The Economics of Manipulation and Deception - Phishing for Phools

Akerlof and Shiller are smart guys, OK? Smarter than I am, I'm sure. And I think there is an idea here somewhere. The idea is that Adam Smith is not quite right, We don't make economic decisions in out own best interest but on the basis of emotions and stories we tell ourselves. And further, other people are aware of this and will try to take advantage of us (phish us) accordingly. In other words - Buyer Beware.

OK. I think we knew that. So now what?

But let's get to the specifics. They have some examples. Let's see,

Cinnabon
Akerlof and Shiller point out that Cinnabon breakfast roll chain puts it's outlets in places like airports where people are bored, stressed, and hungry. The smell of coffee and cinnamon is very enticing and so customers are tempted to buy the buns which are too high calorie for Akerlof's and Schiller's taste. So the evil Cinnabon is "Phishing" the "Phool" customers who would buy something else if they knew what was truly good for them.

Or Cinnabon is providing something customers want, a delicious snack every now and then. I'm not sure I see the problem, but Akerlof and Shiller are free to set up a "Boiled Broccoli is Us" stand in the New Haven airport and test their theory.

Printers
Printers are cheap. Ink is expensive. Therefore the printer companies are "Phishing" us for "Phools".

I own a perfectly reliable color wireless printer that scans, faxes, copies, collates, and puts out photo quality output. It took three minutes to install. It cost $150. An ink cartridge set costs $99. I wish the ink was cheaper but I only buy ink once a year.so to me, it's a tremendous value. A printer like that would have cost thousands not so many years ago,

If I printed more, I would pay more attention to the ink cost, and as it turns out, Epsom sells a refillable ink printer for $300 whose ink costs are far less. Another tremendous value.

So the free market is continually lowering costs, raising quality, and providing people with choices - lower initial costs for people that only print a little, lower per page costs for people who print a lot. Again, I'm not sure I see the problem.

Vioxx
Merck developed a drug for people with chronic pain. It's similar to aspirin but doesn't have the side effect of degrading the stomach lining. This was great for the large number of people who live with severe chronic pain but who were also sensitive to the side effect.

Trouble was, there was another side effect. When used for long periods, Vioxx carried a small but significant risk of stroke and heart attack and was taken off the market.

Akerlof and Shiller present this as a morality tale where an evil and greedy corporation does its customers to death in order to make a buck.

From their recounting, it sounds like Merck has a lot to be embarrassed about, but what is missing here is a discussion of the trade-offs. For example, if I were 80 and in severe pain from arthritis, I would gladly accept a slight risk of heart attack in return for relief from pain. Now, when I am 80 and in severe pain, I won't have that choice.

Reading the book, I kept waiting for the call to regulate literally everything with a giant federal bureaucracy that (guided by wise, benevolent, and richly compensated college professors) would make sure that we would always make the decision that was truly good for us rather than the decision that just seemed good for us. Fortunately they don't go that far.

Which leaves us with "Buyer Beware". It's good advice.

I was the sucker for paying full the store price for "Phishing for Phools" based on the reputations (see chapter two) of the authors. I was expecting some nontrivial economic theory. But most of the content is either obvious (except to a few economists blinded by ideology) or readily available in greater depth in other books and articles on topics such as the Great Recession, salesmanship, marketing (fraudulent and otherwise), addiction, mass murder, cognitive biases, how to win friends and influence people, and so on.

If you are unfamiliar with most of the topics in the table of contents, you may find the book a useful introduction. Otherwise, many books that are less shallow are available on these topics.

The following is a review of MP3 audiobook version of this work.

This book consists primarily of case studies illustrating transactions that end up enriching the seller while impoverishing the buyer/user due to what most people would consider unethical behavior. The telling of these stories accounts for roughly 130 or so pages of the books about 170 page length. These stories include financial rating agencies providing triple AAA ratings to financial instruments that were actually junk, misleading advertising, tobacco and alcohol industries’ attempts to silence health critics in the 20th century, etc. The big problem is that these stories have been told a million before and the authors do not provide any novel insight or analysis. For anyone but the most ignorant of these facts, basically anyone who has not picked up a real newspaper in decades, there is nothing to be gained by reading most of the book. This is the biggest problem with the book.

A second criticism of the book is the author’s solution. They point out, correctly, that some regulation in the past did go far in assisting the public (i.e., Food and Drug Agency requirements on ethical drug efficacy, etc.) and that some regulation could have helped mitigated the post 2008 economic crisis (i.e., higher reserve requirements for banks, better oversight of rating agencies, etc.). Again, these criticisms are not new. They too have been made many, many times before.

A third problem is that the author’s solution of more regulation also has limits. Regulatory agencies can be “captured” by the groups they are regulated for example. Laws and regulations can end up becoming too expensive relative to the benefits. There could end up contradictory laws and regulations that end up making things worse. Laws and regulations could be stretched in unexpected ways to defeat their purpose or even to be used against the consumers they are intended to protect. In short, there is a fine line between decent cost effective regulations that protect the public and those that are excessively burdensome (to both sellers and buyers), do not fulfill their functions or have serious unintended negative consequences. Unfortunately the book does a very job at pointing out these problems and delineating this line.

For the above reasons this book is of practically no value to those with economic and finance backgrounds and only of value to that lay audience that has not heard the many stories that most of the book consists of (probably not that many people). Hence a very disappointing book, especially given the fact it was written by two Nobel Prizing winning economists. On the positive side the audiobook is well read, never monotone and not overly dramatic. Unfortunately this does not make up for its fatal weaknesses.

The recent discovery that VW was rigging emission testing for its diesel-powered vehicles should convince most people that businessmen can't always be trusted; worse yet, if one gets away with such, market pressures push the rest to do likewise. And that's a major point that Akerlof and Shiller want to make - our free-market systems tends to spawn manipulation and deception. They both support free-markets, but also believe consumers, regulators, and others need to better understand how 'sharp' players sometimes manipulate the system. the book is about how phishermen get people to do things that are in the interest of the phishermen, not in the interest of the target. There are so many and they are so ingenious that we all ge caught sooner or later. Psychological phools misinterpret reality and act on that misinterpretation (eg. gambling addicts), while information phools act on information intentionally crafted to mislead them (eg. Enron stockholders). Four areas create widespread unwanted outcomes - 1)personal financial security, 2)the economy as a whole, 3)our health, and 4)the quality of government.

1)Even if we are careful 99% of the time, when we act as if 'money does not matter,' the remaining 1% of the time can bring our undoing. Businesses are well aware of those 1% moments - when love or other motivation trumps budgetary caution. Christmas, weddings, funerals, births. Wee are especially pone to pay too much when we step outside our comfort zone to make a rare, expensive purchase - eg. a home or car.

2)In a boom that precede a crash, phishers convince buyers that 'this time is different.' True, each time it is different, but also each time is also the same.

3)Drug manufacturers have more than a century of learning how to get past the FDA and doctors. Some drugs are no more than marginally beneficial, a few genuinely harmful (eg. Vioxx - estimated to have caused 26,000 - 56,000 U.S. deaths from 1999 to 2004.) And then there are all the obese Americans (36%), those who still smoke, and drinkers.

4)Politics is vulnerable to the simplest phish - politicians silently gather money from the Interests, and use that money to show that they are 'just one of the folks.' It is impossible for voters to know when a politician deviates from their true wishes regarding much legislation.

Cinnabon undermines our plans to eat healthy. Health clubs - 80% of clients in the Boston area would have paid less if they did so by the visit (saving $600/year), vs. monthly with automatic rollover ($1,400). Further, only 75 of those clubs accepted cancellation by phone. Taking advantage of loss aversion - scheduling prospective buyers at the same time generated fear they other guy might get -his' car.

In 2010 the median U.S. working-age family had less than one month's income in cash, checking, savings, and/or money-market accounts, and the median direct holdings of stocks or bonds was zero. A study using British diaries of spending found expenditures down 185 in the last week of the month (when workers were paid monthly) -compared to the first week following payday. Some 30% of households say they have resorted to super-high-interest borrowing at least once oer the past 5 years, and in 2009, 2.5^ of households reported having gone bankrupt in the past two years (mostly pre-Crash). (Authors estimated 20%+ go bankrupt at some point in their adult lives.) The annual eviction rate during 2003-07 in Milwaukee was 2.7%.

The reputation of investment banks up until about the 1970s emphasized trust - eg. its representative was the trusted friend of CFOs and would advise them on Wall Street matters; other investment banks also trusted the lead investment bank and would share in stock/bond placements. If the deal (company) soured (eg. Penn Central bankruptcy less than a year after issuing bonds), that investment bank was at risk for misleading issue buyers.

In 1970, Goldman belonged to its partners, then went public by 1999. It now is no longer overwhelmingly about underwriting - now trades on its own account, manages hedge funds, creates/packages new derivative securities. Also takes in large overnight deposits.

