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Behavioral Economics
Kahneman on Well-Being and Domains of Consciousness
A Nobel Winning Psychologist
Posted December 29, 2011
Consider the following predicament and options. You are an executive, and a group of 600 people have become infected by a deadly disease and will certainly die if you do nothing. Your advisor comes to you and says you have two options, A & B. She tells you:
- option A saves 200 people's lives
- option B has a 33% chance of saving all 600 people and a 66% possibility of saving no one
What would you do?
Now consider it this way. You are an executive, and a group of 600 people have become infected by a deadly disease and will die if you do nothing. Your advisor comes to you and says you have two options, 1 & 2. She tells you:
- If option 1 is taken, then 400 people die
- If option 2 is taken, then there is a 33% chance that no people will die and a 66% probability that all 600 will die
Daniel Kahneman won the Nobel Prize in Economics because he demonstrated conclusively that people do not function according to the hyper-rational, cold calculating benefit maximizing cost minimizing Homo economicus that traditional economic theory presupposes. Consider the above example. Kahneman (along with his late colleague Amos Tyversky) found huge differences in how people responded to Option A vs. B, as opposed to 1 vs. 2. Over 70% choose option A, whereas less than 25% choose option 1. This is the case despite the fact that the two choices are logically equivalent!
The enormous difference is a function of what Kahneman and Tyversky called the "framing effect". (The first question frames the choice in terms of benefit and the second in terms of costs), and it was part of their larger work on prospect theory and heuristics. Their work laid the groundwork for what is now known as behavioral economics, which analyzes how human behavior deviates from the conception of Homo economicus. (As an aside, I think that the term 'behavioral' economics is something of a misnomer, as it really is psychological economics).
Since his work in judgment and decision making, Kahneman has branched out and is now exploring hedonic psychology, or the study of well-being. In this post, I am going to comment on his recent TEDtalk, where he explains how the two domains of human consciousness differ quite dramatically in what it means to be happy.
Kahneman makes three key points in this talk. The first point, which is somewhat subtle in that he only briefly alludes to it, is that happiness is a complicated construct and that there has been a shift away from this term, as it has been found not to capture the essence of what researchers are interested in. In a nutshell, what researchers have 'found' is that the concept of happiness is too close to the smiling, happy-go-lucky, everything is chipper way of being that is somewhat trite and immature and does not really capture psychological wellness. As such, psychologists (myself included) do not talk much about 'happiness' so much as well-being. Indeed, in our emerging assessment of well-being (The Well-Being Interview), we query folks about ten domains of well-being, including: 1) Overall Life Satisfaction; 2) Degree of Engagement/Interest/Enjoyment; 3) Meaning and Purpose; 4) Habits and Lifestyle; 5) Moods and Feelings; 6) Relationships and Social Support; 7) Defenses and Coping; 8 ) Identity and Self-Acceptance; 9) Stressors, and Affordances; and 10) Sense of Direction and Growth.
The second key point that Kahneman makes is that humans are of two minds, what he refers to in this talk as the experiencing and remembering selves. The experiencing self is the here-and-now, in the moment feeling self, whereas the remembering self is the narrating, recollecting, reflective self that makes judgments and decisions about things. Kahneman's work on behavioral economics was directly related to this notion of humans having two mental systems, and it is the process by which he explains many of the findings associated with behavioral economics, as he articulates in his recent book, Thinking, Fast and Slow (see a recent NY Times article by Kahneman summarizing his thoughts).
The third key point-and the one that I found myself mulling over the most-was how the experiencing self and the remembering self evaluate situations differently. For the experiencing self, experience is either good or bad and there is just certain amount of it. In contrast, for the remembering self changes, goals/outcomes, and endings are heavily weighted. To illustrate this, Kahneman shows the graph of two 'pain charts' of people going through a painful medical procedure. Patient A experienced high levels of discomfort for about 4 minutes, and then it was over. Patient B experienced a very similar level of pain for the first four minutes, but then it trailed off over the last several minutes, such that it ended with relatively little pain. From an absolute experience point of view, Patient A had less discomfort. But, as Kahneman points out, it is Patient B that will report afterwards that it was not nearly as bad as Patient A. Why? Because it changed for the better and by the end it was not bad at all, which is one of the key elements the remembering self takes into consideration. Kahneman discusses the differences in how the systems respond in several contexts from vacations to income.
From the vantage point of the unified theory, there is much to like and only a little to critique regarding Kahneman's work. He is a brilliant experimentalist (I believe he is the only psychologist who has won a Nobel prize-let me know if you know of another) and his studies led to a whole field of behavioral (psychological?) economics. His work on the two mental systems, System 1 and System 2 and their corollaries in consciousness (experiential and reflective/remembering) is directly congruent with the model of cognition advocated for in the unified theory. (Behavioral Investment Theory provides the theoretical frame for System 1, and the Justification Hypothesis for System 2).
If I have a criticism of Kahneman it is that he is VERY cognitive. By that I mean he sometimes seems to characterize judgment and decision making as a very individual process, and he does not elaborate as much as I would like in connecting his work to either the embodied context or the social-developmental context. From a Behavioral Investment Theory perspective, the experiential self emerges out of the action of the entire body and I argue for an "embodied view" of experiential processing that is not really reflected in Kahneman's work. From a Justification Hypothesis perspective, his characterization of the 'remembering self' (or in his writing 'System 2′) does not place the self in a social matrix of justification systems, and I wish that he would write more on the social dynamics of thinking, specifically how System 2 thought processes exist in a social context of justification. Specifically, if he grounded System 2 to the JH it would have the advantage of a) connecting System 2 to a biologically adaptive problem (the problem of social justification); b) connecting it to clinical work (e.g., the motives underlying rationalizations); and c) connecting individual level thought with large-scale systems of justification.
That said, his work on both the two systems, their implications for reasoning and well-being are generally topnotch.
