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November, 2011

What Separates Psychology and Economics

The distinction between psychology and economics as related to Daniel Kahneman's discoveries.
Yesterday I posted a link to the Michael Lewis profile/review of Daniel Kahneman's new book. Since yesterday I've repeated this little nugget on how Kahneman discovered behavioral economics three times and thought it was worth sharing:
I can still recite its [a 1970s paper on the psychological assumptions of economic theory] first sentence: “The agent of economic theory is rational, selfish, and his tastes do not change.”
I was astonished. My economic colleagues worked in the building next door, but I had not appreciated the profound difference between our intellectual worlds. To a psychologist, it is self-evident that people are neither fully rational nor completely selfish, and that their tastes are anything but stable.
It's a nice way to think about the difference between psychology and economics.
November 9, 2011
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