was$

simply$too$neat$to$be$realistic:$$

Economists$ often$ criticize$ psychological$ research$ for$ its$ propensity$ to$ generate$

lists$of$errors$and$biases,$and$ for$ its$ failure$ to$offer$a$coherent$alternative$ to$ the$

rationalTagent$model.$This$complaint$is$only$partly$justified:$psychological$theories$

of$intuitive$thinking$cannot$match$the$elegance$and$precision$of$formal$normative$

models$ of$ belief$ and$ choice,$ but$ this$ is$ just$ another$ way$ of$ saying$ that$ rational)

models)are)psychologically)unrealistic.$(Kahneman,$2003bp.$1149)$

But$the$neatness$and$narrowness$of$the$norm$served$to$create$a$neatness$and$

narrowness$of$the$deviations.$In$Heuristics$and$Biases$the$formal$rules$of$logic$

and$Bayesian$statistics$ lent$stability$and$precision$to$Kahneman$and$Tversky’s$

descriptive$project.$The$same$was$true$of$neoTclassical$models$for$the$making$of$

behavioural$economics.$Thaler$analyses$the$intellectual$power$of$the$economic$

sciences$like$this:$$

$ 222$

economics$ is$ [...]$ considered$ the$ most$ powerful$ of$ the$ social$ sciences$ in$ an$

intellectual$sense.$That$power$derives$from$the$fact$that$economics$has$a$unified,$

core$ theory$ from$ which$ nearly$ everything$ else$ follows.$ If$ you$ say$ the$ phrase$

“economic$ theory,”$ people$ know$ what$ you$ mean.$ No$ other$ social$ science$ has$ a$

similar$foundation.$Rather,$theories$in$other$social$sciences$tend$to$be$for$special$

purposes—to$ explain$what$ happens$ in$ a$ particular$ set$ of$ circumstances.$ In$ fact,$

economists$ often$ compare$ their$ field$ to$ physics;$ like$ physics,$ economics$ builds$

from$a$few$core$premises$(Thaler,$2015$p.$5)$

Behavioural$ economics$ too$ was$ “built$ from$ a$ few$ core$ premises”.$ The$ core$

premise$ of$ behavioural$ economics,$ a$ reworking$ of$ the$ normative/descriptive$

distinction$ imported$ from$ Kahneman$ and$ Tversky’s$ Heuristics$ and$ Biases$

Programme,$was$that$neoTclassical$economic$theory$lacked$descriptive$validity,$

and$ that$ psychological$ knowledge$ was$ the$ way$ to$ remedy$ that.$ Behavioural$

economics$ is$ often$ characterised$ by$ behavioural$ economists$ as$ an$ area$ of$

research$ concerned$ with$ behaviour$ that$ deviates$ from$ a$ norm.$ It$ is$ a$

characterisation$ that$ is$ both$understandable$ and$ selfTinflicted.$Kahneman$and$

Tversky$built$their$research$programme$on$the$notion$of$systematic$deviations$

from$the$models$of$normative$decision$theory.$Behavioural$economists$formed$

a$ subTdiscipline$ of$ economics$ on$ the$ grounds$ that$ the$ rationality$ principle$ of$

neoTclassical$economics$was$equally$descriptively$flawed.$$

Crucially,$ establishing$ behavioural$ economics$ as$ an$ economic$ science$ was$

possible$ as$ long$ as$ the$ descriptiveTexplanatory$ project$ of$ providing$

psychological$ explanations$ for$ economic$ behaviour$ remained$ a$ psychology$ of$

error.$Putting$it$ like$this$should$serve$to$emphasise$how$crucial$the$normative$

kernel$was$in$the$construction$of$behavioural$economics.$The$normative$kernel$

was$necessary$ for$ the$ identification$of$ the$ causes$of$deviation.$Angner$ (2014)$

has$described$the$process$like$this:$

behavioral$economists$use$orthodox$theory$to$produce$causal$hypotheses.$That$is,$

behavioral$economists$try$to$improve$their$understanding$of$why$people$fail$to$act$

in$ accordance$ with$ the$ theory$ by$ identifying$ the$ causal$ factors$ responsible$ for$

producing$ the$phenomenon$[…]$ In$ throwing$deviations$ from$the$ ideal$ into$relief,$

the$model$of$the$rational$actor$helps$scientists$form$working$hypotheses$about$the$

causal$factors$that$might$have$produced$the$deviations$(Angner,$2014$p.$3566).$

$ 223$

The$ use$ of$ neoTclassical$ theory$ as$ the$ normative$ kernel$ has$ resulted$ in$ an$

apparent$paradox$ in$ the$way$ that$behavioural$economists$assess$neoTclassical$

economics.$ This$ apparent$ paradox$ consists$ of$ the$ way$ that$ behavioural$

economists$seem$to$set$out$to$critique$and$want$to$replace$neoclassical$theory$

while$ simultaneously$ praising$ its$ usefulness.$ This$ is$ the$ jumpingToff$ point$ in$

Angner’s$(2014)$recently$published$article:$

Behavioral$economists$aspire$to$replace$the$fundamental$assumptions$of$orthodox,$

neoclassical$ economic$ theory.$ Yet,$ behavioral$ economists$ have$ gone$ out$ of$ their$

way$ to$ praise$ those$ very$ assumptions.$ Matthew$ Rabin,$ for$ example,$ writes$ that$

behavioral$economics$“is$not$only$built$on$the$premise$ that$ [orthodox]$economic$

methods$are$great,$but$also$that$most$mainstream$economic$assumptions$are$great$

(p.$3557).$

In$ his$ article,$ Angner,$ who$ is$ both$ behavioural$ economist$ and$ philosopher$ of$

science,$ defends$ this$ apparent$ paradox$ by$ arguing$ that$ neoTclassical$

assumptions$ function$ in$ behavioural$ economics$ like$ Weber’s$ “ideal) types:$

analytical$constructs$that$are$not$ intended$to$be$descriptively$true$of$anything$

but$ which$ nevertheless$ can$ be$ used$ for$ a$ variety$ of$ theoretical$ purposes”$

(Angner,$ 2014,$ p.$ 3560,$ italics$ in$ the$ original).$ This$ identification$ of$ the$ neoT

classical$models$ as$ “ideal$ types”,$ in$my$view$holds$ a$ lot$ of$merit.$ Behavioural$

economist$Robert$Shiller$echoed$this$view$in$the$commentary$that$he$made$for$

the$ 1986$ Chicago$ conference$ on$ the$ merits$ of$ the$ rationality$ principle$ of$

economics.$Here$he$refers$to$the$task$of$teaching$neoTclassical$microeconomics$

to$his$students:$$

I$could$teach$the$efficient$markets$models$to$my$students$with$much$more$relish$if$

I$could$describe$them$as$extreme$special$cases$to$consider$before$moving$on$to$the$

more$realistic$models.$These$models$would$look$so$much$more$appealing$as$first$

approximations$ to$more$ complicated$ and$more$ accurate$ theories,$ rather$ than$ as$

the$only$models$that$the$profession$has$to$offer$(Shiller,$1986,$p.$S501).$$

The$ normative/descriptive$ distinction,$ imported$ to$ behavioural$ economics$

from$the$Heuristics$and$Biases$Programme$allowed$behavioural$economists$to$

turn$ neoTclassical$ theory$ from$ a$ flawed$ descriptive$ theory$ to$ an$ ideal$ for$

