One of Kahneman’s most significant contributions to the field of behavioral science has been his exploration of the dual-process model. This is the idea that human decision making is driven by two distinct thinking systems: a fast, intuitive, and effortless “System 1” and a slower, more deliberate “System 2.” Kahneman was instrumental in refining this framework and applying it to areas of behavioral economics and cognitive psychology. 

In his work, Daniel Kahneman uses these two systems to explain how many of our decisions are made. He recognizes that these systems may or may not be reflected in our neurobiology, but either way, they are helpful tools to understand how we think—it’s intended as a metaphor, not a literal description of how the human brain is structured. His two systems also inform the title of his book, Thinking, Fast and Slow. In his book, Kahneman explores when and why people tend to rely on either System 1 or System 2 thinking. For example, System 1 operates when we casually read signs on the highway, walk or drive a route we know by heart, or have an easy conversation with someone we know well. We use System 2 thinking when we need to exert mental energy to handle more complex situations, such as doing long division, trying to follow new directions, or focusing intently on a high-stakes conversation.

We tend to see ourselves as System 2 thinkers because this is the system that is operating when we make difficult decisions, form beliefs, and engage in effortful thought. We live most of our lives, however, in System 1, going through automatic motions without thinking them through. Throughout his research, Kahneman identified several systematic biases that pop up when we switch between these two systems, often providing readers with real-world examples to show how System 1 thinking can lead to decision-making errors. Being aware of this dual-process model allows us to realize that many of the decisions we make are informed by mental shortcuts and may not even reach our System 2 for deep contemplation.

Kahneman came to this idea after years of behavioral science experiments he conducted with Amos Tversky. Together, they realized that when we exert mental energy trying to form a decision (using System 2), we are often overridden by our powerful but sometimes error-prone System 1. Designed to help us react quickly—and keep us alive in situations where slow, deliberate thought is too costly—System 1 relies on intuition and mental heuristics, which can sometimes lead to errors in judgment.

A great example of System 1 interfering with System 2 is the Stroop effect. Named after its pioneer, John Ridley Stroop, the Stroop effect occurs when subjects are asked to read the names of colors when they are written in non-corresponding colors. For example, a series of color words will flash across a screen (“blue,” “orange,” “yellow”), but the words will be written in colors other than the ones they describe (i.e., the word “blue” might be written in the color red, the word “orange” might be written in the color yellow, and the word “purple” might be written in the color blue.) The subjects are asked to say the color of the font, rather than the word written across the screen. Interestingly, people tend to take longer and make more mistakes when the ink is mismatched, suggesting that the fast, automatic process of reading (requiring System 1 thinking) interferes with the more controlled process of identifying the ink color (requiring System 2 thinking).

In other words, while your System 2 is trying hard to say the name of the color you see, your automatic System 1 is too quick to read the word before you. This example shows that although our System 1 is usually productive and beneficial, it can often interfere with the deeper mental processing that distinguishes humans from other organisms. It can impact our day-to-day decision-making in ways we might not always recognize or be able to control.

Most importantly, your System 1 is susceptible to a series of systematic heuristics and biases, which Kahneman played a key role in identifying. To learn more about how System 1 can shape your thinking, check out our full list of cognitive biases.

Kahneman is well-known for applying his insights about human judgment and decision-making to the field of behavioral economics. Alongside Tversky, he introduced the idea of prospect theory to explain how people make decisions when facing risk or uncertainty. Most importantly, he suggested that how options are presented can influence our decisions—meaning we often deviate from purely rational economic behavior. This differentiates prospect theory from traditional economic models, which assume that people are rational and always act in their best interest.

Here’s a quick thought exercise to demonstrate the difference between behavioral economics and traditional economics: if you are given the offer to flip a coin and, depending on the outcome, either win $40 or lose $20, would you take the risk? Basic economic theories like expected value theory predict that you would because your probability of gaining and losing is equal, and what you could potentially gain is higher than what you’d potentially lose.

The problem is that these basic economic theories operate under the false presumption that humans are purely rational beings. To account for the theory’s reckless presumption, Kahneman and Tversky proposed prospect theory, and its extension, loss aversion. According to loss aversion, we tend to feel the pain of a loss more intensely than the joy of an equivalent gain, so we often prioritize avoiding losses over pursuing gains—even if it means missing out on promising opportunities. Prospect theory suggests that we do this because we consider potential outcomes relative to a reference point rather than absolute values. This is why saving $10 on a $100 purchase feels more significant than saving $10 on a $1,000 purchase, even though you’re saving the same amount of money either way.

According to the theory, the reference point from which you approach a problem influences how you will solve that problem. If you only have $60 in the bank, you will be less likely to take the gamble offered in the thought exercise above than someone with hundreds to spare. While this may seem obvious to you, it’s something unaccounted for in standard economic theories.

Similarly, the loss aversion extension of prospect theory states that the amount of sadness you endure when you lose $10 is greater than the amount of happiness you gain when you win $10. Unfortunate, isn’t it?

While it’s a shame that we can’t be more eager to celebrate our wins and forget our woes, prospect theory and loss aversion have huge implications for how the free market runs and why sellers and buyers negotiate prices. Loss aversion plays a key role in negotiations, as people who are giving something up—either because they made it or already own it—will always feel that loss more heavily than the buyer will feel the gain. 