Creating the 'Great Recession:' High ratings on mortgage-backed securities made mortgages more available and helped along the rise in home prices and low defaults. Instead of selling packages of securities directly, they sold packages in different slices. Moody's gave 45,000 mortgage-related securities an AAA rating (2000 - 2007), vs. only 6 U.S. companies similarly rated in 2010. Credit default swaps (CDSs) paid the owner of the swap the face value of the asset upon default, who then gave the swap to the insurer. This created the illusion that one could convert a possibly totally rotten security into one totally safe - as long as AIG remained solvent. AIG, however, was issuing these CDSs at bargain-basement rates.

It seems that the capitalist world is divided into two kinds of people: phishers and phools. Those who phish look for leverage and advantage and milk it; the phools pay for it, even when they don’t need to, don’t want to, and can’t afford to. The result is financial crises, on the national level, the local level and the individual level. And it never stops. We buy too much, we buy the wrong things, and we overpay all the time. Shiller and Akerlof say the very first phool was Eve. The serpent phished her into taking something she did not want, did not need, and which she knew in advance she should not take. The cost was going to be too high. So it has been ever since, whether it’s cable bundles or junk bonds.

There’s a lot going on in this little book. It ranges from individual (struggling) bill payers to government lobbyists, drug marketing and financial services. It is of necessity cursory, and therefore incomplete. In the chapter on credit cards, which treats both merchants and consumers as phools, spending $150 billion annually for the privilege, the authors neglect the fact that to use cash is even worse. While true that credit card users tip more and spend more freely, it is also true stores price in the cost of credit cards and the premiums they give to holders. So paying cash means paying more than we should, making us even bigger phools. Similarly the War on Cancer assumes cancer is internally sourced, making it difficult if not impossible to overcome. That’s because the focus is on treatment. But even the UN says 75% of cancers today are environmental, not genetic; they can be prevented. We can reduce cancer by a whopping 75% by not polluting ourselves, our food, our air, water and soil. The phoolish analysis is leading us to the pill phishers.

“Government is the problem” is a phish for phools, the authors say. It is not only taken out of a very specific context, it diverts attention from the scammers to the government agencies that protect us from the scammers, be they financial, consumer, chemical or environmental. This is diversion and diversion is the number one tool of phishing. The book is an entertaining litany of blatant and subtle examples. Caveat emptor is still the order of the day.

The last word should go to Robert Benchley, who also said the world is divided into two kinds of people: those who divide the world into two kinds of people, and those who don’t.

David Wineberg

George Akerloff and Bob Shiller's “Phishing for Phools: The Economics of Manipulation and Deceit” essentially argues that since most economic actors have incomplete information and that there are rewards for hiding information from buyers and sellers, the free market cannot lead to optimal outcomes. While technically the authors may be right, in practical terms, optimizing is probably the wrong framework for any discussion involving behavioral economics. Most of us probably are not concerned with the outcomes being optimal. We are really only concerned with it being not clearly sub-optimal, i.e., we “satisifice” not optimize.

The proof points the authors use have significant persuasive content. For example, I enjoyed the discussion of how owning a credit card leads us to spend more than we would otherwise spend if we had to pay cash. But it seems to me they have ignored the huge field of information economics, whereby buyers and sellers have addressed the issues of incomplete information and information search by creating all kinds of products aimed at protecting themselves from being phished for phools. For example, the readers’ book reviews on the store offer information that will persuade or dissuade potential buyers of this book. For certain, these information-related tools may not be ideal and may in fact be manipulated – in much the same way as the financial instrument rating agencies were compromised. In addition, the authors pay scant attention to the greatest of information search tools, experience. That individuals have been phished and made phools of once is not as important as understanding how they respond to being phished for phools or making a poor decision.

I see three primary flaws. First, the authors are “guilty” of that which they accuse others. The book seeks to unreflexively persuade you that their thesis is correct and that like salesmen or lobbyists they have carefully tailored their message to make it look as though their arguments are trustworthy, complete, accurate, incontrovertible and overwhelming. It is, therefore, as manipulative and deceptive as the marketer who positions impulse items at the cash register or uses attractive people to sell beer and cigarettes. I looked in vain for the counter-arguments that would at least dilute their arguments or offer alternative explanations. I thought of many in each segment of their book from behavior when confronted with a queue in the supermarket to purchasing a car or home.

The second flaw is that the authors appear to see a significant portion of economic actors as serial “phools” without ever demonstrating or quantifying this tendency. Don’t get me wrong. There are consumers who, from my perspective and even their own, make foolish buying decisions or, at least, buying decisions that I would not make. But this is dangerous ground for economists and psychologists: technically it is termed the inter-subjectivity of individual preferences. In almost every economic transaction, it is possible to argue that someone has been “phished for a phool”. For the authors anyone who pays more for something than they would is a “phool”. This is an old issue that economists have addressed by essentially taking individual preferences, phoolish or not, as givens.

The third flaw is derivative of the first two and is that they raise so many topics but never fully address them. Some are very rich topics like political lobbying and the use or abuse of credit cards. Their arguments are ultimately, like advertisements, sound bites that selectively present information. Let’s explore the use of credit cards. Credit cards have significant costs to both consumers and retailers, especially if the users are lazy or careless. But credit cards have significant functional value for users that I would argue significantly off-set their overt and hidden costs. How do we know this? Well, many cards now charge an annual fee for simply holding the card. My credit card company just changed its terms and now charges $95 for holding on to the card. My first reaction was to reject this fee as unwarranted. Then I looked at the benefits offered for using the credit card. After carefully estimating the benefits against all the costs I decided that it was in fact worth $95. Am I a “phool”? Might some decline to pay $95? Certainly, especially if their monthly use is less than $800. On the other side of the exchange, retailers have choices among cash, checks and credit cards. Having been in retail for 25 years, I know of few retailers who do not prefer credit cards to checks, regardless of the 2-3% fee involved. Are they phools?

In short, Akerloff and Shiller’s argument is entertaining but seriously incomplete in a way that allows them to tailor their message just like the lobbyists and salesmen they have little time for: They are phishing for phools. Fortunatley, the copy I read was from the library!

If you're looking for a collection of anecdotes demonstrating that people's choices in the market can be manipulated in many different ways, by all means read this book. If you're looking for a substitute to free choice that will yield consistently better results, you won't find one offered here (in my opinion because there isn't one). Schiller and Akerlof give lots and lots of examples to support their contention, but not one bit of research that will tell you how frequently this occurs. Given that we make millions of choices every day, how many of them are made sub-optimally because of these manipulations? 10%? 1% 1/10 of 1%? The authors give no answer (because they really don't know). And then there is the question of what sort of mechanism they would substitute for free choice. Should we prefer to allow the authors to "correct" manipulating information in the marketplace because they're wiser than we (they admit to being phooled themselves on occasion)? The veiled suggestion is that government should intervene here in many different ways. But government is perhaps the most manipulable institution there is. Even if you assume the Phishing is a huge, not minor, cost, why would you expect government not to be even less efficient? To choose their own favorite example, should someone (like the authors? government?) be empowered to prevent Cinnabons from locating its stores in places where we are most tempted to buy? Why? I can match the authors trove of anecdotes with my own anecdotes showing the the unintended consequences of government actions (ethanol mandates, anyone?)

This is the basic problem I have with behavioral economists. They are very good at demonstrating that markets don't function precisely as described by classical economics. But they fail to offer a model that yields consistently better results. Shiller and others have proven beyond a doubt that stock market prices do not always behave according the Efficient Markets Theory. Okay, now show me a set of rules that yields consistently better predictions. They can't. Academics rail against SAT scores because they do not measure other contributing success factors. Okay, but SAT scores are still an extremely good predictor of academic success in college. The Weather Bureau gives all sorts of bad forecasts that will spoil your picnic plans, but show me a system that is consistently more accurate?

The recent discovery that VW was rigging emission testing for its diesel-powered vehicles should convince most people that businessmen can't always be trusted; worse yet, if one gets away with such, market pressures push the rest to do likewise. And that's a major point that Akerlof and Shiller want to make - our free-market systems tends to spawn manipulation and deception. They both support free-markets, but also believe consumers, regulators, and others need to better understand how 'sharp' players sometimes manipulate the system. the book is about how phishermen get people to do things that are in the interest of the phishermen, not in the interest of the target. There are so many and they are so ingenious that we all ge caught sooner or later. Psychological phools misinterpret reality and act on that misinterpretation (eg. gambling addicts), while information phools act on information intentionally crafted to mislead them (eg. Enron stockholders). Four areas create widespread unwanted outcomes - 1)personal financial security, 2)the economy as a whole, 3)our health, and 4)the quality of government.

1)Even if we are careful 99% of the time, when we act as if 'money does not matter,' the remaining 1% of the time can bring our undoing. Businesses are well aware of those 1% moments - when love or other motivation trumps budgetary caution. Christmas, weddings, funerals, births. Wee are especially pone to pay too much when we step outside our comfort zone to make a rare, expensive purchase - eg. a home or car.

2)In a boom that precede a crash, phishers convince buyers that 'this time is different.' True, each time it is different, but also each time is also the same.