$ 224$

generating$ hypothesis$ and$ for$ comparison$ with$ ‘the$ real’.$ The$ idea$ that$

behavioural$ economists$ use$ neoTclassical$ theory$ as$ Weberian$ ‘ideal$ types’$

supports$the$analysis$of$behavioural$economics$as$a$psychology$of$error.$One$of$

the$consequences$of$the$psychology$of$error$is$precisely$that$it$emphasises$the$

character$ of$ the$ unexplained$ as$ ideal.$ Once$ again,$ this$ is$ because,$ as$ Angner$

notes,$ it$ throws$ into$ relief$ the$difference$between$ the$ ideal$and$ the$ “less$ than$

ideal”.$$

The$ psychology$ of$ error$ and$ the$ normative>prescriptive$ agenda$ of$ behavioural$

economics$

But$the$placement$of$neoTclassical$economic$models$in$the$normative$kernel$of$

the$psychology$of$error$in$the$making$of$behavioural$economics$did$more$than$

provide$an$ideal$from$which$behavioural$economists$could$explore$the$causes$of$

economically$ deviant$ behaviour.$ It$ also$ served$ to$ maintain$ an$ affinity$ for$

behavioural$ economists$with$mainstream$ economics.$ This$ affinity$was$ crucial$

for$ behavioural$ economists$ for$ several$ reasons.$ The$ first$ was$ pragmatic.$ The$

ability$to$obtain$positions$in$departments$of$economics$at$institutions$of$higher$

education$ and$ for$ funding$ opportunities$ outside$ of$ the$ SloanTSage$ Behavioral$

Economics$ Program$ depended$ on$ the$ ability$ to$ successfully$ demonstrate$

knowledge$of$neoTclassical$economic$theory.$$

Early$behavioural$economists$focused$on$the$descriptive$project$of$showcasing$

the$lack$of$descriptive$validity$of$neoTclassical$models$of$behaviour.$The$process$

of$accumulating$instances$where$the$descriptive$powers$of$neoTclassical$models$

failed$was$part$of$the$process$of$legitimizing$the$behavioural$approach.$Through$

legitimizing$ the$ behavioural$ approach$ to$ economics,$ behavioural$ economists$

could$establish$the$necessity$for$their$discipline.$$

Put$ a$ different$ way,$ justification$ for$ the$ descriptiveTexplanatory$ project$ of$

behavioural$economics$rested$on$the$notion$that$neoTclassical$economics$relied$

on$models$of$human$behaviour$that$lacked$descriptive$validity.$This$descriptiveT

explanatory$ project$ featured$ heavily$ in$ the$ beginnings$ of$ behavioural$

$ 225$

economics.$ The$ reason$ for$ that$ was$ that$ it$ was$ tightly$ bound$ up$ with$

justifications$ for$ the$ necessity$ and$ validity$ of$ the$ discipline.$ During$ the$

Behavioral$ Economics$ Program,$ behavioural$ economists$ made$ strides$ in$

arguing$that$economists$should$take$psychological$knowledge$seriously.$ In$the$

foreword$ to$ Camerer,$ Loewenstein,$ and$ Rabin$ (2004),$ the$ editors$ describe$ a$

sense$of$hostility$to$the$behavioural$approach:$

$until$ about$ 1990,$ it$was$ not$ uncommon$ to$ get$ a$ paper$ returned$ from$ a$ journal$

(usually$after$a$delay$of$about$a$year)$with$a$three$sentence$referee$report$saying$

“this$ isn’t$economics”.$Fortunately,$hostility$switched$to$curiosity$and$acceptance$

rather$rapidly$and$completely$in$the$past$few$years$(p.$xxi).$$

Partly,$the$resistance$to$behavioural$economics$as)economics$was$broken$down$

through$the$insistence$on$the$part$of$behavioural$economists$on$upholding$the$

normative$ kernel$ as$ the$ core$ of$ their$ behavioural$ theorising.$ Turning$

economists’$ heads$ meant$ staying$ close$ to$ economic$ problems$ set$ by$ neoT

classical$economists.$Behavioural$economists$worked$hard$during$the$formation$

of$their$discipline$to$establish$behavioural$economics$as$a$subTdiscipline$of$the$

economic$ sciences.$ They$ also$ excluded$ other$ kinds$ of$ scholarship$ that$ also$

critiqued$ the$ descriptive$ validity$ of$ neoTclassical$ economic$ theory$ but$ that$

posed$ a$ threat$ to$ the$ normative$ validity$ of$ neoTclassical$ theory$ like$ the$

experimental$ economists$ led$ by$ Vernon$ Smith$ and$ the$ economic$ sociologists$

with$Mark$Granovetter$at$the$helm.$$

Toward$the$end$of$the$Behavioral$Economics$Program$behavioural$economists$

had$ begun$ to$ shift$ attention$ from$ the$ descriptiveTexplanatory$ project$ to$

developing$a$normativeTprescriptive$agenda.$This$was$reflected$particularly$ in$

the$participants’$evaluations$of$the$Behavioural$Economics$Programme$as$it$was$

coming$to$an$end.$The$idea$was$to$use$the$results$of$how$the$decision$making$of$

actual$people$differs$from$the$dictates$of$normative$decision$making$to$produce$

mechanisms$for$bridging$the$gap$between$the$two.$$

By$ applying$ a$ psychology$ of$ error$ to$ the$ rationalistic$models$ of$ behaviour$ of$

neoTclassical$ economics,$ behavioural$ economists$ were$ able$ to$ both$ critique$

$ 226$

those$ models$ on$ the$ grounds$ that$ they$ were$ descriptively$ flawed,$ while$

preserving$ their$ normative$ validity.$ It$ was$ the$ preservation$ of$ the$ normative$

validity$ of$ neoTclassical$ economics$ that$ allowed$ for$ questions$ about$ how$ to$

change$ people’s$ behaviour$ in$ order$ to$ close$ the$ gap$ between$ ‘actual’$ and$

‘optimal’$behaviour$wherever$possible.$Richard$Herrnstein$is$quite$clear$about$

the$possibility$of$this$step:$$

I$ believe$ the$ evidence$ is$ already$ plain$ that$ human$ behavior$ is$ orderly$ but$ not$

necessarily$rational$[...]$The$empirical$challenge$will$be$to$continue$to$explore$how$

the$ actual$ dynamisms$of$ human$behavior$ are$ governed.$ Beyond$ that,$ behavioral$

economists$ will$ need$ to$ study$ how$ to$ shift$ actual$ behaviour$ toward$ rationality,$

using$ the$ dynamisms$ that$ the$ empirical$ approach$ will$ have$ uncovered$

(Herrnstein,$Participant$Evaluation,$May$18th,$1992).$$

The$call$to$focus$on$“shifting$actual$behaviour$toward$rationality”$was$echoed$in$

the$1992$evaluations$in$the$form$of$more$specific$suggestions$that$the$discipline$

of$ behavioural$ economics$ should$ move$ in$ the$ direction$ of$ finding$ ways$ to$

impact$on$public$policy.$This$was$because$public$policy$was$considered$as$ the$

most$obvious$avenue$for$applying$behavioural$economic$knowledge.$It$was$also$

an$area$where$economists$had$traditionally$had$pride$of$place:$$

of$ all$ the$ social$ scientists,$ economists$ carry$ the$ most$ sway$ when$ it$ comes$ to$

influencing$ public$ policy.$ In$ fact,$ they$ hold$ a$ virtual$ monopoly$ on$ giving$ policy$

advice.$Until$very$recently,$other$social$scientists$were$rarely$invited$to$the$table,$

and$ when$ they$ were$ invited,$ they$ were$ relegated$ to$ the$ equivalent$ of$ the$ kids’$

table$at$a$family$gathering$(Thaler,$2015,$p.$5).$

Suggestions$ in$ the$ 1992$ evaluations$ for$ the$ future$ of$ behavioural$ economics$

were$ overwhelmingly$ to$ turn$ attention$ to$ informing$ public$ policy.$ It$ was$ the$

very$normativity$of$the$normative$theories$of$neoTclassical$economics$that$both$

motivated$ and$ justified$ the$ normativeTprescriptive$ project$ of$ behavioural$

economics.$ Maintaining$ the$ normativity$ of$ neoTclassical$ economics$ helped$

reserve$ a$ place$ at$ the$ (grownTup)$ policy$ table$ for$ behavioural$ economists$