In one study conducted in 1996, researchers explored people’s attachments to lottery tickets.16 They gave participants lottery tickets and then offered everyone the chance to exchange their ticket for another one, plus a monetary incentive to encourage the trade. Of course, this exchange would have allowed the lottery ticket holders to have the same chance of winning, just with a little more cash in their pockets. Logically, they could have even used the extra cash to buy more lottery tickets, increasing their chances of winning the lottery. On the surface, this seems like an easy deal, doesn’t it?

Remember, the human mind is not always entirely rational. Even though the lottery ticket buyers had no reason at all to believe they held the winning tickets, 50% of participants still refused to exchange their tickets. This was a clear example of loss aversion: participants knew that if they’d given the winning ticket away, the emotional price—in this case, regret—would be much higher than the small monetary gain they would be awarded for exchanging their ticket. Due to loss aversion, these people ascribed extra value to the ticket they already held and dismissed the potential value of the money they could gain.

This is a perfect example of loss aversion and even more so, of the human brain working irrationally. Try to remember this the next time you find yourself in a negotiation with someone. The lady at the flea market may not be intentionally overcharging you—she simply values her items more than you do.

Kahneman was born in Tel Aviv in 1934 and lived in Paris as a young boy, where he survived the Holocaust. He received a bachelor’s degree in psychology and mathematics from the Hebrew University of Jerusalem.

After his military service, Kahneman moved to the US, where he earned his PhD in Psychology from the University of California, Berkeley. He then became a lecturer in the psychology department at his alma mater, Hebrew University. Kahneman also worked in his early years at the University of Michigan, Cambridge, and Harvard.

Kahneman’s early academic work focused on visual perception and attention, specifically the interplay between mental attention and effort. His initial research in 1965 explored pupil dilation as a measure of mental effort, discovering that people’s pupils dilate when they’re involved in mentally demanding tasks.¹³ This early research laid the foundation for Kahneman’s later work on cognitive load, attention, thinking styles, and decision-making. It was around this time that he reports hearing a “brilliant talk on experimental studies of attention” by psychologist Anne Treisman, who would become his wife 12 years later.¹³ He was so inspired by Treisman’s talk that he wrote a chapter on attention for a cognitive psychology handbook. Though the handbook was never published, this chapter would eventually become Kahneman’s first book, Attention and Effort, published in 1973.

Following his research on attention, Kahneman moved into the research field of judgment and decision-making, and later researched happiness and well-being. During his most productive years, Kahneman formed a professional partnership with Amos Tversky, who died in 1996. The two began collaborating in the late 1960s, conducting groundbreaking work on cognitive biases and decision-making. Kahneman and Tversky shared a common interest in understanding how people actually make decisions rather than how they should make decisions according to traditional economic models.

Together, Kahneman and Tversky are best known for their famous article and later book, Judgment Under Uncertainty: Heuristics and Biases, which describes many of the heuristics and biases TDL explains on our website, including representativeness heuristic, availability heuristic, and anchoring bias. The pair is also well known for their development of prospect theory. These contributions have provided a foundation for modern-day behavioral science research. Kahneman and Tversky also had help from Richard Thaler, a young economist who was also questioning the basic assumptions of economic theory in explaining people's behavior.¹³ 

Despite having never taken a single economics course, Kahneman won the 2002 Nobel Memorial Prize in Economics “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.”¹⁴ Kahneman states that his collaboration with Thaler was a major factor in his receiving the Nobel Prize, as the economist was instrumental in integrating Kahneman’s behavioral science ideas into the field of economics.¹³

Winning the Nobel Prize was just one of several milestones in Kahneman’s impressive career. In 2007, Kahneman was presented with the American Psychological Association’s Award for Outstanding Lifetime Contributions to Psychology. Six years later, President Barack Obama awarded him the Presidential Medal of Freedom. 

Following the publication of his bestselling book, Thinking, Fast and Slow in 2011, Kahneman continued to conduct research in the fields of decision-making and economics. Some of Kahneman’s later research revolved around happiness and well-being. Alongside economist Angus Deaton, Kahneman published a popular paper in 2010 showing that an increase in income only leads to an increase in well-being up to a ceiling of $75,000, beyond which happiness seems to plateau.¹⁵ Interestingly, a 2021 study published by researcher Matthew Killingsworth suggested that well-being continues to rise with income beyond $70,000. In an adversarial collaboration, Kahneman and Killingsworth worked to analyze both sets of data from their respective studies. Together, they concluded that while additional income continues to boost happiness for most people, its impact eventually levels off for the least happy individuals.¹⁵

Even in his later years, Kahneman remained deeply engaged in research, collaborating with scholars and working alongside policymakers to apply his behavioral science insights to real-world challenges. He held titles as a senior scholar and faculty member emeritus at Princeton University, a fellow at Hebrew University, and a senior scientist at Gallup. Kahneman passed away on March 27, 2024, at the age of 90. Today, his legacy lives on through the thinkers who continue to research and apply his ideas to better understand human behavior.