Neglect of Probability

Daniel Kahneman and Amos Tversky identified "insensitivity to prior probability" in 1973, later called base rate neglect, describing people's tendency to underweight statistical information. Their 1979 prospect theory formalized probability weighting, showing people systematically overweight small probabilities (catastrophizing rare events) while underweighting large ones. This work, foundational to behavioral economics, challenged rational actor models and earned Kahneman the Nobel Prize in 2002.