3)Drug manufacturers have more than a century of learning how to get past the FDA and doctors. Some drugs are no more than marginally beneficial, a few genuinely harmful (eg. Vioxx - estimated to have caused 26,000 - 56,000 U.S. deaths from 1999 to 2004.) And then there are all the obese Americans (36%), those who still smoke, and drinkers.

4)Politics is vulnerable to the simplest phish - politicians silently gather money from the Interests, and use that money to show that they are 'just one of the folks.' It is impossible for voters to know when a politician deviates from their true wishes regarding much legislation.

Cinnabon undermines our plans to eat healthy. Health clubs - 80% of clients in the Boston area would have paid less if they did so by the visit (saving $600/year), vs. monthly with automatic rollover ($1,400). Further, only 75 of those clubs accepted cancellation by phone. Taking advantage of loss aversion - scheduling prospective buyers at the same time generated fear they other guy might get -his' car.

In 2010 the median U.S. working-age family had less than one month's income in cash, checking, savings, and/or money-market accounts, and the median direct holdings of stocks or bonds was zero. A study using British diaries of spending found expenditures down 185 in the last week of the month (when workers were paid monthly) -compared to the first week following payday. Some 30% of households say they have resorted to super-high-interest borrowing at least once oer the past 5 years, and in 2009, 2.5^ of households reported having gone bankrupt in the past two years (mostly pre-Crash). (Authors estimated 20%+ go bankrupt at some point in their adult lives.) The annual eviction rate during 2003-07 in Milwaukee was 2.7%.

The reputation of investment banks up until about the 1970s emphasized trust - eg. its representative was the trusted friend of CFOs and would advise them on Wall Street matters; other investment banks also trusted the lead investment bank and would share in stock/bond placements. If the deal (company) soured (eg. Penn Central bankruptcy less than a year after issuing bonds), that investment bank was at risk for misleading issue buyers.

In 1970, Goldman belonged to its partners, then went public by 1999. It now is no longer overwhelmingly about underwriting - now trades on its own account, manages hedge funds, creates/packages new derivative securities. Also takes in large overnight deposits.

Creating the 'Great Recession:' High ratings on mortgage-backed securities made mortgages more available and helped along the rise in home prices and low defaults. Instead of selling packages of securities directly, they sold packages in different slices. Moody's gave 45,000 mortgage-related securities an AAA rating (2000 - 2007), vs. only 6 U.S. companies similarly rated in 2010. Credit default swaps (CDSs) paid the owner of the swap the face value of the asset upon default, who then gave the swap to the insurer. This created the illusion that one could convert a possibly totally rotten security into one totally safe - as long as AIG remained solvent. AIG, however, was issuing these CDSs at bargain-basement rates.

It seems that the capitalist world is divided into two kinds of people: phishers and phools. Those who phish look for leverage and advantage and milk it; the phools pay for it, even when they don’t need to, don’t want to, and can’t afford to. The result is financial crises, on the national level, the local level and the individual level. And it never stops. We buy too much, we buy the wrong things, and we overpay all the time. Shiller and Akerlof say the very first phool was Eve. The serpent phished her into taking something she did not want, did not need, and which she knew in advance she should not take. The cost was going to be too high. So it has been ever since, whether it’s cable bundles or junk bonds.

There’s a lot going on in this little book. It ranges from individual (struggling) bill payers to government lobbyists, drug marketing and financial services. It is of necessity cursory, and therefore incomplete. In the chapter on credit cards, which treats both merchants and consumers as phools, spending $150 billion annually for the privilege, the authors neglect the fact that to use cash is even worse. While true that credit card users tip more and spend more freely, it is also true stores price in the cost of credit cards and the premiums they give to holders. So paying cash means paying more than we should, making us even bigger phools. Similarly the War on Cancer assumes cancer is internally sourced, making it difficult if not impossible to overcome. That’s because the focus is on treatment. But even the UN says 75% of cancers today are environmental, not genetic; they can be prevented. We can reduce cancer by a whopping 75% by not polluting ourselves, our food, our air, water and soil. The phoolish analysis is leading us to the pill phishers.

“Government is the problem” is a phish for phools, the authors say. It is not only taken out of a very specific context, it diverts attention from the scammers to the government agencies that protect us from the scammers, be they financial, consumer, chemical or environmental. This is diversion and diversion is the number one tool of phishing. The book is an entertaining litany of blatant and subtle examples. Caveat emptor is still the order of the day.

The last word should go to Robert Benchley, who also said the world is divided into two kinds of people: those who divide the world into two kinds of people, and those who don’t.

David Wineberg

George Akerloff and Bob Shiller's “Phishing for Phools: The Economics of Manipulation and Deceit” essentially argues that since most economic actors have incomplete information and that there are rewards for hiding information from buyers and sellers, the free market cannot lead to optimal outcomes. While technically the authors may be right, in practical terms, optimizing is probably the wrong framework for any discussion involving behavioral economics. Most of us probably are not concerned with the outcomes being optimal. We are really only concerned with it being not clearly sub-optimal, i.e., we “satisifice” not optimize.

The proof points the authors use have significant persuasive content. For example, I enjoyed the discussion of how owning a credit card leads us to spend more than we would otherwise spend if we had to pay cash. But it seems to me they have ignored the huge field of information economics, whereby buyers and sellers have addressed the issues of incomplete information and information search by creating all kinds of products aimed at protecting themselves from being phished for phools. For example, the readers’ book reviews on the store offer information that will persuade or dissuade potential buyers of this book. For certain, these information-related tools may not be ideal and may in fact be manipulated – in much the same way as the financial instrument rating agencies were compromised. In addition, the authors pay scant attention to the greatest of information search tools, experience. That individuals have been phished and made phools of once is not as important as understanding how they respond to being phished for phools or making a poor decision.

I see three primary flaws. First, the authors are “guilty” of that which they accuse others. The book seeks to unreflexively persuade you that their thesis is correct and that like salesmen or lobbyists they have carefully tailored their message to make it look as though their arguments are trustworthy, complete, accurate, incontrovertible and overwhelming. It is, therefore, as manipulative and deceptive as the marketer who positions impulse items at the cash register or uses attractive people to sell beer and cigarettes. I looked in vain for the counter-arguments that would at least dilute their arguments or offer alternative explanations. I thought of many in each segment of their book from behavior when confronted with a queue in the supermarket to purchasing a car or home.

The second flaw is that the authors appear to see a significant portion of economic actors as serial “phools” without ever demonstrating or quantifying this tendency. Don’t get me wrong. There are consumers who, from my perspective and even their own, make foolish buying decisions or, at least, buying decisions that I would not make. But this is dangerous ground for economists and psychologists: technically it is termed the inter-subjectivity of individual preferences. In almost every economic transaction, it is possible to argue that someone has been “phished for a phool”. For the authors anyone who pays more for something than they would is a “phool”. This is an old issue that economists have addressed by essentially taking individual preferences, phoolish or not, as givens.

The third flaw is derivative of the first two and is that they raise so many topics but never fully address them. Some are very rich topics like political lobbying and the use or abuse of credit cards. Their arguments are ultimately, like advertisements, sound bites that selectively present information. Let’s explore the use of credit cards. Credit cards have significant costs to both consumers and retailers, especially if the users are lazy or careless. But credit cards have significant functional value for users that I would argue significantly off-set their overt and hidden costs. How do we know this? Well, many cards now charge an annual fee for simply holding the card. My credit card company just changed its terms and now charges $95 for holding on to the card. My first reaction was to reject this fee as unwarranted. Then I looked at the benefits offered for using the credit card. After carefully estimating the benefits against all the costs I decided that it was in fact worth $95. Am I a “phool”? Might some decline to pay $95? Certainly, especially if their monthly use is less than $800. On the other side of the exchange, retailers have choices among cash, checks and credit cards. Having been in retail for 25 years, I know of few retailers who do not prefer credit cards to checks, regardless of the 2-3% fee involved. Are they phools?

In short, Akerloff and Shiller’s argument is entertaining but seriously incomplete in a way that allows them to tailor their message just like the lobbyists and salesmen they have little time for: They are phishing for phools. Fortunatley, the copy I read was from the library!

If you're looking for a collection of anecdotes demonstrating that people's choices in the market can be manipulated in many different ways, by all means read this book. If you're looking for a substitute to free choice that will yield consistently better results, you won't find one offered here (in my opinion because there isn't one). Schiller and Akerlof give lots and lots of examples to support their contention, but not one bit of research that will tell you how frequently this occurs. Given that we make millions of choices every day, how many of them are made sub-optimally because of these manipulations? 10%? 1% 1/10 of 1%? The authors give no answer (because they really don't know). And then there is the question of what sort of mechanism they would substitute for free choice. Should we prefer to allow the authors to "correct" manipulating information in the marketplace because they're wiser than we (they admit to being phooled themselves on occasion)? The veiled suggestion is that government should intervene here in many different ways. But government is perhaps the most manipulable institution there is. Even if you assume the Phishing is a huge, not minor, cost, why would you expect government not to be even less efficient? To choose their own favorite example, should someone (like the authors? government?) be empowered to prevent Cinnabons from locating its stores in places where we are most tempted to buy? Why? I can match the authors trove of anecdotes with my own anecdotes showing the the unintended consequences of government actions (ethanol mandates, anyone?)

