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It is worth noting that Daniel Kahneman and Amos Tversky are the fathers of modern-day behavioral economics. Their biggest contribution is called Prospect Theory. It goes against everything they teach you in Econ 101 -- the expected utility theory is wrong.

Kahneman won a noble prize in Economics for his work. Sadly, Tversky passed away in 1996 before he could be awarded.

Prospect Theory: http://en.wikipedia.org/wiki/Prospect_theory

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> It goes against everything they teach you in Econ 101 -- the expected utility theory is wrong.

I was rather under the impression that prospect theory was descriptive and not normative. Prospect theory ain't gonna save you and your hyperbolic discounting from being money-pumped, and one of the interesting bits of Ainslie's book, IIRC, was discussing how economic incentives and penalties did shift people closer to normatively-correct discounting and away from preference reversals.

This is a great example why understanding Math is important. It can even help you understand psychological aspects like, why we make the choices we make.

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