ABSTRACT

One way to see how valuable cross-fertilization can be is to examine areas of knowledge that have recognized the need for greater exchange between them but have been unable to achieve it. Psychology and economics—or, more accurately, experimental cognitive psychology and formal microeconomic theory—provide an excellent example. The discipline of economics is the proud owner of the most powerful, and the most widely shared, paradigm in the social sciences. The psychologists Daniel Kahnemann and Amos Tversky are major figures in the new area of cross-fertilizing such findings from experimental psychology with the assumptions of formal economic theory. The psychological finding that “framing” affects decisions also has profound implications for economics. Psychology, by attacking the foundations of the rationality paradigm, is a dangerous partner for economics. Economics, by arguing that outcomes can be understood without reference to cognitive process, is no less dangerous for psychology.