(Thaler,$2015).$$

$ 227$

To$summarise,$understanding$behavioural$economics$as$a$psychology$of$error$is$

useful$ for$understanding$ the$relationship$between$behavioural$economics$and$

neoTclassical$ economics.$ More$ specifically$ it$ sheds$ light$ on$ the$ way$ that$

behavioural$ economists$ were$ able$ to$ both$ critique$ and$ strengthen$ the$

assumptions$of$neoTclassical$economics.$With$ the$use$of$a$psychology$of$error$

neoTclassical$models$could$be$criticised$for$their$lack$of$descriptive$validity,$and$

lauded$for$their$normative$validity.$$

Maintaining$ an$ affinity$ with$ neoTclassical$ normative$ models,$ despite$ the$

behavioural$ approach$ hinging$ on$ a$ critique$ of$ their$ descriptive$ ability,$ was$

crucial$ for$ behavioural$ economists$ to$ successfully$ establish$ behavioural$

economics$as$a$kind$of$economic$science.$But$it$was$even$more$crucial$that$this$

critique$ took$ the$ form$ of$ a$ psychology$ of$ error$ because$ it$ allowed$ for$ the$

normativity$of$the$neoTclassical$models$of$decision$making$to$be$maintained.$$

Turning$ the$ descriptive$ knowledge$ that$ behavioural$ economists$ had$

accumulated$ into$ prescriptive$ knowledge$ for$ policy$making$ required$ bridging$

the$ gap$ between$ descriptive$ decision$ making$ of$ the$ consumer$ and$ the$

normatively$derived$economic$agent:$Homo)Economicus.$$

A$different$Kind$of$Monster:$The$Creation$of$Homo$ Irrationalis$as$an$

Unintended$Consequence$of$the$Psychology$of$Error$

The$subject$of$Homo)Economicus$leads$me$back$to$the$topic$broached$at$the$very$

start$of$ the$ thesis,$ the$arrival$of$Homo)Irrationalis.$ I$began$ the$ thesis$with$ the$

statement$that$the$ idea$that$humans$are$generally$rational$has$ in$recent$years$

met$with$significant$challenge.$My$research$into$how$the$concept$of$humans$as$

irrational$ came$ to$ be$ has$ taught$ me$ much.$ One$ of$ those$ lessons$ is$ that$ the$

making$of$Homo)Irrationalis$was$in$large$part$unintentional.$$

The$debate$about$rationality$generated$by$the$Heuristics$and$Biases$Programme$

was$ centred$ on$ precisely$ the$ question$ of$ whether$ or$ not$ the$ evidence$ that$

Kahneman$and$Tversky$had$produced$to$support$their$argument$about$the$lack$

$ 228$

of$descriptive$validity$of$formal$rules$of$logic$and$Bayesian$statics$implied$that$

humans$were$irrational.$Kahneman$and$Tversky$had$not$anticipated$the$debate$

about$ rationality$ that$ their$ work$ on$ heuristics$ and$ biases$ would$ generate$

(Kahneman,$2003a).$Thirty$years$after$Kahneman$and$Tversky’s$ collaboration$

began,$ Kahneman$ reflected$ on$ the$ unanticipated$ debate$ triggered$ mainly$ by$

their$1974$“Judgement$Under$Uncertainty$T$Heuristics$and$Biases”$published$in$

Science.)He$begins$by$ stating$ in$no$uncertain$ terms$ that$ their$ intentions$were$

not$ to$ produce$ a$ deliberate$ attack$ on$ the$ rationalTagent$ model$ of$ the$ social$

sciences.$ He$ also$ writes$ that$ he$ is$ glad$ that$ this$ was$ the$ case$ because$ a$

deliberate$ challenge$of$ the$ rationalTagent$would$have$needed$ to$deal$with$ the$

notion$of$rationality,$something$that$he$and$Tversky$had$little$interest$in.$$

Interestingly$Kahneman$also$speculates$that$in$the$end,$such$a$challenge$had$it$

been$deliberate,$would$have$been$less$effective:$$

I$realized$only$recently$how$fortunate$we$were$not$to$have$aimed$deliberately$at$

the$large$target$we$happened$to$hit.$If$we$had$intended$the$article$as$a$challenge$to$

the$rational$model,$we$would$have$written$it$differently,$and$the$challenge$would$

have$been$less$effective.$An$essay$on$rationality$would$have$required$a$definition$

of$ that$concept,$a$ treatment$of$boundary$conditions$ for$ the$occurrence$of$biases,$

and$a$discussion$of$many$other$topics$about$which$we$had$nothing$interesting$to$

say.$ The$ result$would$ have$ been$ less$ crisp,$ less$ provocative,$ and$ ultimately$ less$

defensible.$As$it$was,$we$offered$a$progress$report$on$our$study$of$judgment$under$

uncertainty,$ which$ included$ much$ solid$ evidence.$ All) inferences) about) human)

rationality) were) drawn) by) the) readers) themselves) (Kahneman,$ 2003a,$ p.$ 725,$

emphasis$mine).$

This$ was$ the$ psychology$ of$ error$ at$ work.$ The$ explanations$ of$ deviations$

worked$ to$highlight$ the$differences$between$ the$norm$and$ the$deviation$ from$

the$ norm.$ Kahneman$ and$ Tversky’s$ psychology$ of$ error$ left$ inferences$ about$

the$norm$to$be$“drawn$by$the$readers$themselves”.$And$draw$them$they$did:$

The$ conclusions$ that$ readers$ drew$ were$ often$ too$ strong,$ mostly$ because$

existential$ quantifiers,$ as$ they$ are$ prone$ to$ do,$ disappeared$ in$ the$ transmission.$

Whereas$we$had$shown$that$(some,$not$all)$judgments$about$uncertain$events$are$

mediated$by$heuristics,$which$(sometimes,$not$always)$produce$predictable$biases,$

we$were$often$read,$both$by$friendly$readers$and$by$critics,$as$having$claimed$that$

people$ cannot$ think$ straight.$Because$our$ treatment$was$mistakenly$ taken$ to$be$