This is the basic problem I have with behavioral economists. They are very good at demonstrating that markets don't function precisely as described by classical economics. But they fail to offer a model that yields consistently better results. Shiller and others have proven beyond a doubt that stock market prices do not always behave according the Efficient Markets Theory. Okay, now show me a set of rules that yields consistently better predictions. They can't. Academics rail against SAT scores because they do not measure other contributing success factors. Okay, but SAT scores are still an extremely good predictor of academic success in college. The Weather Bureau gives all sorts of bad forecasts that will spoil your picnic plans, but show me a system that is consistently more accurate?

There’s a sucker born every minute. Whether circus promoter P.T. Barnum actually uttered those words is a matter of dispute. Yet there is reason to beware. Phishing for Phools is crammed with examples of beastly things intelligent evil doers do to unsuspecting, lazy, or naïve folks. And it’s these stories from personal finance, medicine, politics, banking, and commerce that make the book an informative read.

Phishing is generally thought of as illegal deception in an effort to commit internet fraud. Akerlof and Shiller take a wider view. Phishing for them is “getting people to do things that are in the interest of the phishermen, but not in the interest of the target.” So using their definition, phishing may or may not be illegal. But it’s something you want to watch out for.

If there is an opportunity to make a buck, someone will do so. This is normal economic behavior. The question is at what cost and to whom. The authors make it clear that they support free-market capitalism, but with reservations. While most people act honorably most of the time, free-market capitalism and democracy—by their nature—are vulnerable to phishing. Commercial regulation holds extremism in check and should be formulated in service of the public interest.

Ronald Reagan is often quoted from his first inaugural address saying, “…government is not the solution to our problem; government is the problem.” But what gets left out is “in this present crisis.” The missing qualifying words created a “new story.” The authors write that “government as problem” is a phish. They assert that regulation for the most part works. It’s not without its problems, but nor is democracy itself. Churchill once wrote that democracy is the worst form of government, except for all others that have been tried.

Forewarned may be forearmed, but only up to a point. Financial systems are so complex that no one individual can grasp what’s going on. This is where vulnerabilities reside. Without the time, expertise, and resources to evaluate situations for ourselves, we must rely on the expertise of others. That means the fuzzy concept of institutional trust.

Reputation matters. At one time, regulated financial institutions could be trusted and relied upon to operate within certain guidelines. Yet with deregulation short-term opportunities could now be exploited for great profit at the expense of the public or other parties. Akerlof and Shiller explain what reputation mining is, and how it contributed to the 2008 financial crisis.

The authors rehearse well-covered ground: the division between classical economics, where people are supposed to act rationally in their own best interests, and the newer perspective of behavioral economics, where emotionally-driven decisions are subject to unrecognized biases.
This isn’t a slap on Adam Smith’s “invisible hand” or a refutation of New Age touchy-feeliness. The conclusion is that we humans integrate both of these decision-making styles. Most readers familiar with classical and behavioral economics will have come to that conclusion long before picking up this book.

While the authors say the subject is serious, which it is, their aspiration is to make the book fun. Compared to a run-of-the-mill textbook on the ‘dismal science,’ it is readable. But it’s not a bundle of laughs, nor does it need to be. Graduate students excepted, no reader should be made to work to figure out what the authors are trying to say, and in places it does require some furrowing of the brow. Yet the book is structurally solid.

Phishing for Phools’ real value is in its well-researched examples. These make it a worthwhile read. Perhaps most pernicious is the story we tell ourselves. We can be easily deceived into focusing on stories that play up rewards while ignoring risks, as happened during the leverage buyout craze of the 1980s. Taking information at face value should be done with caution. We can have blind faith in authority such as FDA-approved drugs that only later turn out to have disastrous effects. Deception and manipulation are facts of life. Civil society is only as strong as its institutions. Almost 3,000 years ago, Thucydides wrote that the strong do what they can: the weak do what they must.

Without adequate public protections, the strong will always exploit the weak. No one wants to be played for a phool.

These authors assume that I need government protection against the big bad advertising industry. The book is not exactly wrong just simplistic and grossly overdrawn. Akerlof and Shiller are fine economists. Shiller, especially, is expert on the RE market and has the best view extant on the causes of the recent downturns. This book seems to show two very professional economists seeking a career change to amateur psychology as they extrapolate a few stories into the way of the world.
There is a simplistically realistic view of the myth of the USA as a rich country along with financial crises and nanny state guidance on fat, tobacco, alcohol and finally, bad government policy. Sections on campaign finance, home loans, bond ratings, pill pricing, etc present nothing new with this approach. Most corporate and government scams involve legal chicanery and pretended bureaucratic incompetence. Business and government cheat customers with impunity since amounts involved are too small to warrant a lawyer. Social programs are sold as being good for everyone. These writers endorse as many scams as they rail against.
There are contradictions throughout, starting with a poorly considered euphemism of slot machines for commercial phishing and ending in confusion between Pareto efficiency with cost-benefit for everyone and an easy fix of income equality through taxation.
Behavioral economics is much better written by Daniel Kahneman and Amos Tversky. Government trickery is covered in 'Nudge' by Richard Thaler and Cass Sunstein. The 'Freakanomics' series by Steven Levitt and S.J. Dubner has much better anecdotal depictions of social issues than this one.

Two Nobel prize winning economists combine to give a heads up on possible cons surrounding us, that are constantly trying to get us to use products that are not in our best long term interest. By phishing they mean getting someone to do or buy something, which often is legal, that is to the advantage of the seller, but not the buyer, who is called the phool. They give examples such as purchasing a Cinnabon, whose stores are usually located where we are waiting for something like a delayed flight. We have one want or desire which is to eat this bun that smells, tastes and looks good. We have a second desire for long term good health. The location and presentation of the buns make the first choice more likely. They call this first choice the monkey on the shoulder choice. They believe being ‘Free to Choose’ plus being constantly surrounded by planned temptations leads to serious long term problems. Many anecdotes are used to illustrate their points and to make it very interesting and easy to read. They provide great insights into the various financial crisis we have experienced.

The subprime crisis was largely due to rating agencies going from financially independent entities to accepting fees from the banks they were evaluating and this resulted in them becoming dependent on the fees. Companies and banks then made good evaluations and ratings of their bonds and mortgages a requirement for the fee. Ratings became much less accurate. Banks found they could more safely make mortgage loans if they owned them in widely separated geographical regions. This did spread their risk but it also meant they knew very little about these other mortgages. Financial engineers went further with these large groups of diverse mortgages. They divided them up into separate types of investments, called tranches, which vary from very safe to very speculative. The different tranches could be based on a low safe return to a very high unpredictable return - an almost infinite variety was possible. This made it very difficult to evaluate large groups of mortgages accurately as the combinations became more complicated.

In the advertising field individuals such as Lasker and Hopkins took an innovative, experimental approach. They would try different methods of advertising on a small scale and get feedback on how effective each method was. For instance they were the first to use coupons to allow customers to get a free bar of soap. Using different variations of advertising with different coupons they could just add the coupons they got back to see which method worked the best.

An interesting experiment involved buying cars using different people with the same background, home address, financial assets, but different race. They found that white men got the best deal, white women were quoted $246 more, black women $773 more, and black men an astounding $2026 more. Tricks that are used include concentrating on the monthly payment. If desired add-ons are made and then months are added to the length of the contract the monthly payment stays the same, but of course the total paid for the car has increased. Convincing buyers to use the dealer repair shop is very profitable over time.

Closing costs on houses are frequently inflated with unnecessary fees, and insurance on most household and electronic items are very profitable for the seller. Apparently most of us will pay more for almost anything when we pay with credit cards. As most of us have found, credit card bills can also include all kinds of extra add-ons and fees.

Successful politicians publicly favor policies that are important and popular with the typical voter and on which they are well-informed. On issues where potential campaign donors are interested and the public is less interested, politicians take a stance that the donors favor. Contributions from these special interest groups pay for ads for the general public. Lobbyists can perform a service on how to be more effective with both these goals. One of the games politicians can play it is to pass a law popular with the public, then cut way back on the funding to make powerful interests opposing the bill happy. They can simultaneously vote for and against the bill. Nice work if you can get it.

In the field of food and drug safety there are some problems. With a lot effective advertising, the food industry pushes prepared foods that are full of unhealthy sugar, fats, and salt, but taste good. The pharmaceutical Industry is very competitive and the problems they are trying to solve to create new drugs are difficult. As the situation stands currently, new drugs have to pass several stages of testing, also doctors have to know about the new medicine and be convinced it is worthwhile so they can prescribe it. Pharmaceutical companies heavily lobby lawmakers and the regulatory groups like the FDA to make the rules friendlier towards the new drugs. Perhaps the cleverest way that doctors are educated about a new drug and convinced to prescribe it to their patients, is to have the doctor present a paper on the drug at a meeting at a comfortable resort. There seems to be a natural effect that when a conscientious doctor thoroughly researches a new drug they become very interested in trying it with their patients. The drug companies supply some free samples, and with some positive results with the patients the doctor begins prescribing the new drug for their patients who will benefit from it. There doesn't appear to be any coercion from the drug companies. Yet the method gets drugs like Vioxx approved and used.

