Daniel Bernoulli Character Analysis in Thinking, Fast and Slow

A Swiss mathematician remembered most for his pioneering work in probability and statistics. Bernoulli developed utility theory in 1738, which demonstrated that the utility of money and the state of one’s wealth is more important than its intrinsic value (i.e., a gift of 10 ducats has the same utility to someone with 100 ducats as 20 ducats has to someone with 200 ducats). Kahneman and Tversky adapted utility theory and addressed some of its flaws in creating prospect theory.

Daniel Bernoulli Character Timeline in Thinking, Fast and Slow

The timeline below shows where the character Daniel Bernoulli appears in Thinking, Fast and Slow. The colored dots and icons indicate which themes are associated with that appearance.

In 1738, Swiss scientist Daniel Bernoulli investigated the relationship between the psychological value of money (its utility) and the actual amount... (full context)

Bernoulli disproved the assumptions of his day, which is that gambles are assessed by their expected... (full context)

Bernoulli created a table (shown on page 273) that calculated the utility of different amounts of... (full context)

Bernoulli’s essay explains why poor people buy insurance and why rich people sell it: the loss... (full context)

But Bernoulli’s theory has a major flaw. It assumes that the utility of one’s wealth is what... (full context)

Another flaw in Bernoulli’s theory is found in this example: Anthony’s current wealth is 1 million. Betty’s wealth is... (full context)

Human Fallibility and Overconfidence Theme Icon

Kahneman discovered the flaws in Bernoulli’s theory because he noticed that gambles were often spoken of in terms of a few... (full context)

...this drives people to take the risk. People become risk-seeking when all options are bad. Bernoulli’s theory did not have a way to accommodate this difference. (full context)

Intuition, Deliberation, and Laziness Theme Icon

...$500 for sure. In both problems, the final states of wealth are identical. According to Bernoulli’s theory, people should have the same preferences in both. In reality, people are risk-averse in... (full context)

Kahneman points out another flaw in Bernoulli’s theory, proved by Matthew Rabin in 2000. He notes that most Humans reject this gamble:... (full context)

Stories and Subjectivity vs. Statistics and Objectivity Theme Icon

In Bernoulli’s theory, gambles were assessed by their expected value—the average of each outcome, weighted by the... (full context)