$ 229$

inclusive,$ our$ silences$ became$ significant.$ For$ example,$ the$ fact$ that$ we$ had$

written$ nothing$ about$ the$ role$ of$ social$ factors$ in$ judgment$ was$ taken$ as$ an$

indication$ that$ we$ thought$ these$ factors$ were$ unimportant.$ I$ suppose$ that$ we$

could$ have$ prevented$ at$ least$ some$ of$ these$misunderstandings,$ but$ the$ cost$ of$

doing$so$would$have$been$too$high$(Kahneman,$2003a,$p.$275).$$

As$mentioned$in$the$introduction,$Kahneman$and$Tversky’s$psychology$of$error$

was$driven$by$their$interpretation$of$what$they$themselves$found$interesting,$

and$what$they$believed$would$be$of$most$interest$to$others$in$the$scientific$

community.$Kahneman$and$Tversky$judged$that$the$most$interesting$

psychological$explanations$would$be$those$that$explained$erroneous$statistical$

reasoning,$not$those$that$could$explained$correct$statistical$reasoning:$$

The$ authors$ of$ the$ “law$ of$ small$ numbers”$ saw$ no$ need$ to$ examine$ correct$

statistical$ reasoning.$ They$ believed$ that$ including$ easy$ questions$ in$ the$ design$

would$ insult$ the$ participants$ and$ bore$ the$ readers.$ More$ generally,$ the$ early$

studies$ of$ heuristics$ and$ biases$ displayed$ little$ interest$ in$ the$ conditions$ under$

which$ intuitive$ reasoning$ is$ preempted$ or$ overridden—controlled$ reasoning$

leading$ to$ correct$ answers$was$ seen$as$ a$default$ case$ that$needed$no$explaining$

(Kahneman$&$Frederick,$2002,$p.$50).$

This$neglect$to$provide$explanation$of$the$default$case$(i.e.$controlled$reasoning$

leading$ to$ correct$ answers)$ was$ a$ programme$ that$ consisted$ only$ of$

explanations$of$ incorrect$reasoning.$With$ it$ the$notion$of$the$ irrational$human$

was$ born.$ Thus$ one$ of$ the$ consequences$ of$ the$ psychology$ of$ error$ which$

marked$ the$beginning$of$ the$Heuristics$ and$Biases$Programme$ (as$Kahneman$

later$ realised)$was$ that$ the$medium$became$ the$message.$ In$other$words,$ the$

very$ fact$ that$ psychological$ explanation$ was$ confined$ to$ deviation$ from$ a$

rational$norm,$created$the$impression$that$humans$were$naturally$irrational.$$

There$ is$ a$ similar$ point$ to$made$ about$ the$ sociology$ of$ error.$ A$ sociology$ of$

error$runs$the$risk$of$claiming$by$implication$that$sociological$factors$are$only$at$

work$when$errors$occur.$Again,$against$their$own$intentions,$because$their$aim$

was$to$show$heuristics$at$work$even$when$they$led$to$biases,$and$because$they$

reasoned$that$the$way$to$do$that$was$to$show$instances$when$biases$occurred$

$ 230$

they$ were$ understood$ as$ arguing$ that$ human$ intuitive$ reasoning$ was$

fundamentally$flawed.$$

Another$ curious$ consequence$ of$ their$ psychology$ of$ error$was$ the$ accusation$

that$ they$ themselves$ had$ been$ guilty$ of$ the$ confirmation$ bias,$ that$ is,$ of$ only$

discovering$ instances$ that$ supported$ their$ hypothesis.$ Kahneman’s$ comments$

on$this$from$his$Nobel$acceptance$speech$in$relation$to$their$demonstration$of$

the$“availability$heuristic”,$are$worth$quoting$at$length:$$

In$one$of$our$demonstrations$of$ the$availability$heuristic,$ for$ example,$we$asked$

respondents$ to$ compare$ the$ frequency$with$which$ some$ letters$ appeared$ in$ the$

first$and$ in$ the$ third$position$ in$words.$We$selected$ letters$ that$ in$ fact$appeared$

more$ frequently$ in$ the$ third$position,$and$showed$that$even$ for$ these$ letters$ the$

first$position$was$judged$more$frequent,$as$would$be$predicted$on$the$idea$that$it$

is$easier$to$search$through$a$mental$dictionary$by$the$first$letter.$The$experiment$

was$used$by$some$critics$as$an$example$of$our$own$confirmation$bias,$because$we$

had$demonstrated$availability$only$in$cases$in$which$this$heuristic$led$to$bias.$But$

this$ criticism$ assumes$ that$ our$ aim$ was$ to$ demonstrate$ biases,$ and$ misses$ the$

point$ of$ what$ we$ were$ trying$ to$ do.$ Our$ aim$ was$ to$ show$ that$ the$ availability$

heuristic$controls$frequency$estimates$even$when$that$heuristic$leads$to$error$T$an$

argument$that$cannot$be$made$when$the$heuristic$leads$to$correct$responses,$as$it$

often$does$(Kahneman,$2002).$$

Interestingly,$Kahneman$himself$also$remarks$later,$that$the$very$name$of$their$

programme$ was$ probably$ partly$ responsible$ for$ creating$ an$ association$

between$the$negative$association$between$heuristics$and$biases$generally.$This$

was$ particularly$ significant$ for$ the$ creation$ of$ the$ negative$ view$ of$ intuitive$

human$ reasoning,$ since$ heuristics$was$ the$ name$ that$Kahneman$ and$Tversky$

gave$to$decision$rules$formed$by$human$intuition.$$

As$ Bloor$ points$ out,$ in$ the$ teleological$ approach$ to$ science$ to$ which$ the$

symmetry$of$the$strong$programme$stands$in$opposition,$causality$is$limited$to$

error$(1991).$This$was$the$case$in$the$Heuristics$and$Biases$Programme.$Causal$

explanation$was$given$to$deviant$(irrational)$behaviour,$to$the$neglect$of$causal$

explanation$ for$ behaviour$ that$ corresponded$ to$ the$ normative$ kernel.$ This$

priority$ of$ causal$ explanation$ for$ error$ was$ then$ translated$ by$ others$ into$ a$

view$of$human$nature$as$naturally$inclined$toward$incorrect$behaviour.$

$ 231$

I$want$to$be$clear$that$defining$heuristics$and$biases$as$a$psychology$of$error$is$a$

complete$ departure$ from$ Kahneman$ and$ Tversky’$ intentions.$ Kahneman$ and$

Tversky$did$not$set$out$ to$create$a$psychology$of$error.$There$are$passages$ in$

their$joint$publications$that$explicitly$state$their$intentions$to$explain$cognition$

in$general,$and$not$just$cognition$that$leads$to$violations$of$normative$rules.$The$

preface$ to$ the$ edited$ book$ Judgment) Under) Uncertainty:) Heuristics) and) Biases$

(Kahneman$et$al.,$1982)$contains$a$clear$description$of$their$study$of$judgment$

under$uncertainty$as$precisely$the$opposite$of$a$psychology$of$error:$

much$of$the$early$work$used$the$normative$model$to$explain$human$performance$

and$ introduced$ separate$ processes$ to$ explain$ departures$ from$ optimality.$ In)

contrast,) research) on) judgmental) heuristics) seeks) to) explain) both) correct) and)

erroneous)judgments)in)terms)of)the)same)psychological)processes$(Kahneman$et$al.,$

1982$p.$xii,$emphasis$mine).$

Why$then,$do$I$argue$that$heuristics$and$biases,$contrary$to$their$intentions,$did$

not$ explain$ both$ correct$ and$ erroneous$ judgments$ in$ terms$ of$ the$ same$

psychological$processes?$The$answer$once$again$is$that$the$medium$had$become$

the$message.$ That$ is$ to$ say,$ the$method$ inherent$ in$ the$Heuristics$ and$Biases$

Programme$ and$ inherited$ by$ the$ behavioural$ economists$ who$ used$ it$ as$ a$