Vioxx is interesting since it was created to relieve pain effectively, and not cause any stomach distress like aspirin and other NSAIDs do. In about 1 % of the patients that take it over time it produces serious heart problems that has resulted in a number of deaths. This is about as serious as it gets, but it seems that for the other 99% all the patients got substantial pain relief without stomach problems as promised. It is it possible that if Merck had labeled Vioxx correctly or the FDA had forced them to label it so the susceptible patients would have been warned, then the rest of the 99% would have a useful medicine. The authors point out the drug regulatory system really didn't work with Vioxx causing the loss of over 20,000 lives.

The case for not smoking was helped by research done by independent academics and the Surgeon General showing the bad effects of smoking on many aspects of health. A court case that required some free radio and tv time to let opponents to smoking make their case, changed the image of smoking from being cool to being stupid. A large shift occurred resulting in many fewer smokers and a large percent of smokers now wanting to quit. An additional benefit was that nonsmokers are now protected from second hand smoke.

Alcohol is different since it has been shown that one or two drinks a day is healthy for most people. There are alcoholics who can’t stop drinking and wind up with serious health problems. Some research points to detrimental changes in personality possibly due to alcohol but that is hard to prove. The authors admit to a shortage of research on this negative effect of alcohol yet think it is foolish to not tax alcohol sales more heavily to decrease consumption.

The S&L crisis of 1986-95 was due to first the terrific increase in interest rates by Paul Volcker in bringing down inflation. This caused problems since the S&L’s had to pay much higher rates to attract deposits than could be covered by outstanding mortgages. Soon they were technically bankrupt and the invention of money market funds made them even less competitive since the money market funds could pay any interest rate while the were restricted by law. This interest rate limit was dropped for S&L’s with a lot effective advertising, and they could also include interest charges in the loan. In effect loans were free to contractors, since the interest payments were included in the loan, and soon this caused overbuilding. In many cases the money went to contractors friends, many went into bankruptcy with the government deposit insurance picking up the cost as insurers of the loans. As experts in money laundering the Mafia played a major role in this looting.

Michael Milken as a graduate student found that bonds of poorly rated companies did much better than highly rated bonds over time. This was mostly due to the higher interest rate and a surprisingly low level of default. As a natural storyteller and salesman he became very successful in selling these junk bonds that on average paid 3.5% more per year. He soon found that he needed more bonds. This led to Milken setting up loans so corporate raiders could take over companies. Loudly proclaiming the changes they would make such as, fire workers, raid the pension fund, etc., to improve returns. The money to do this came from the issuance of junk bonds paying much a higher interest. The thought was that most companies could easily afford the higher rates, especially after ‘improvements’. Milken was involved with many of the failed S&L’s.

The old bonds were from companies that were undergoing hard times, but many improved and only a few went bankrupt. Milkens' bonds had a much higher default rate, but it paid him $550 million in one year. The authors trace this as the start of the almost unbelievable pay hikes for higher management in most companies. This and the method of streamlining taken over companies by decreasing the wages of workers increases the wealth divide between the middle class and the richest. The junk bonds were used to finance the takeovers during the 1980’s, and was followed with more borrowed money that in turn produced many more bankruptcies.

The authors are unequivocal in their praise for actions taken world wide during the 2008- 2009 financial crisis by monetary authorities that prevented a calamity is bad as the depression of 1930s. The causes were many, but are perhaps best categorized as irrational exuberance of all involved.

On the other side, the heroes set up good regulatory and informative groups such as the Consumers Union who provide some information protection for those who are willing to do some research. Regulators are often influenced by the companies they regulate. Sometimes companies want regulations to protect themselves from competition. Other times they make adjustments so the regulations are ineffective. Overall effective regulation is necessary and takes vigilance.

Most schemes are set up to take advantage of at least one of our psychological behaviors. These are: we want to reciprocate gifts and favors; want to be nice to people we like; we do not want to disobey authority; we tend to follow others into deciding how to behave; we want our decisions to be internally consistent; we dislike taking losses more than making gains.

The US has gone through a number of cycles where government has greatly increased its affect on its citizens. For instance during the 1930’s Roosevelt setup social security. The authors consider this to be a very successful program. If social security were taken away the poverty rate of Americans over 65 would rise from 9% to 44%. Examples of massive changes initiated by government are many. For example Eisenhower started the interstate highway system and making segregation in schools illegal. During the 1960’s Kennedy started and Johnson completed civil rights legislation, and Medicare. Nixon started the EPA to protect the environment and oversaw massive increases in Social Security. During the Reagan terms we went back to thinking that government is the problem. Most of the regulations in the financial area that have been repealed have resulted in financial disasters. Deregulation does not bring out the best in the players formerly being regulated.

Shiller and Akerlof suggest to be financially independent over your entire life people should divide their take home pay into three parts: 50% for must-haves; 30% for desires; and 20% for short and long-term savings. The result of Social security, Medicare, and 80% home ownership by the age of 60, shows that people over 65 are in relatively good financial shape. The authors consider these to be very useful programs.

They conclude that our mental frame of mind and the way it is manipulated is very important in making economic decisions. It is the mental frames that underlie people’s decisions. This frame of mind still includes psychological biases that underlie dysfunctional decisions. The stories people are telling themselves creates a mental framework that allows us to make decisions. These stories can be manipulated by those who would profit from us making poor economic decisions. A completely different question is how can we be aware of the stories people are telling themselves or ourselves. If you do find the stories can you predict the outcome, can you find effective way to change or counteract dangerous stories? How would you test this idea?

A few examples of recent stories described by Shiller in a Jan 2016 article and how they changed are:
The Chinese economy is important to the US (though we export only 0.6/% of our GDP to China).

Fracking for oil and gas which rapidly made the US the number one World producer oil, and in the process is causing such a severe decline in prices for gas and oil that frackers are now going out of business.

This year set a record for poor performance of the stock market in the first week of the year. That timing has given the market-decline story wings, though there is really nothing special about such timing.

Many people missed the tripling of the stock market from 2008 to the present. Having made an error in missing this upward surge, they are now fearful of a possible major market decline.

They come in your email, those promises that look too good to be true. Like the one from a lawyer in Nairobi, the widow of a high-placed Government official from Uganda, the U.S. Army Sergeant in Afghanistan, even from Director James Comey of the FBI; all pledging hundreds of thousands or even millions of dollars just for the taking. By now you know the scam, called phishing, well enough to disregard them without even opening the emails. George A. Akerlof and Robert J. Shiller, both Co-Winners of the Nobel Prize in Economics in different years and professors of Economics at prestigious Ivy League universities, have taken the notion of phishing and moved it to the area of economics in their 288 hardcover “Phishing for Phools: The Economics of Manipulation and Deception.” This disarming title covers a fairly technical dossier purportedly for non-technical readers, “consumers…business people…government officials…volunteers…young people” (vii).

In “Phishing for Phools” the authors define phishing beyond email scams to those incidents where others get “people to do things that are in the interest of the phisherman, but not in the interest of the target” (xi); and they note that a phool is anyone who gets phished. By the end of the book it’s clear that every reader has been phished, and the authors also include themselves in the same category. We can be psychological phools, where our emotions have co-opted our common sense or our mental preconceptions bring us to misinterpret what is before us. Or we can be information phools who act on intentional misinformation. Akerlof and Shiller guide their audience through various samples of phishing that will be easiest to see: advertising, big-item purchases, “Phood, Pharma, and Phishing,” three sample innovations, tobacco and alcohol, bankruptcy and junk bonds, and a new national story in America.

The main point of the “Phishing for Phools” is to temper the euphoric notions that an unregulated free market is inherently a good thing, where there is an economic equilibrium that fosters everyone’s financial and existential wellbeing. Such a market has numerous benefits, bringing about prosperity and decent advances. But the author’s build the case that we as consumers are vulnerable to being phished, and therefore an unregulated free market incentivizes phishermen, for “if we have a weakness – if we have a way in which we are phishable – the phishermen will be there waiting” (171). Akerlof and Shiller are constructing the justification for incorporating (1) behavior, (2) the ubiquity of phishing and phoolishness, and (3) the significance of narrative on consumers’ decisions in analysis and projections of economic trends and conclusions. They propose, for example, that if these three characteristics had been in the economists’ tool kit, then they would have been more keenly aware and prepared for 2008 world financial crisis, and “would have sounded the alarm” (165). Since I am neither a professional, nor amateur, economist, some of the material and discussion went well beyond my comprehension; but I think I got the gist of their discussion.

“Phishing for Phools” was an informative exposé on how often, and in what ways, we get phished. Sometimes not too friendly to the non-technical, nevertheless the authors give readers fodder for reflection and consideration. It’s a book worth reading.

