In March 1979 the journal Econometrica published "Prospect Theory: An Analysis of Decision under Risk" by Daniel Kahneman and Amos Tversky. The paper offered a concrete, experimentally grounded alternative to the backbone of classical economics, expected utility theory. The picture Adam Smith sketched in 1776 and twentieth-century theorists made mathematical was simple: the actor has consistent preferences, weighs probabilities correctly, and treats a gain symmetrically with a loss of the same size. With nothing more elaborate than questionnaires given to university students, Kahneman and Tversky showed that this picture breaks down systematically.

Three findings stood out. Loss aversion: a loss of 100 units is felt, on average, about twice as painfully as a gain of 100 units. Framing effects: the same situation, presented as a "survival rate" or a "mortality rate," produces different choices — only the wording has changed. Anchoring: the reference point for a decision is often an irrelevant and arbitrary number. These three tendencies were not random misjudgments but measurable, predictable patterns.

The theory's influence spread slowly but deeply. From the 1980s onward Richard Thaler carried these findings into economic models; in the 1990s behavioral finance, public policy design and the law-and-economics field were partly rebuilt around them. In 2002 Kahneman received the Nobel Memorial Prize in Economic Sciences. (Tversky, having died in 1996, could not share it under Nobel rules; Kahneman emphasized in his lecture that the prize was jointly theirs.) In 2017 Thaler, who had carried the tradition forward, received the same prize.

Behavioral economics did not erase the rational actor that Smith had drawn; it placed a boundary around them. The deciding human was reframed not as a calculating machine but as a being who makes systematic mistakes — mistakes that can be described in a shared language of psychology and economics. That frame is visible today in everything from default settings for organ donation to automatic enrollment in retirement savings, from insurance design to public-health campaigns.