Nobel Prize-Winning Psychologist Daniel Kahneman on Businesses that Make Rational Decisions

Last month, I interviewed psychologist Daniel Kahneman, who won the Nobel Prize in economics in 2002 and recently authored the book Thinking, Fast and Slow.

Kahneman is one of the world's leading experts on the science of decision-making. So I asked an obvious question: Have any businesses impressed him for having systems in place to make good decisions? Here's what he had to say (transcript follows):

Dr. Kahneman: I think even within businesses there are some domains where they are acting rationally, and other domains where they may not be. So it's very clear, for example, that oil businesses have developed very good ways of deciding about when to drill, so they've worked that into a science, and there is a decision analysis, and I'm sure they're doing it well. There are other decisions that I'm not at all sure they're doing well. And so the more important, the more unique the decisions are, the more difficult it becomes to have a set of procedures that guarantee the best possible, I call that quality control over decision making.

I haven't counted, and I don't want to name them, but I haven't counted some venture capital firms that I think are doing a very good job of trying to think through their biases, and in picking businesses, and in picking start-ups. They have worked out what their errors are likely to be and what other mechanisms to control for these errors. This is feasible; it can be done. It's surprising, actually, how few organizations do that systematically.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2421093, ~/Articles/ArticleHandler.aspx, 9/29/2016 2:47:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,339.24 110.94 0.61%
S&P 500 2,171.37 11.44 0.53%
NASD 5,318.55 12.84 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes