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modern · 1934 to 2024 and 1937 to 1996
Game theory assumed rational players. Two psychologists spent decades documenting the systematic ways real people are not rational, and rebuilt the theory of decision on how humans actually choose.
Facts reviewed 2026-07-11.
Daniel Kahneman and Amos Tversky were psychologists whose long collaboration reshaped economics and decision theory. Working together for decades, they ran careful experiments showing that human judgment departs from the rational ideal not randomly but systematically, in predictable, repeatable ways that could themselves be mapped.
The classical theory of choice, including the expected-utility framework at the base of game theory, assumed people weigh probabilities and outcomes consistently. Kahneman and Tversky showed, again and again, that they do not, and that the deviations follow rules.
Their prospect theory, published in 1979, replaced the assumption of rational utility maximization with a description of how people actually evaluate risky choices. People feel losses more sharply than equivalent gains, judge outcomes relative to a reference point rather than in absolute terms, and distort probabilities, overweighting the rare and underweighting the near-certain. These are not errors to be corrected away; they are the stable architecture of human choice.