April 27, 2004

Los Angeles — Daniel Kahneman, Professor of Psychology at Princeton University and Nobel Laureate in Economics presented the 2003-2004 Jacob Marschak Memorial Lecture to the Marschak Colloquium at UCLA Anderson on Friday, April 30. Professor Kahneman’s presentation was entitled, “Towards A Science Of Well-Being.” The event was cosponsored by the Center for Governance, the Metanexus Institute Local Societies Initiative on Awe-inspiring Experiences; the UCLA Department of Economics; the UCLA Center for Behavior, Evolution, and Culture; the UCLA Department of Psychology; and the UCLA Anderson School interdisciplinary research group on Behavioral Decision Making (BDM).

Daniel Kahneman has won numerous awards, including the 2002 Nobel Prize in Economics, the Grawmeyer Prize in Psychology (with Amos Tversky) and the Hilgard Award for Career Contributions to General Psychology. He is a member of the National Academy of Sciences and the Econometric Society. He is best known for a series of papers co-authored with Tversky that advanced what has become known as prospect theory.

Prospect Theory
Prospect theory describes how individuals make decisions under risk and uncertainty. This model suggests that decision makers represent options (prospects) available to them in terms of potential losses and gains relative to a reference point. Usually this reference point is the status quo but the reference point can be manipulated through the description of options so that different descriptions give rise to different choices (in stark contrast to rational choice models). For instance, physicians sometimes recommend different treatments for serious diseases if consequences are described in terms of survival rates versus mortality rates. Prospect theory represents value of potential consequences with an S-shaped utility function in which decision makers exhibit decreasing sensitivity to increasing losses and gains, and in which they are more sensitive to losses than to equivalent gains. Loss aversion is thought to underlie, for example, people's tendency to attach a higher selling price to objects that they own (so that parting with them would entail a loss) than they would have spent to acquire these objects in the first place (when acquiring them entailed a potential gain). Finally, in prospect theory probabilities are weighted by an inverse-S shaped weighting function that overweights small probabilities and underweights moderate and large probabilities. Overweighting of small probabilities explains, for example, why people pay a premium to gamble on long shots (i.e., are risk-seeking for low-probability gains) and also pay a premium to acquire insurance (i.e., are risk-averse for low-probability losses). An article by Kahneman and Tversky entitled Prospect Theory (link below) is reportedly the most cited paper that has appeared in Econometrica, arguably the top journal in economics.

Links for Daniel Kahneman and Prospect Theory

Daniel Kahneman's Nobel Prize Autobiography

Brief Description of Prospect Theory

Prospect Theory: An Analysis of Decision Under Risk; Daniel Kahneman and Amos Tversky; Econometrica; March 1979; Vol. 47, Number 2.

2004 Marschak Memorial Lecture Abstract - "Towards A Science Of Well-Being"
The topic of well-being has been attracting increasing interest in several disciplines of social science in recent years. The two central puzzles of this field are that the effects of life circumstances on well-being are surprisingly small – there is much adaptation – and that country differences are surprisingly large. These observations have been made with standard instruments in which individuals report how happy or satisfied they are with their lives. This measurement approach is vulnerable to common flaws of global retrospective assessments. An alternative approach will be described, which focuses on the quality of the experiences that constitute a life, where the experiences are evaluated separately. Some recent developments in the neuroscience of well-being will be reviewed, in the context of a proposal for the development of instruments that social scientists can adopt without methodological guilt.

Past Presenters of the Jacob Marschak Memorial Lecture
(* indicates Nobel Laureate)

1979-80 Tjalling C. Koopmans *
1980-81 Kenneth J. Arrow *
1981-82 Lawrence R. Klein *
1982-83 Herbert Simon *
1983-84 Roy Radner
1984-85 Paul A. Samuelson *
1985-86 James Tobin *
1986-87 Robert M. Solow *
1987-88 Franco Modigliani *
1988-89 Leonid Hurwicz
1989-90 Allen Newell
1990-91 Murray Gell-Mann *
1991-92 Wassily Leontief *
1992-93 Anatol Rapoport
1993-94 Francis Crick *
1994-95 Gary S. Becker *
1995-96 Harry Markowitz *
1996-97 Marvin Minsky
1997-98 Thomas C. Schelling
1998-99 James March
1999-00 Edward Feigenbaum
2000-01 E. O. Wilson
2001-02 David Baltimore*
2002-03 Jared Diamond

For more information, visit the Marschak Colloquium Web Site.

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