Thinking fast and slow about valuations

The world recently learned of the passing of Daniel Kahneman, the psychologist who revolutionised economics, along with Amos Tversky and other collaborators. He was awarded the economics Nobel Prize in 2002 for his studies on decision-making. He showed that, unlike the traditional models of very rational economic actors, humans are prone to making systemic judgement errors. People are biased in how they make decisions; they make the same mistakes repeatedly, across time and cultural context. This is not merely a matter of emotions – such as fear and greed – getting in the way. These biases consistently creep in due to the use of mental shortcuts and compartmentalisation. It is just the way our brains are wired.

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