‘recipe’,$to$focus$on$instances$when$heuristics$led$to$biases$relayed$the$message$

that$humans$were$generally$to$be$thought$of$as$irrational.$It$is$a$good$example$

of$ the$ consequences$ of$ a$ psychology$ of$ error$ because$ the$ act$ of$ providing$

psychological$ explanation$ only$ to$ instances$ where$ the$ decision$ behaviour$

deviated$from$normative$decision$rules$gave$the$(unintended)$impression$that$

human$psychology$was$only$implicated$when$the$deviation$occurred.$In$short$it$

gave$ the$ impression$ that$ “psychology$ produced$ error”.$ More$ recently,$

Kahneman$ has$ acknowledged$ and$ lamented$ this$ consequence$ of$ the$

asymmetrical$explanatory$framework$of$the$Heuristics$and$Biases$Programme:$$

A$ comprehensive$ psychology$ of$ intuitive$ judgment$ cannot$ ignore$ […]$ controlled$

thinking,$ because$ intuition$ can$ be$ overridden$ or$ corrected$ by$ selfTcritical$

operations,$ and$ because$ intuitive$ answers$ are$ not$ always$ available.$ But$ this$

sensible$ position$ seemed$ irrelevant$ in$ the$ early$ days$ of$ research$ on$ judgment$

heuristics$ [...]$ A$ lack$ of$ concern$ for$ boundary$ conditions$ is$ typical$ of$ “young”$

$ 232$

research$programs,$which$naturally$focus$on$demonstrating$new$and$unexpected$

effects,$ not$ on$ making$ them$ disappear$ (Kahneman$ &$ Frederick,$ 2002$ p.$ 50,$

emphasis$mine).$

It$was$this$ “lack$of$concern$ for$boundary$conditions”$ in$ the$ interest$of$driving$

home$their$core$premise$that$ led$to$the$psychology$of$error$that$characterises$

the$Heuristics$and$Biases$Programme.$Embedded$within$is$an$assumption$that$

decision$ theorists$ had$ previously$ wrongly$ expected$ decision$ makers$ to$

generally$ follow$ normative$ decision$ rules$ and$ the$ interesting$ insights$ that$

psychologists$ could$ provide$ therefore$were$ in$ the$ domain$ of$ instances$where$

that$ was$ not$ the$ case.$ In$ other$ words,$ at$ the$ beginning$ of$ building$ their$

programme,$Kahneman$and$Tversky$saw$no$reason$ to$report$ instances$where$

intuition$ mediated$ by$ heuristics$ led$ to$ decisions$ that$ corresponded$ to$ those$

prescribed$ by$ normative$ decision$ theory$ because$ it$ would$ have$ been$ the$

fulfilment$of$the$‘wrong$sort$of$promise’.$$

Another$ striking$ lesson$ was$ the$ realisation$ that$ perhaps$ the$most$ significant$

consequences$of$ the$ introduction$of$Homo)Irrationalis)into$ the$world)has$been$

to$reinforce$the$normativity$of$economic$rationality.$Simply$put,$this$is$because$

Homo) Irrationalis$ is$ the$ counterpart$ of$Homo)Economicus,$ and$ those$who$ put$

Homo) Irrationalis$ into$ the$world$ are$ now$ engaged$ in$ finding$mechanisms$ for$

nudging$Homo)Irrationalis$closer$to$Homo)Economicus.$$

Pierre$ Bourdieu$ has$ in$ a$ discussion$ of$ the$ consequences$ of$ the$ constructs$ of$

economic$ orthodoxy$ called$ Homo) Economicus$ “a$ kind$ of$ anthropological$

monster”$(Bourdieu,$2010,$p.$83).$He$writes:$$

this$ theoretically$minded$man$ of$ practice$ is$ the$most$ extreme$personification$ of$

the$ scholastic$ fallacy,$an$ intellectualist$ or$ intellectualocentric$ error$very$ common$

in$ the$ social$ sciences$ (particularly$ in$ linguistics$ and$ ethnology),$ by$ which$ the$

scholar$ puts$ into$ the$ heads$ of$ the$ agents$ he$ is$ studying—housewives$ or$

households,$firms$or$entrepreneurs,$et$cetera—the$theoretical$considerations$and$

constructions$ he$ has$ had$ to$ develop$ in$ order$ to$ account$ for$ their$ practices$

(Bourdieu,$2010,$p.$83T84).$

$ 233$

Behavioural$ economists$ began$ by$ critiquing$ the$ descriptive$ validity$ of$ neoT

classical$economics.$Because$they$mobilised$a$strand$of$cognitive$psychology$in$

an$effort$to$rectify$what$they$saw$as$descriptive$flaws$of$neoTclassical$rationalist$

models$of$behaviour,$much$of$ the$ critique$naturally$ revolved$around$ the$neoT

classical$ construction$ of$ the$ economic$ agent:$ Homo) Economicus.$ Because$ the$

psychology$ that$ was$ mobilised$ happened$ to$ be$ the$ Heuristics$ and$ Biases$

Programme,$ and$ because$ heuristics$ and$ biases$ was$ a$ psychology$ of$ error,$

behavioural$ economists$ helped$ create$ a$ different$ kind$ of$ monster:$ Homo)

Irrationalis.$$

I$have$argued$throughout$that$the$normative$kernel$of$both$the$Heuristics$and$

Biases$ Programme$ and$ Behavioural$ Economics$ was$ (and$ is)$ both$ stable$ and$

highly$ flexible.$The$error$approach$kept$ the$ integrity$of$ the$normative$kernel,$

and$ shielded$ it$ from$ change.$ The$ normative$ kernel$ in$ behavioural$ economics$

was$ neoTclassical$ economics.$ As$ much$ as$ behavioural$ economics$ was$ a$

departure$ from$ neoTclassical$ economics$ in$ its$ insistence$ on$ adding$ empirical$

rigour$to$the$overwhelmingly$theoretical$approach$of$neoTclassical$economists$

in$ the$ form$ of$ a$ psychology$ of$ error,$ it$ paradoxically$ strengthened$ the$

normativity$of$neoTclassical$economics$by$limiting$psychological$explanations$to$

deviations$from$neoTclassical$norms.$$

In$other$words,$the$advent$of$Homo)Irrationalis$has$left$Homo)Economicus$oddly$

insulated.$ I$ say$ oddly,$ because$ it$ was$ and$ is$ the$ expressed$ purpose$ of$

behavioural$economics$to$question$the$descriptive$validity$of$Homo)Economicus)

much$ like$ it$ became$ behavioural$ economists’$ express$ purpose$ to$ critique$ the$

descriptive$validity$of$neoTclassical$economics.$The$crux$of$the$matter$lies$in$the$

necessary$ modification$ that$ while$ behavioural$ economists$ did$ question$ the$

descriptive$validity$of$Homo)Economicus,)they$did$not$question$the$normativity$

of$the$construct.$$

The$ enterprise$ of$ any$ psychology$ is$ ultimately$ the$ understanding$ of$ human$

nature.$ The$ kind$ of$ understanding$ of$ human$ nature$ that$ is$ produced,$ greatly$

affects$ (in$ large$ parts$ dictates)$ ideas$ about$ how$ that$ knowledge$ could$

$ 234$

legitimately$ be$ applied.$ The$ notion$ that$ people$ are$ irrational$ is$ a$ shorthand$

born$out$of$ the$critique$of$ the$neoTclassical$construct$of$ the$rational$economic$

agent.$ It$was$ the$act$of$ rescuing$ real$people$ from$ the$clutches$of$neoTclassical$

theory$ that$had$ the$unintended$consequences$of$making$us$ irrational$ (Thaler,$

