Cutting Through the Noise
Daniel Kahneman on applying behavioral psychology to financial advice.
The 30th annual Morningstar Investment Conference in June was a fitting platform for a conversation with Daniel Kahneman, one of the founding fathers of behavioral economics and a recipient of the Nobel Memorial Prize in Economic Sciences in 2002. In partnership with Amos Tversky and others, Kahneman’s research on judgment and decision-making established that heuristics and biases can lead to errors—a refutation of the perfectly rational investor. In “Prospect Theory: An Analysis of Decision Under Risk,” Kahneman and Tversky provided more realistic models of economic behavior and gave us the vocabulary of frames and anchors common in behavioral finance today.
Interviewing Kahneman was a professional and personal pleasure. His work underpins our behavioral science efforts at Morningstar. As a behavioral economist who focuses on the psychology of financial decisions, I would not have been able to pursue my career path had not Kahneman and his contemporaries paved the way. Our conversation has been edited for length and clarity.