Lame. Could have been about the fact that capitalism is a blind optimizer, which can never tell us who we are or what we want, and which therefore must be contained and directed by regulatory dikes. Could have been about the fact that freedom and equality are contradictory. Could have been about regulatory capture. Could have been about interesting cases of market failure, or about Arrow’s Impossibility theorem and Schelling’s aggregation models. Could have systematically examined the causes of market failures. Instead, it was an apparently random list of times in history when various groups of economic participants lost money in dumb ways.

The authors of this book recognize that a free market economic system is a wonderful way of maximizing the innovation and efficiency that fuels economic growth and makes our lives better. When an opportunity exists to profit by satisfying unmet needs, free market equilibrium guarantees that someone will do so. A problem with the system, however, is that it provides the same rewards to anyone who can exploit deviations from the ideal or anything else which causes people to make choices that aren't in their best interests. Those making a profit don't even have to know how or why it works. All they have to do is try and the marketplace itself acts as a natural selection mechanism choosing the winners. Just as with productive endeavors, free market equilibrium insists that if an opportunity to profit off of exploitation exists then someone will eventually do it.

Classic economics treats this as being a pathological deviation from the proper functioning of the system, but the authors believe that this should be dealt with as an inherent attribute of any normal free-market economy. This seems to make sense, but there were several major weaknesses to their book. The first is the unfortunate choice of title. The activities they call "phishing" bear only the slightest resemblance to the internet definition of the term and it quickly becomes a source of constant annoyance as they unnecessarily repeat the title phrase throughout the book. The second problem is that they leave us confused as to what the scope of their definition of "phishing" actually is. At the beginning it sounds as if they are limiting themselves to exploitation of such things as information asymmetry, psychological weaknesses (such as addiction) and faulty heuristics. As they begin providing examples, however, it seems that "phishing" simply describes any and all profit-making activities which the authors see in a negative light.

The biggest problem, however, is that nothing is explored in any depth and their main thesis is just barely touched upon. All of their examples involve a relatively brief summary of the subject followed by just a few words explaining how this fits into their overall idea of "phishing". The underlying idea that "phishing" is an inherent characteristic of normally functioning free-market systems is something that they simply declare without providing any supporting arguments or discussing how this belief affects their economic analyses. Although this was an entertaining and informative book, I don't think it would be of much value to anyone with more than the most casual of interest in economics.

Phishing for Phools by Nobel laureate professors George Akerlof and Robert Shiller is subtitled “The Economics of Manipulation and Deception.” Most of us know, of course, that we are being manipulated and deceived by people trying to get us to buy things. What professors Akerlof and Shiller have done in this book is to provide a framework for understanding this process and how it is carried out in various sectors of the economy, especially in four areas: health, government, personal finances and financial markets. Phishing is generally defined as “to perpetrate a fraud on the Internet by gleaning information from individuals, especially by impersonating a reputable company.” Their meaning is broader—getting people to do things that are in the interests of the phishers, not the person. A “phool” is someone who has been successfully phished.

The book is divided into three parts. In Part one the authors look at financial issues. They say that formerly financial institutions were trustworthy but no longer are so as shown by the financial crisis of 2008. In Part two they comment on a variety of other areas where phishing occurs. They say that much of advertising is “storytelling,” designed to get people to buy things they often do not really want. They also uncover unscrupulous practices such as car dealers citing higher prices for women and African-Americans who want to purchase a car. Credit cards influence buying as they make it easier to purchase things and thus people spend more than they would if they just paid cash. Chapter five shows how lobbyists influence politics and chapter six covers problematic behaviors regarding food and drugs. Tobacco products and alcohol are harmful, but are readily available with low taxes on them. The savings and loan crisis and junk bonds are discussed in subsequent chapters. Chapter 11 covers some of the “heroes” who have fought against phishing, including Frederick Schlink and Stuart Chase who wrote the book, Your Money’s Worth.

Part three is the conclusion to the book and summarizes their idea that free market economies produce both good and bad results. In the Age of Reform (from FDR to Reagan) government worked to safeguard people, but Reagan introduced a “New Story,” that “government is the problem.” But the authors say this idea is also a phish. They conclude with three examples: social security, securities regulation and campaign finance law all of which they say are threatened by the Reagan mentality. Finally, in the Afterward, they conclude that it is wrong to show only the good side of free markets. We need to show the trickery and deception as well.

Most people are aware that advertising and the other matters covered in this book do have a negative side and that they must be careful in any economic or political decision. At the same time this book goes deeply into these issues and shows how involved the problem is and thus serves as an important caution for people as they make decisions from buying dinner to major financial choices. The reviews on the store are widely distributed from five stars to one. I think this range depicts the personal views of the reviewers rather than the quality of the book. Conservatives do not want to hear the reality of a free market system. The Authors are to be commended for telling it and telling it in a compelling fashion.

Phishing for Phools’ primary thesis is that the free market economy is far too susceptible to cheating, deception, and manipulation and that classical economists ignore this fact to everyone’s peril. Examples are provided from the micro level (car buying, food, tobacco, alcohol, credit cards) to the macro level (the S&L crisis, Milken’s junk bonds, and the recent financial crisis). About 50% of the book is devoted to large scale financial issues, which to me was the least interesting topic covered. Clearly the authors are most familiar with those markets and expend a great deal of energy on trying to open that arcane world to us. But the most interesting parts, the everyday manipulation, deception and cheating in the market economy, and the gullibility and irrationality of most consumers, is not covered in enough detail. The book left me wanting more.

I have long been suspicious of classical economics with its rational actors and the butcher, baker and the brewer whose selfish drive to succeed makes everyone richer. In a perfect world, perhaps. But as Akerlof and Shiller show, such a world is not one we live in. People are not always (or often?) rational. Producers and sellers are not benevolent providers for the good all mankind; some are downright evil cheats. As a theoretical system, classical economics sounds great and holds out the promise of prosperity for all. But once its stick figure examples are fleshed out as real humans, the system simply does not work as advertised. To point out the faults of this system is not to say that there is a better one, but perhaps there are ways to improve this one.

Other than the overused “phishing” gimmick, the book is very readable and educational.

This is not a particularly good book. The authors' point is that markets do not always function as they should because of incentives to deceive. That should not be a controversial point of view and given the authors' stature perhaps worth a magazine article. But instead there is 170+ pages of anecdotes with the usual cast of villains-- the tobacco, drug and credit card companies, Goldman Sachs, Mike Milken, S&L fraudsters, and then some new ones including someone selling high calorie cinnamon buns at the airports. Consumers are sheep. Individual responsibility is unheard of. Regulators are underfunded. Government employees are overworked (an assertion at odds with most human experience), Citizens United was wrongly decided (don't ask why that is here) and so on. A real grab bag of the biases one would expect of professors who have spent their lives at prestigious universities. It is too bad because these authors likely could have done better.

I gave this three stars because this book provides us with some very useful insights; not so much into human economic behavior as into the thinking behind the so called Nanny State. You can't argue with the conclusions drawn by these Nobel prize winners. Humans are foolish and people tend to make decisions and engage in behaviors that are bad for them. Funny thing is, these among other rather obvious observations are somehow considered groundbreaking insights into economics and the human condition. Even more fascinating is the fact that these decorated academics seem to think that they are among the elite few that get this and thus obligated to educate us and protect us from "the system" and the sharks that inhabit it (even the sharks are phools, they're just mindlessly swimming around and eating other phools because the system makes them that way). Reading this book is useful if you want to understand government overreach into personal behavior like Bloomberg's efforts to restrict peoples access to sugary sodas. In a nutshell, we're too stupid and weak to protect ourselves so the government has to step in and do it for us. This is the future folks. Read up.

Billed as highlighting the economics of manipulation and deception, this book provides, albeit with a slightly over-used ‘device’ a very interesting look at how we are being cheated by the invisible, free-market hand that many economists assure us works for our common good.

Can there be only winners or, for every winner must there be at least one losing counterpart? The authors must know their stuff, as you don’t get Nobel prizes (for economics) out of cereal packages. They provide a compelling view to often perceived wisdom, reinforcing perhaps many thoughts that mere mortals hold, or perceive; yet maybe we don’t have the power to change and those that hold the power have no desire to change…

The authors’ central point is that as long as there is profit to be made, sellers will systematically exploit our psychological weaknesses and our ignorance through manipulation and deception. This is not a dry economics textbook, as many real world examples are offered up to highlight the contention made with a fair amount of humour. It manages to avoid being a tin foil hat-wearer’s vision of apocalypse and everything being controlled by a small cabal of the elite.

“We spend our money up to the limit, and then worry about how to pay the next month’s bills. The financial system soars, then crashes. We are attracted, more than we know, by advertising. Our political system is distorted by money. We pay too much for gym memberships, cars, houses, and credit cards. Drug companies ingeniously market pharmaceuticals that do us little good, and sometimes are downright dangerous,” notes the book’s publicity material. Make no mistake, even though this is a comparatively jovial, lightweight book aimed clearly at the generalist, it is backed by serious minds, passing on a serious message with a serious level of research so there’s a lot for the non-generalist to get their teeth into, if they just will.