2000).$This$means$that$the$short,$though$not$entirely$uninformative$answer$to$

the$ question:$ How$ did$ humans$ become$ irrational?$ Is$ “because$we$were$ once$

made$rational”.$A$slightly$more$informative$answer$might$be:$because$we$were$

once$made$economically$rational.$$

The$descriptiveTexplanatory$project$of$behavioural$economics$was$inextricably$

linked$ to$ the$ normativeTprescriptive$ project.$ This$ can$ be$ contrasted$with$ the$

foundational$ hypothesis$ of$ behavioural$ economics$ which$ is$ that$ neoTclassical$

models$ lack$ descriptive$ validity.$ In$ other$ words,$ the$ claim$ that$ behavioural$

economists$ made$ was$ that$ ‘error’$ was$ to$ be$ located$ with$ the$ neoTclassical$

economists$who$at$worst$erroneously$assumed$their$models$to$be$descriptively$

valid,$and$at$best$paid$no$attention$to$the$question$of$the$descriptive$validity.$$

The$normative$question:$Were$we$ever$rational,$and$should$we$be?$

The$final$point$I$want$to$make$is$that$the$normative$rationality$of$neoTclassical$

economics$ is$ no$ less$ socially$ constructed$ than$ the$ irrationality$ of$ behavioural$

economics.$ Critiquing$ the$ lack$ of$ validity$ of$ neoTclassical$ normative$ theory$

using$a$psychology$of$error$elevated$the$normativity$of$that$normative$theory.$

The$ purchase$ of$ protecting$ the$ normativity$ of$ the$ normative$ theory$ for$

behavioural$economists$was$substantial.$It$allowed$the$behavioural$economists$

to$ keep$ a$ dialogue$ with$ mainstream$ economists.$ It$ allowed$ them$ to$ situate$

behavioural$ economics$ as$ a$ subTdiscipline$ of$ economics.$ Most$ importantly,$ it$

allowed$ them$ to$ drive$ their$ own$ normative$ agenda:$ to$ construct$ and$

disseminate$ knowledge$ that$ would$ align$ deviant$ human$ behaviour$ with$ the$

normative$rules$of$neoTclassical$micro$economics.$$

Normative$rationality$of$neoTclassical$economics$has$a$very$interesting$history$

of$ its$ own.$ The$ kind$ of$ rationality$ that$ behavioural$ economists$ critiqued$ for$

$ 235$

being$ less$ than$descriptively$valid$was$a$ construct$of$neoTclassical$ economics.$

NeoTclassical$ rationality$ in$ turn$ was$ constructed$ through$ a$ mixture$ of$ game$

theory$and$mathematical$axioms$that$were$part$of$a$coldTwar$fixation$with$the$

power$and$virtue$of$calculation$(Erickson,$2013).$$

Economic$sociologist$Neil$Smelser$(1990)$cuts$to$the$heart$of$the$matter$when$

he$situates$the$construction$of$the$rational$economic$agent$with$the$process$of$

democratization.$Smelser’s$point$is$that$the$inventors$of$liberalism$who$fought$

for$institutions$like$democratic$representation$and$market$capitalism$promoted$

conditions$ of$ liberty$ and$ the$ right$ to$ choose,$ because$ they$were$ struggling$ to$

overturn$ institutions$that$they$found$oppressive$such$as$the$French$monarchy$

in$ France,$ the$ British$ Monarchy$ in$ the$ American$ colonies$ and$ the$ system$ of$

patronage$and$mercantilism$in$Britain.$This$was$the$struggle$that$engendered$a$

certain$kind$of$person.$Smelser’s$point$ is$ that$ the$kind$of$person$produced$by$

these$ historical$ processes$ cannot$ legitimately$ be$ translated$ into$ a$ kind$ of$

“natural$person”:$$

the$free$economic$agent$and$the$free$citizen$are$themselves$in,$and$products$of,$a$

specific$complex$of$cultural$values$and$institutions.$They$are$certainly$not$“natural$

persons.”$They$behave$according$to$norms$that$endorse$and$reward$such$behavior$

[...]$ In$ the$ process$ they$ invented$ some$ theories$ about$ choice,$ calculation,$ and$

rationality.$These$theories$were$meant$to$(and$best$did)$describe$and$apply$to$the$

kinds$of$institutions$and$behavior$they$were$advocating$(Smelser,$1990$p.$781).$$

Smelser’s$argument$about$kinds$of$people$resonates$very$closely$with$Hacking’s$

understanding$ of$ the$ process$ of$ creating$ new$ways$ to$ describe$ and$prescribe$

human$thought$and$action$as$a$process$of$“making$up$people”$(Hacking,$1985).$

Hacking’s$main$aim$with$this$notion$is$precisely$to$emphasise$that$through$the$

process$ of$ categorizations$ and$ classifications,$ psychological$ knowledge$ in$

particular$ serves$ to$ create$ new$ categories$ of$ humans,$ new$ “kinds$ of$ people”$

(Hacking,$2007).$Although$outside$the$scope$of$this$thesis,$the$consequences$of$

this$new$category$of$human$having$come$into$the$world,$itself$a$consequence$of$

the$approach$to$decision$making$taken$by$Kahneman$and$Tversky,$would$be$a$

fascinating$subject$for$further$exploration.$It$would$be$especially$interesting$to$

$ 236$

follow$this$line$of$investigation$by$also$taking$account$of$Hacking’s$extension$of$

the$theory$to$consider$what$he$calls$“looping$effects”,$ the$ways$ in$which$these$

classifications$in$various$ways$in$turn$affect$the$behaviour$of$those$so$classified$

(Hacking,$1995).$$

Kahneman,$ Tversky$ and$ the$ behavioural$ economists$ that$ incorporated$ their$

psychology$ into$ the$ economic$ sciences$ worked$ hard$ to$ establish$ descriptive$

deviations$from$neoTclassical$models.$They$have$played$their$part$in$cementing$

the$notion$that$ this$ is$ the$case.$My$point$ is$ this:$ the$ task$now,$ for$behavioural$

economists$is$perhaps$to$contemplate$not$just$the$question$of$whether$humans$

act$according$to$the$norms$of$neoTclassical$models$of$microeconomics,$or$how$

best$ to$modify$ the$ behaviour$ of$ actual$ people$ to$ confirm$with$ those$models.$

Perhaps$the$time$has$come$to$begin$questioning$the$normativity$of$neoTclassical$

economic$ principles.$ From$ the$ authors$ of$Changing)Behaviours:)On) the)Rise)of)

the)Psychological)State)(Jones,$Pykett,$&$Whitehead,$2013)$comes$precisely$this$

objections$ in$ their$ critique$ of$ the$ politics$ of$ the$ behaviour$ change$ agenda$ in$

governmental$policy:$$

the$desire$to$rationalize$the$irrational$has$become$a$defining$characteristic$of$the$

behaviour$ change$ policy$ agenda$ [...]$ this$ normative$ desire$ for$ correctional$ reT

rationalization$ has$ raised$ a$ series$ of$ ethical$ issues,$ and$ resulted$ in$ a$ number$ of$

missed$ opportunities,$within$ the$design$of$ behaviourTchanging$policies$ (Jones$ et$

al.,$2013,$p.$12).$$

The$ descriptive$ data$ has$ been$ collected,$ and$ the$ verdict$ is$ in.$ Humans$ are$

irrational,$meaning$we$sometimes$do$not$act$ in$accordance$with$ rational$neoT

classical$models$of$behaviour.$But$perhaps$the$most$pertinent$question$now$is$

the$normative$T$should)we?$$

$

$

$

$ 237$

$

$

$

$

$

$

$ 239$

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Psychological)Bulletin,)76(2),$105T110.$doi:Doi$10.1037/H0031322$

