Financial Learnings from Late Mr. Daniel Kahneman

Daniel Kahneman, Israeli American economist, passed away at age of 90.
May his soul rest in peace!
Kahneman is best known for his work on Prospect Theory.

March 28, renowned Daniel Kahneman, who was ninety years old, passed away. In realm of finance, there aren't many role models, but he was unusual exception. He is one of my heroes, in my opinion.

Together with his long-time partner Amos Tversky, he was true outlaw who brought humanity to otherwise impersonal & gloomy world of banking. He was awarded 2002 Nobel Memorial Prize in Economic Sciences for demonstrating fact that human beings do not always act in their own best interests. Up until that point, notion that people are logical beings who act in their own best interests led economists & finance experts to write eloquent & fancy theories.

His research on human judgment & decision-making turned conventional thought on its head & ignited behavioural revolution in finance & economics.

His work demonstrated to us all that financial & economics worlds were trapped in simulation akin to Truman Show; it was like taking knife & ripping fabric of reality. peculiar thing is that, while not being expert in finance or economics, his contributions significantly altered both fields.

I owe debt of gratitude to Danny, as he was affectionately nicknamed, as he has had profoundly positive impact on how I see finance. 

As soon as I began studying markets, I experienced "yeno maga idu" moment. It's Kannada expression that means "What is this, bro? reason I experienced this was that while I studied fundamentals of markets, I witnessed some of most intelligent people acting incredibly foolishly. I was unable to comprehend this. My perspective on finance was completely altered when I discovered fascinating & subversive field of behavioural finance through my further education.
Since learning about my colleague's passing last night, I've been considering what to write. I have nothing more to offer to myriad well-deserved obituaries & summaries of his work that will already exist. Then it dawned on me: Daniel Kahneman is always associated with two things.

Top 10 Finance Learnings from Daniel Kahneman's Wisdom of Life  

1. Humanizing Finance
Kahneman, along with his collaborator Amos Tversky, humanized abstract world of finance by showing that humans don't always make rational decisions in their self-interest. This fundamental insight reshaped how we understand & approach financial decision-making.
2. Behavioural Revolution
His work kick-started behavioural revolution in economics & finance, challenging conventional wisdom & upending traditional economic theories that assumed humans always acted rationally.
3. Complexity of Humanity
Through personal anecdotes & research, Kahneman emphasized complexity of human nature. His childhood experience with German soldier taught him that people are endlessly complicated & interesting, capable of both unspeakable acts & extraordinary kindness.
4. Perspective on Importance
Kahneman's quote, "Nothing in life is as important as you think it is, while you are thinking about it," serves as reminder to maintain perspective, especially during market fluctuations when emotions can run high.
5. Understanding Market Behavior
Despite not having read his renowned book "Thinking, Fast & Slow," Kahneman's insights into human behaviour helped individuals like author gain deeper understanding of market behaviour, particularly during periods of volatility.
6. Recognition of Limits 
Kahneman's work highlighted limitations of human cognition & decision-making processes, challenging assumption of perfect rationality in economic models.
7. Legacy of Humility
Despite replication crisis & controversies surrounding behavioral economics, Kahneman's humility in acknowledging field's shortcomings serves as reminder to approach even dissenting views with respect.
8. Focus on Real-World Applications
Despite criticisms, behavioural economics has led to tangible benefits in policy-making & financial advising, emphasizing importance of real-world applications & practical frameworks.
9. Shift towards Human-Centric Finance
Kahneman's greatest legacy lies in his contribution to making finance more humane, shifting focus towards understanding & accommodating human behavior in financial decision-making processes.
10. Unpredictability & Explanation
Lastly, Kahneman's insight into unpredictability of future contrasts with ease of explaining past. This serves as cautionary reminder for investors to avoid overconfidence in their ability to predict future market movements based solely on past explanations.

To Summarize

Daniel Kahneman's wisdom transcended boundaries of economics & finance, leaving indelible mark on how we understand human behaviour & decision-making in financial world.