Thinking - Fast and Slow
Daniel Kahneman
Contributed by Larisa Brooke
Chapter 26

This chapter is a rather continuation of the previous chapter and focuses on wealth as a factor with which the mind is conscious. Kahneman acknowledges the research of renowned economists such as Harry Markowitz, from whom he borrows the theory of wealth. The author highlights the manner in which the mind assesses outcomes, particularly in wealth. Kahneman offers an analysis of three approaches to explain the underlying factors of his philosophy. They include loss aversion, diminishing sensitivity, and the adaptive concept.


The prospect theory is crucial in explaining the tendency of people to be willing to take risks when they are in unfavorable circumstances. The author offers the argument as a criticism to the Bernoulli’s concept. Usually, people use the status quo as a reference of wealth, whereby if they achieve lower than the reference, then that is regarded as a loss. Conversely, should they reach a financial situation higher than the reference point, then that is seen as gain.

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