Richard H Thaler - Misbehaving- The Making of Behavioral Economics (epub)

had not bothered to invent Hebrew equivalents. But I failed to generate a viable
theory for why they would switch in the other direction. It might have helped to
know some Hebrew.
They spent months polishing the paper. Most academics find getting the initial
ideas the most enjoyable part of research, and conducting the actual research is
almost as much fun. But few enjoy the writing, and it shows. To call academic
writing dull is giving it too much credit. Yet to many, dull writing is a badge of
honor. To write with flair signals that you don’t take your work seriously and
readers shouldn’t either.† “Prospect Theory” is hardly an easy read, but the
writing was crystal clear because of their endless editing and Amos’s perennial
goal of “getting it right.”
Danny and I soon began the habit of taking walks in the hills near the Center
just to talk. We were equally ignorant and curious about each other’s fields, so
our conversations offered many learning opportunities. One aspect of these
mutual training sessions involved understanding how members of the other
profession think, and what it takes to convince them of some finding.
The use of hypothetical questions offers a good example. All of Kahneman
and Tversky’s research up to this point relied on simple scenarios, such as:
“Imagine that in addition to everything you now own, you gain $400. Now
consider the choice between a sure loss of $200 or a gamble in which you have a
50% chance to lose $400 and a 50% chance to lose nothing.” (Most choose to
gamble in this situation.) As Kahneman delightfully explains in his book
Thinking, Fast and Slow, they would try these thought experiments out on
themselves and if they agreed on an answer they would provisionally assume
that others would answer the same way. Then they would check by asking
subjects, typically students.
Economists do not put much stock in the answers to hypothetical questions, or
survey questions in general for that matter. Economists say they care more about
what people do as opposed to what they say they would do. Kahneman and
Tversky were aware of the objections, undoubtedly raised by skeptical
economists they had met, but they had little choice. A key prediction of prospect
theory is that people react differently to losses than they do to gains. But it is
nearly impossible to get permission to run experiments in which subjects might
actually lose substantial amounts of money. Even if people were willing to
participate, the university committees that review experiments using human
subjects might not approve the experiments.
In the published version of prospect theory, Amos and Danny included the
following defense of their methods: “By default, the method of hypothetical
choices emerges as the simplest procedure by which a large number of