Tversky & Kahneman and the Birth of Behavioral Economics

While standard (neoclassical) economics assumes people are rational and all-knowing, psychologists Amos Tversky and Daniel Kahneman discovered many systematic behavioral biases. Many of these have broad applications to politics, such as anchoring, availability, and loss aversion. People's opinions are swayed by framing, for example. A doctor may claim that a surgery has a 10% chance of death or a 90% chance of surviving. People interpret the survival chances more favorably. Public policy issues are framed by partisans. Even when politicians are being truthful, they will frame an issue (e.g., Obamacare) to promote their own positions. Framing an issue in partisan terms dominates rather than attempts to fix the problem. People may be okay with an "Inheritance Tax," but shocked by a "Death Tax."