What background knowledge is needed to understand the book?

Mostly, not a lot. An acquaintance with basic concepts of psychology helps, and occasionally the reader is asked to do a little arithmetic. The only part of the book that gets somewhat technical is the first part of Part IV, Chapters 25–29, which detail the ways in which prospect theory differs from expected utility theory. 

How literally should Kahneman’s talk of System 1 and System 2 be taken?

Not very. In the Conclusions chapter, Kahneman calls them “fictitious characters” that “do not really exist in the brain or anywhere else.” System 1 and System 2 are shorthand names for styles of thought (and associated physical symptoms like dilated pupils). The reason Kahneman regularly refers to Systems 1 and 2, and occasionally suggests that we each identify with our System 2, is that this makes his points easier to state clearly and memorably.

How does prospect theory challenge the conventional wisdom in economics?

An introductory course in economics normally models human beings as rational expected-utility maximizers—that is, as logical creatures who make choices by gauging the benefit, or utility, to be expected from each option and then selecting an option whose expected benefit is as great as possible. This mathematically flavored analysis of human choice is accompanied by graphs and theorems. According to prospect theory, on the other hand, real human choice doesn’t operate like that and in general is messier than expected utility theory allows for. For example, a real person will assess the same two options very differently depending on how the options are described; this is called the framing effect. In Chapter 26 Kahneman admits to being pained, sometimes, by the omission of prospect theory from introductory economics texts. However, he believes the omission is for the best, since it is hard enough to learn the basics of a discipline without being distracted by a competing set of ideas.

Which ideas in the book are Kahneman’s and which are Tversky’s?

Even Kahneman likely could not have said for sure. The 14-year collaboration of the two men, described in the book’s Introduction, was unusually, maybe uniquely close, to the point that ownership of the ideas would have been impossible to untangle. But the two men did bring different, complementary perspectives to their work together. Tversky was more theoretically and mathematically minded, and also more confident. Kahneman, by his own account, was more intuitive and more given to doubt, especially self-doubt. The combination of Tversky’s tendency to push forward and Kahneman’s habit of circling back to close loopholes and tie up loose ends was enormously fruitful. (See more about Kahneman and Tversky’s partnership in this brief essay.)

How widely accepted are Kahneman’s ideas?

In general, the book has been very well-received, as were the findings of Kahneman and Tversky’s research in the decades prior to the book’s 2011 publication. But in spite of the fact that Kahneman was awarded the Nobel Prize for Economics in 2002 largely for the research described in the book, not everyone agrees with its conclusions. In Chapter 22, Kahneman mentions proponents of Naturalistic Decision Making as disagreeing with him. Some of Kahneman’s critics have complained that at least some of his conclusions are not based on careful, replicable studies. Regarding one chapter, Kahneman himself acknowledged this to be a concern (see the last paragraph of this brief essay).

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