Phishing for Phools
By Shlomo Maital
Robert Shiller & George Akerlof
It is really bad journalism to write about a book without reading it. But I’m going to do it anyway, based on an excellent London Review of Books article by John Lanchester. The book is George Akerlof and Robert Shiller’s Phishing for Phools (Princeton, £16.95). My friend Peter Dougherty, who heads Princeton University Press, has come up with yet another great economics book. I plan to read it very soon.
Shiller and Akerlof are Economics Nobel Prize Winners – Shiller, in 2013, for pioneering work in behavioral finance, and Akerlof, in 2001, for his insightful and unconventional microeconomics research. When two create unconventional thinkers like these put their heads together, and write fearlessly, the results have to be good.
Here is an excerpt from Lanchester’s review:
“Phishing for Phools is about ‘the economics of manipulation and deception’. Akerlof and Shiller aren’t using the word ‘phishing’ in the sense in which it’s usually employed…. Here, they use ‘phishing’ to mean ‘getting people to do things that are in the interest of the phisherman, but not in the interest of the target’. A phool is someone who has been successfully phished. If you buy a two-quid packet of ibuprofen, [instead of one that costs 35 pence, a generic package]…..that’s you.”
“Conventional economics struggles to deal with phenomena such as this. Why would rational consumers making rational decisions to ‘maximize their utility’ pay seven times more than they need to for anything? You could bodge together an argument that it’s rational by claiming that the branded version of the drug is safer and more trustworthy – but, truthfully, in a regulated developed market, that’s bullshit. For non-economists, the explanation is perfectly obvious. Somebody is – perfectly legally – trying to rip us off.”
“They talk about the Age of Reform, from 1890 to 1940, and the proof it provided that ‘government, used effectively, can be genuinely beneficial.’ This was replaced by what they call the New Story, beginning with Ronald Reagan’s statement in his first Inaugural: ‘In this present crisis, government is not the solution to our problem; government is the problem.’ The New Story is Akerlof and Shiller’s term for the whole anti-government, anti-regulation, neoliberal narrative in American politics and economics. It is, they argue, just another phish, whose characterization of the economy and of US history is wrong.”
So, have Americans simply been fed a wholly wrong, misleading view of history? Are the government regulators the heroes, preventing phools and phishing, rather than the goats? Do we need more regulation rather than less? Do we need regulators to protect ourselves against ourselves, as the authors show, when we tell ourselves wholly false stories that play into the hands of the manipulators? Let’s keep this in mind, as efforts proceed apace to weaken or destroy the 2009 Dodd-Frank Law.