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We Lost a Giant 

Dr. Daniel Kahneman was my inspiration when I started my work in behavioral finance because of the practical nature of what he did.  It just made sense to me. His work was observational – meaning he proved things that he saw humans doing versus proving abstract concepts. During the time he wrote his best works, “standard finance” was all the rage – the idea that markets were efficient and human behavior was not particularly relevant. He along with others disproved this idea. Which gave birth to modern behavioral finance of which I am a contributor. 

It is with great sadness that we learned earlier this month the passing of Professor Kahneman. Dr. Kahneman won the 2002 Nobel Prize in Economics—the only psychologist ever to do so. He is best known for his work on “Prospect Theory” which essentially illustrated that humans are loss averse – they feel the pain of losses greater than the pleasure of gains. In an emotion-free world, gains and losses should be felt equally.  Dr. Kahneman was also instrumental in identifying and researching anchoring bias—how people anchor on a familiar number and are irrationally reluctant to move away from it when presented with new information.  These two ideas – loss aversion and anchoring – are in my opinion two of the strongest, most relevant behavioral finance biases that exist. 

Please keep him in your thoughts.