Tversky,$ A.,$ &$ Kahneman,$ D.$ (1973).$ Availability:$ A$ heuristic$ for$ judging$

frequency$ and$ probability.$ Cognitive) Psychology,) 5(2),$ 207T232.$ doi:Doi$

10.1016/0010T0285(73)90033T9$

Tversky,$ A.,$ &$ Kahneman,$ D.$ (1974).$ Judgment$ under$ uncertainty$ T$ heuristics$

and$ biases.$ Science,) 185(4157),$ 1124T1131.$ doi:DOI$

10.1126/science.185.4157.1124$

Tversky,$ A.,$ &$ Kahneman,$ D.$ (1981).$ The$ framing$ of$ decisions$ and$ the$

psychology$ of$ choice.$ Science,) 211(4481),$ 453T458.$ doi:Doi$

10.1126/Science.7455683$

Tversky,$A.,$&$Kahneman,$D.$(1983).$Extensional$versus$intuitive$reasoning:$The$

Conjunction$Fallacy$in$probability$judgment.$Psychological)Review,)90(4),$

293T315.$doi:Doi$10.1037/0033T295x.90.4.293$

Tversky,$ A.,$ &$ Kahneman,$ D.$ (1986).$ Rational$ Choice$ and$ the$ Framing$ of$

Decisions.$ Journal) of) Business,) 59(4),$ S251TS278.$ doi:Doi$

10.1086/296365$

Von$ Neumann,$ J.,$ &$ Morgenstern,$ O.$ (1944).$ Theory) of) games) and) economic)

behavior.$Princeton:$Princeton$University$Press.$Wanner,$E.$(1973).$Do$we$understand$sentences$from$outsideTin$or$from$insideT

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Psycholinguistic)Research,)4(3),$281T282.$$

Wanner,$E.$(1980).$The$ATN$and$the$Sausage$Machine$T$Which$one$ is$baloney.$

Cognition,)8(2),$209T225.$doi:Doi$10.1016/0010T0277(80)90013TX$

Wanner,$ E.,$ &$ Shiner,$ S.$ (1976).$Measuring$ transient$memory$ load.$ Journal) of)

Verbal) Learning) and) Verbal) Behavior,) 15(2),$ 159T167.$ doi:Doi$

10.1016/0022T5371(76)90016T5$

Winnik,$H.$Z.$(1977).$Milestones$in$the$development$of$psychoanalysis$in$Israel.$

The)Israeli)Annals)of)Psychiatry)and)Related)Disciplines,)15,$85T91.$$

Wright,$ P.,$ &$ Kahneman,$ D.$ (1971).$ Evidence$ for$ alternative$ strategies$ of$

sentence$ retention.$ The) Quarterly) Journal) of) Experimental) Psychology,)23(2),$197T213.$doi:10.1080/14640747108400240$

Zouboulakis,$M.$(2014).$The)Varieties)of)Economic)Rationality:)From)Adam)Smith)

to) contemporary) behavioural) and) evolutionary) economics.$ Abingdon$ &$New$York:$Routledge.$

$ 248$

Un"published*sources!

Interviews$

Wanner,$E.$(2014,$April$23rd)$Interview$with$the$author,$New$York.$$

Kahneman,$D.$(2014,$April$29th)$Interview$with$the$author,$New$York.$$

$

Archival$Material$

All) nonSpublished) archival) data) can) be) found) in) Subgroup) 2) of) the)Russell) Sage)

Foundation)Archives,)Series)7,)Behavioral)Economics)Collection)at)the)Rockefeller)

Archive)Center)(RAC),)Tarrytown,)New)York.)

Abelson,$R.$(1984,$July$26th)$Letter)to)Wanner.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC.$

Alfred$P.$Sloan$Foundation/Russell$Sage$Foundation$(1991)$Behavioural)Economics)Grants.$Behavioral$Economics$Collection$(Subgroup$2,$Series$

7,$Box$202,$Folder$1487),$RAC.$

Arrow,$K.$(1992,$May$18th)$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Ashenfelter,$O.$(1992,$June$3rd)$$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$$

Baumol,$W.$(1986,$November$17th))Letter)to)Wanner.)Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder$1431),$RAC.$$

Blinder,$A.$(1992,$May$29th)$$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Camerer,$C.$(1992,$June$4th).)$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

De$Bondt,$W.$(1992,$May$29th)$$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Farber,$H.$(1992,$June$3rd)$$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

$ 249$

Froot$K.$A.$(1992,$May$7th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Granovetter,$M.$(1991,$May$29th)$Memorandum)Economic)Sociology.$Behavioral$

Economics$Collection$(Subgroup$2,$Series$7,$Box$196,$Folder$1443),$RAC.$$

Herrnstein,$R.$(1992,$May$18th)$$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Hogarth,$R.$(1984,$April$10th)$Letter)to)Wanner.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC.$$

Juster,$T.$(1992,$May$28th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Kahneman,$D.$(1984,$May$29th)$Letter)to)Wanner.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC.$

Kahneman,$D.$(1992,$May$25th)$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Lakonishok,$J.$(1992,$May$29th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Lee,$C.$(1992,$May$30th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Loewenstein$(1987,$February$26th)$Intertemporal)Choice)Working)Group)

Proposal.$Behavioral$Economics$Collection$(Subgroup$2,$Series$7,$Box$

201,$Folder$1481),$RAC.$

Loewenstein,$G.$(1992,$May$14th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Nelson,$R.$(1987,$October$23rd)$Reply)to)Wanner.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$201,$Folder$1483),$RAC.$

Poterba$J.$M.$(1992,$May$20th)$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Shefrin,$(1992,$May$20th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$$ (Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Shiller,$R.$J.$(1992,$June$5th))Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Simon,$H.$(1984,$December$5th)$Letter)to)Wanner.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder,$1428),$RAC.$$

$ 250$

Smith,$V.$L.$(1992,$May$15th)$Participant)Evaluation.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Thaler,$R.$(1984,$June$7th)$Letter)to)Wanner.$Behavioral$Economics$Collection,$

(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC$

Thaler,$R$(1992,$May$27th)$Participant)Evaluation.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

Thaler,$R.$(n.$d.)$Proposal)for)Behavioural)Finance)Group.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series,$7,$Box$201,$Folder$1481),$RAC$

Tversky,$A.$(1984,$May$29th)$Letter)to)Wanner.$Behavioral$Economics$Collection$

(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC.$

Wanner,$E.$(1983,$January$26th)$Letter)to)Fischoff.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC.$

Wanner,$E.$(1984,$July$18th)$Letter)to)Advisory)Committee.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$198,$Folder$1454),$RAC.$$

Wanner,$E.$(1985,$October$2nd)$Letter)to)Advisory)Committee.$Behavioral$

Economics$Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder$1427),$RAC.$

Wanner,$E.$(1985,$December$18th)$Request)For)Proposals.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder$1430),$RAC$$