At times this book felt a little overwhelming, perhaps due to the over-use of the ph-device and some of its style, yet taken a chapter-at-a-time, in smaller chunks, it seemed a totally different book. Perceptions, perceptions! For those who care, there is a mass of reference notes and an extensive bibliography, so you can dig deeper through the source materials at will.

The authors note that they admire the free-market system but just don’t like how it is serving people, writing: “The economic system is filled with trickery, and everyone needs to know that. We all have to navigate this system in order to maintain our dignity and integrity, and we all have to find inspiration to go on despite craziness all around us. We wrote this book for consumers, who need to be vigilant against a multitude of tricks played on them. We wrote it for businesspeople, who feel depressed at the cynicism of some of their colleagues and trapped into following suit out of economic necessity. We wrote it for government officials, who undertake the usually thankless task of regulating business. We wrote it for the volunteers, the philanthropists, the opinion leaders, who work on the side of integrity. And we wrote it for young people, looking ahead to a lifetime of work and wondering how they can find personal meaning in it.”

Some of the stories featured will make you despair, such as how focussed people can be on gambling that slot machine players would continue feeding the machines in a casino, oblivious to a person lying on the floor suffering from a heart attack. Some of the stories will have your eyes wide open and on stalks. Some may just sap your will to live and make you want to find a cave and hide in it. Yet maybe, just maybe, there is hope…?

If those who have it better in life are still worrying about making ends meet, how do those with nothing cope? You read stories about the poorest of the poor in some of the less-developed parts of the world and they appear to be relatively happy with what little they have; it seems unbelievable when viewed with our western, first-world eyes. The authors write: “Most adults, even in rich countries, go to bed at night worried about how to pay the bills. Economists think that it is easy for people to spend according to a budget. But they forget that even if we are careful 99 per cent of the time, the remaining one per cent, when we act as if ‘money does not matter,’ can undo all that prior rectitude. And businesses are keenly aware of those one per cent moments. They target the events in our lives when love (or other motivations) trumps our budgetary caution. For some, this is an annual Christmas potlatch. For others, it occurs at rites of passage: such as weddings (where the wedding mags assure brides that the ‘average wedding’ costs almost one half of annual per capita GDP); funerals (where the parlour director carefully lays out the caskets to induce the choice, for example, of the Monaco ‘with Sea Mist polished finish, interior richly lined in 600 Aqua Supreme velvet, magnificently quilted and shirred’); or births (where Babies “R” Us will give a ‘personal registry advisor’).”

So many examples are given that can have the effect of hitting you in the face with a hammer. How health clubs ‘manipulate’ us to savings that cost us more, how we stuff nearly a third of our daily calorific intake in a single snack, how we felt adding an egg to a mix made is creative and how statistics can be presented to appear to show one thing whilst carefully ignoring what they should be telling. Remember all those wonderful statistics and ratings showing how securities are a slam-dunk investment? Remember how Enron was wallowing in profits? Statistics, accountancy sleight of hand, and much more besides. Who is the fool?

Overall the authors have put together a very good book. In an ideal world there’d be no need for such warnings, but our world is not ideal. It is a book that is capable of giving a lot and leaving many lasting impressions; albeit sadly for the wrong reasons (but that’s the purpose of this book, so don’t shoot the messenger).

Businesses have incentives to manipulate you to do things that might not be in your best interest. What a surprise. The title of the book and academic plugs phished me in, so are Akerlof and Shiller any better. Got to love the hypocrisy of academics.

In Phising for Phools George A. Akerlof --co-Winner of the 2001 Nobel Prize in Economics--, and Robert J. Shiller --co-Winner of the 2013 Nobel Prize in Economics--, discuss the myriad ways in which Politics, the Economy (stock market, businesses), marketers, and advertisers actively use deception and manipulation with all of us, they fish for fools -- us. The chilling part is that most of those people are not evil people, they are playing by the rules in a Free-Market Economy that allows them to deceive and trick us for their benefit using the natural working of the economic system, first, and by exploiting humans' psychological cognitive biases and weaknesses, second. "The free-market system exploits our weaknesses automatically". They lead us to misinterpret reality and act on our misinterpretations, they exploit the conflict between what we need and what we crave, they exploit the volatility of our emotions, they present things in ways that are deceiving but trigger our automatic responses. Thus, we will buy things and services we don't need, at prices that are way over their real value, they will are sell products and services that aren't what they say they are. Phishing is inevitable. We are all phools by nature.

This an interesting book, that succeeds mainly at four levels. Firstly, the authors make a terrific job at letting us distinguish the forest from the trees and vice versa. The trees are the phishers (businesses, industries, financial groups, corporations, dealers and facilitators of services that have Phishing at the core of their practices). Phishing is everywhere, and that is so because the trees are part of a forest, the Economy of Free Market, and how it works, the Politics and economical practises associated with it, which make possible to get the forest to grow. Secondly, they succeed at presenting the forest for what it is, a beautiful luscious green forest full of berries and edible wonders that, however, is inhabited by wolves, witches and nasty beings. Allow me the analogy. They go hand by hand, they are part of the whole. Thirdly, they succeed at having at being economists with a social conscience, who see beyond their own nose, and analyse the Economy with a bit of objective distance, and a good deal of ethics, advocating for economical practices that are more beneficial for both the Economy and Society in general, not just a parasitic symbiosis that benefits the Economy and its actors. Fourthly, they succeed at adding another layer of interpretation to the biases mentioned in Influence: The Psychology of Persuasion, Revised Edition list, that of mental scripts or framework. People are phishable because of the stories they tell themselves, or place themselves in, are very important (subconsciously) in the decisions the made, something that leads phishers to create manipulative stories that resonate with the phools and are advantageous to the phishers.

On the other hand the authors also fail at some other levels. They fail to go beyond what we already know in general. Let's be honest, haven't you found two grandpas in a park talking how the Economy was different in the old days and there was more protection for workers, Medicare was better and there was some sort of better life equilibrium? Don't you know, upfront, that Politicians would lay and manipulate in pre-elections campaigns to get your vote, that lobbies are happy lobbying everywhere and selling you things that make you sick, that the commercial that says that the cream is going to get rid of your cellulite or make your receding hairline come back to the front are BS are manicured lies, or that the free stuff given to you by some businesses is never free? Don't you tell yourself at times, damn it, this seller was so great that despite me knowing that he was selling half-truths I still fell for them? Secondly, the psychological part, the biases and heuristics, and all the psychology that Behavioural Economy relies on are barely sketched as the information used, although very well presented, is not theirs. Put it bluntly, they haven't done any psychological study on phishing for phools.

Overall the book is very well edited, with barely any typo, with an excellent rendering for Kindle, and an impressive notes system, bibliography and index.

Akerlof & Shiller have produced a book that has an unified style, with occasional references to them as individuals. They use a very approachable language and the examples they present are really interesting, intriguing and to the point under discussion. and some of them very entertaining. I am not familiar or comfortable with the language of Economics and Finances, so I really enjoyed how the authors describe and analyse the World crisis in the1980s and the collapse of the markets in 2008, or on how crap-bonus work. Some of their explanatory analogies are great.

The book is well structured and organised, very didactic but, overall, the style is also a bit conference-like, sophomores course like, and a bit simplistic at times, a bit complex at others.

I dislike it when authors use pretentious words that aren't relevant for what is being said. For example, in this book, I found six times "parenthetically" in expressions like "(We note, parenthetically, that perhaps....) Can you see the brackets, yes? So do I. Unless you are blind you don't need this sort of thing. I also dislike when the contrary happens, when words that are bit not popular should be there and are replaced to something too simplistic, in this case "monkey-on-the-shoulder" instead of subconscious. To put it differently, if your are going to be snobbish, great, do that consistently all the way, and if you are going to be pro-general-reader do so consistently and all the way.

I have an problem with Academics using Wikipedia as a source of anything. We all love Wikipedia, don't we?, but we cannot ignore that, unless we are reading an entry about a celebrity (and even those) the Wikipedia can be misleading and heavily biased, and is not always properly curated. And hey, the Wiki is becoming the only source of knowledge and it is, de facto, a big phishing for phools... Wikedia has the best phishers's crafting story ever. Besides, any professional editor will tell you that references to encyclopaedias and dictionaries are not recommended in an academic publication unless you are using very specialised terminology that is difficult to find in your usual Oxford dictionary or encyclopaedia or when the definition of word is vital a la Wittgenstein. Now, you can understand my surprise at finding 25+ references to the Wikipedia in the footnotes, when the information could have been obtained through other sources. If this wasn't enough, our Nobel couple use it to provide a contrast definition opposing theirs in the use of the expression... 'rip-off'. Yes, no joke. I'd rather go to the Urban Dictionary for definitions of modern terms, as they show that words aren't always used like a monolith or, I wanted to be rigourous, I would go to any Oxford dictionary. Yet, do you need any dictionary or encyclopaedia to define 'rip-off'? And, if this wasn't enough, the definition the give of 'rip-off' is like buying "overpriced". Not only that, the same definition of what they mean by rip off is repeated several times throughout the book as this was just a novelty. I see in all this the hand of the undergraduates "assistants", not the work of two Nobel laureates.

