n Professional Accountant - Cognitive biases are bad for business insights - : industry insights

Volume 2016, Issue 27
  • ISSN : 1680-7537


The conventional wisdom in classical economics is that we humans are 'rational actors' who, by our nature, make decisions and behave in ways that maximise advantage and utility and minimise risk and costs. This theory has driven economic policy for generations despite daily anecdotal evidence that we are anything but rational, for example, in how we invest and what we buy. Economists who embrace this assumption seem to live by the maxim, "If the facts don't fit the theory, throw out the facts", attributed, ironically enough, to Albert Einstein. But any notion that we are, in fact, rational actors, was blown out of the water by Dr Daniel Kahneman, the winner of the 2002 Nobel Prize for economics, and his late colleague Amos Tversky. Their groundbreaking, if not rather intuitive, findings on cognitive biases have demonstrated quite unequivocally that humans make decisions and act in ways that are anything but rational.

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