Wanner,$E.$(1986,$October$16th)$Letter)to)Advisory)Committee.$Behavioral$

Economics$Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder$1431),$RAC.$

Wanner,$E.$(1986,$October$20th)$Letter)to)Thaler.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$198,$Folder$1455),$RAC.$

Wanner,$E.$(1987,$March$2nd)$Letter)to)Advisory)Comittee.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$193,$Folder$1424),$RAC.$

Wanner,$E.$(1987,$April$27th)$Letter)to)Advisory)Committee.$Behavioral$

Economics$Collection,$(Subgroup$2,$Series$7,$Box$193,$Folder$1424),$RAC.$$

Wanner,$E.$(1987,$September$1st)$Request)for)Proposals)for)Residential)Working)

Groups.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$201,$

Folder$1483),$RAC.$$

Wanner,$E.$(1987,$October$19th))Letter)to)Blinder.)Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$201,$Folder$1483),$RAC.$

Wanner,$E.$(1988,$January$11th)$Letter)template)for)Albert)Rees.$Behavioral$

Economics$Collection,$(Subgroup$2,$Series$7,$Box$193,$Folder$1424),$RAC.$

$ 251$

Wanner,$E.$(1988,$May$31st)$Letter)to)Advisory)Committee.$Behavioral$Economics$

Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder$1433),$RAC.$

Wanner,$E.$(1988,$June)$Russell)Sage)Foundation)Board)of)Trustees)Docket.$

Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$194,$Folder$

1433),$RAC.$

Wanner,$E.$(1988,$October$14th)$Minutes)of)Trustees)Meeting.$Behavioral$

Economics$Collection,$(Subgroup$2,$Series$7,$Box$195,$Folder$1437),$RAC.$

Wanner,$E.$(1989,$March$7th)$Request)for)Proposals.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$195,$Folder$1437),$RAC.$$

Wanner,$E.$(1992,$April$30th)$Evaluation)request.$Behavioral$Economics$Collection,$(Subgroup$2,$Series$7,$Box$196,$Folder$1442),$RAC.$

$ 253$

Appendices$

Appendix$ 1:$ Rules$ Governing$ the$ Use$ of$ Archival$Material$ >$ Rockefeller$ Archive$

Center

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$ 254$

Appendix$2:$Request$for$Copies$>$Rockefeller$Archive$Center$

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Appendix$3:$Digital$Camera$Use$Policy$>$Rockefeller$Archive$Center$

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$ 256$

Appendix$4:$Permission$to$Publish$>$Rockefeller$Archive$Center$

2016-12-19 15:29Re: request for permission to publish [#323371] - Thokozani Kamwendo

Page 1 of 1https://outlook.live.com/owa/?viewmodel=ReadMessageItem&It…AAALBqLhwAAAA%3D%3D&IsPrintView=1&wid=89&ispopout=1&path=

Re: request for permission to publish [#323371]

Dear Thoko:

Thank you for getting back quickly. Below please find our official statement of permission:

The Rockefeller Archive Center HRACI grants you permission to publish excerpts from documents from Behavioral Economic materials,series 7 of the Archives of the Russell Sage Foundation, noted in your email of 7 December 2016, to the extent that it can do so. Thispermission is given provided that publication conforms to all relevant provisions of United States copyright law and provided that thepublication does not constitute libel or an invasion of privacy. Please note that this permission is granted for this specific request, so thatfuture editions or editions in other languages or formats, including electronic, will require additional permissions.

Also, once your thesis is published, please let me know, so that I can add an entry for it in the RAC Bibliography of Scholarship. Thebibliography currently includes entries for over 5,950 publications based, at least partially, on our archival holdings. Please feel free tobrowse through the bibliography, a Zotero database. I serve as its managing editor and I would be delighted to include your thesis.

Best wishes,

Lee

Lee R. Hiltzik, Ph.D.Assistant DirectorHead of Donor Relations and Collection Development

Rockefeller Archive Center15 Dayton AvenueSleepy Hollow, NY 10591

H914I 366]6345lhiltzik@rockarch.org

We hope this response has sufficiently answered your questions. If not, please reply to this email.

Rockefeller Archive Center

Wed 07/12/2016 16:20

To:thokok@hotmail.com <thokok@hotmail.com>;

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Appendix$5:$Interview$Questions$for$Daniel$Kahneman$$

1. Could$ you$ tell$ me$ about$ working$ at$ the$ psychology$ department$ at$ the$

Hebrew$University?$How$was$it$set$up?$

2. In$ your$ early$ career$ were$ you$ allowed$ to$ explore$ different$ kinds$ of$

psychology?$$

3. Thinking$of$the$first$two$decades$of$Israeli$statehood.$What$was$the$attitude$

of$ institutions$ such$as$ the$airTforce$and$ the$various$ministries$ toward$ the$

social$sciences$at$the$time?$$

4. Was$there$a$sense$that$civil$society$building$could$or$should$draw$on$social$

scientific$knowledge?$$

5. Do$ you$ think$ that$ the$ challenges$ and$ opportunities$ presented$ by$ mass$

immigration$and$the$establishment$of$statehood$impacted$on$your$work?$$

6. Your$work$with$Ozer$Schild$resulting$in$the$article$‘Training$Agents$of$Social$

Change’$strikes$me$as$very$interesting,$what$can$you$remember$of$how$that$

work$came$about?$

7. Could$you$tell$me$about$your$other$work$with$Schild$for$the$Israeli$Armed$

Forces?$$

8. When$did$you$first$meet$Amos$Tversky?$$

9. What$ were$ you$ hoping$ to$ achieve$ with$ the$ Heuristics$ and$ Biases$

programme?$$

10. Who$did$you$see$as$the$audience$of$this$work$and$how$did$you$reach$them?$$

11. Did$you$encounter$much$opposition$to$the$work?$

12. Do$ you$ remember$ what$ the$ peer$ reviews$ were$ like$ of$ the$ article$ on$

Prospect$Theory$published$in$Econometrica?$$

13. Why$is$Behavioural$Economics$called$Behavioural$Economics?$$

14. When$did$you$begin$to$consider$policy$implications$for$your$work?$$

15. You$ mentioned$ recently$ how$ much$ you$ dislike$ the$ characterisation$ of$

humans$as$irrational,$why$do$you$think$this$characterisation$is$so$popular?$$

16. What$is$the$future$of$Behavioural$Economics?$$

$ 258$

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Appendix$6:$Interview$Questions$for$Eric$Wanner$$

1. How$ did$ you$ first$ get$ the$ idea$ to$ fund$ the$ kind$ of$ work$ that$ was$ to$

become$Behavioural$Economics?$$

2. Are$there$any$particular$events$or$episodes$that$you$feel$were$milestones$

in$setting$up$of$the$Behavioural$Economics$Programme?$

3. What$ did$ you$ hope$ to$ achieve$ with$ the$ Behavioural$ Economics$

Programme?$$

4. Did$anyone$oppose$it,$and$did$you$have$any$important$allies?$$

5. Was$ the$Behavioural$Economics$Programme$a$ response$ to$ the$political$

and$economic$landscape$of$the$time?$

6. Why$is$the$field$called$Behavioural)Economics?$$

7. Who$did$you$ see$as$ the$audiences$of$ this$work$and$how$did$you$ reach$

them?$$

8. How$did$the$Behavioural$Economics$Programme$fit$the$brief$of$the$Sloan$

and$Russell$Sage$Foundations?$$

9. What$is$the$future$of$Behavioural$Economics?$$

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$ 259$

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