Arkof & Shiller are gracious enough to enthusiastically acknowledge everybody who contributed to the book. They are very honest about what they did personally and what their research assistants did. That is always to praise. They especially praise their three research assistants, three exceptional Yale undergraduates, who did the research for them, edited the book for them, and made suggestions: Victoria Buhler, Diana Li, and Jack Newsham. So, if they did the editing, why aren't they presented as editors of the book?

Brilliant at times, mediocre at others, pretentious at others, thought-provoking overall, Phishing for Phools is a great reading that I don't think showcases properly the brilliant mind of the authors, but it is intriguing , interesting and entertaining enough.

The authors are honest enough to tell you "The ideas in this book are a collage of what we have learned, and what we have listened to, over the course of our lives as economists." (p. 77) There you have it, in a nutshell.

How delightfully recursive! The book itself is what it claims to be explaining. That is, it is a narrative that sounds reasonable and even attractive as long as it is not challenged, especially since there is some truth mixed in with their exaggerations.

When I picked up this book, I expected lots of numbers and studies. There are none. Not one chart. Not one graph. Not one table.

Instead there are lots of anecdotes and footnotes. The hope is that copious footnotes will give the impression of evidence. This will work with the credulous reader. But the critical reader will remember that the plural of "anecdote" is NOT "data".

I also expected a lot of information about microeconomics: why people don't save for retirement and the easy way to fix it (make the "default" option to save rather than not to save); why few people donate organs and, again, the easy way to fix it (again, make the "default" option to save rather than not to save).

Sadly, there is little of microeconomics.

Instead we are treated to a bunch of stories, narratives, of how things have gone wrong here and there. And the solution is always more government regulation! Yet the many failures of government regulation, the cost, the bureaucratic imperative to grow -- none of these are addressed. Indeed, where mentioned, it is to claim that the problem is -- wait for it -- not enough money for the regulators!

For example, the authors claim the SEC is underfunded because it is small relative to the total amount of transactions. The last statement is true. How that automatically translates into a formula for a right-sized SEC is not explained. It can’t be explained because it is not evidence of a regulatory body that is over- or under-funded.

Consider thee facts: While trading grew dramatically for many years (until the latest bank regulations killed liquidity), the number of firms has been declining for decades, employment has been declining, and spreads (the difference between the buy and sell price), have declined over 90% in the last 30 years -- all without government regulation. In short, the actual number of firms and employees to be regulated has declined.

Or consider the role of money in politics. Or don't because the authors mention money but never really tie a tight relationship between money and winners. Instead they use one story about the stories (the "narratives") that Sen. Grassley used to get elected. What they fail to do in this chapter, as in every chapter, is to note that there is a competitor in each election who can tell another "story". We've been doing that in my little County, with newcomers highlighting how the incumbents have raised taxes time and time again. And we've been winning. But that a competitor in an election might actually compete isn't mentioned.

Or consider the anecdotes about bad products. They were eventually found out and stopped. And they are a tiny fraction of all the products on the market. In fact, by numbers, 99.99% of products do NOT blow up and do NOT kill you. That would seem to indicate that competition -- which can highlight a competitor's flaws -- works pretty well.

None of this is mentioned.

Oddly, the whole issue of “agency risk” – that the management of companies takes care of themselves to the detriment of the owners (stockholder) isn’t even mentioned in the book as a problem area that needs better regulation.

But government is ALWAYS a success in this book! Even Social Security is highlighted as a success because it has reduced elderly poverty. That it is a trans-generational Ponzi scheme isn't mentioned. That it is going to go broke isn't mentioned. That politicians used it to buy votes by promising more and more benefits to baby boomers than could eventually be paid (but that wouldn’t be apparent until many elections later) isn't mentioned. Somehow Social Security is better than any alternative, although they never explain how the government can simply legislate investment risk away (or the cupidity and stupidity of politicians).

Now, don't get me wrong -- there IS a need for SOME regulation. I believe we should force people to save for retirement with mandatory 401-k plans. Despite the authors’ claims, most people would be better off in the long run using this model. And for the small number – 10% to 15% -- who would be worse off, well, that’s what welfare is for. But don’t make the 90% worse off by putting them in a program that, for the next generation, will probably result in a very low return on their money (and negative for all those who die before receiving any Social Security benefits).

In fact, the basic principle for determining where regulation is needed is where the seller has much more information that the buyer can possibly acquire. Consider my business – finance. A lot more brokers would rip their clients off and throw them away like Kleenex without securities regulations. Builders know you will probably only build one house or one addition in your life and that gives them a strong incentive to hide their mistakes and cheating behind drywall because it will be years before you find out you were cheated. And there is a clear case for making sure food is generally safe and pharmaceuticals don't kill us. But don’t ignore the fact that the regulations are dwarfed by the market because competition actually works very well most of the time. For example, as I mentioned, brokers should be regulated. But no one trusts used car salesmen. We all expect them to cheat us. So this is an area that needs much less regulation. And there is CERTAINLY room for better education for consumers. We probably need to license doctors. But “nail technicians”?

So, enjoy the book for the stories it tells and for the parts that are useful, but be a critical reader. Ask yourself if the authors have made a persuasive case in each chapter, or if major parts can easily be refuted.

This book falls into the sad category of economics books that are written for normal people and use invented words. True to form, it fails to make any noticeable contribution to economic thought. The main thesis of the book is that market economies incentivize products for poor decision makers. You know you are reading a terrible book when the afterword is dedicated to defending that its thesis even exists or is new, "we will now describe three ways in which this book presents a perspective that is, quite possibly, novel relative to current economics."

It also falls into the coulda/woulda/shoulda trap with "had we economists appropriately seen free markets as a two-edged sword, we would all but surely have delved into the ways in which financial derivatives and mortgage-backed securities, and also sovereign debt, would turn out badly." Statements like this are useless, only with time machines is hindsight profitable. Foresight is valuable, it should only be necessary for the authors to tell us how much they bet and profited from these thoughts.

As an adult, it was painful to read such an obvious analysis of the result when people with different motives come together. However, I do think this book would be a great study of critical thinking for children before the age of maturity.

I just love how robert shiller writes. It's amazing to see a nobel prize winner write so fluently, I just love his writings, I don't read it because it's economics, I read it because Robert Shiller is teaching it!

very superficial and disappointing. I expected the application of behavioral economics to understanding salesmanship
tricks and frauds. Instead, there were old-fashioned criticisms of market failures. not worthy of two prominent scholars.

Very disappointing. Save your money.

This book looks like something that was quickly thrown together by two guys who are too busy to develop their ideas. In addition, the prose is so amateurish that one is left wondering they just handed the manuscript for one of their freshman students to finish.

The authors of this book recognize that a free market economic system is a wonderful way of maximizing the innovation and efficiency that fuels economic growth and makes our lives better. When an opportunity exists to profit by satisfying unmet needs, free market equilibrium guarantees that someone will do so. A problem with the system, however, is that it provides the same rewards to anyone who can exploit deviations from the ideal or anything else which causes people to make choices that aren't in their best interests. Those making a profit don't even have to know how or why it works. All they have to do is try and the marketplace itself acts as a natural selection mechanism choosing the winners. Just as with productive endeavors, free market equilibrium insists that if an opportunity to profit off of exploitation exists then someone will eventually do it.

Classic economics treats this as being a pathological deviation from the proper functioning of the system, but the authors believe that this should be dealt with as an inherent attribute of any normal free-market economy. This seems to make sense, but there were several major weaknesses to their book. The first is the unfortunate choice of title. The activities they call "phishing" bear only the slightest resemblance to the internet definition of the term and it quickly becomes a source of constant annoyance as they unnecessarily repeat the title phrase throughout the book. The second problem is that they leave us confused as to what the scope of their definition of "phishing" actually is. At the beginning it sounds as if they are limiting themselves to exploitation of such things as information asymmetry, psychological weaknesses (such as addiction) and faulty heuristics. As they begin providing examples, however, it seems that "phishing" simply describes any and all profit-making activities which the authors see in a negative light.

The biggest problem, however, is that nothing is explored in any depth and their main thesis is just barely touched upon. All of their examples involve a relatively brief summary of the subject followed by just a few words explaining how this fits into their overall idea of "phishing". The underlying idea that "phishing" is an inherent characteristic of normally functioning free-market systems is something that they simply declare without providing any supporting arguments or discussing how this belief affects their economic analyses. Although this was an entertaining and informative book, I don't think it would be of much value to anyone with more than the most casual of interest in economics.

Two of the world’s most famous behavioral economists are on a mission from God. Their task is critical. They must travel 239 years back in time, all the way to 1776, to introduce Adam Smith’s butcher, brewer and baker to their nemesis, the dreaded phisherman. If it all goes to plan, the economics profession, and the world at large, will be rescued from the touch of the invisible hand.

Somewhere in the time capsule, and while they are waiting for the synthesis between the Phishing Equilibrium and General Equilibrium to occur (chiefly through incantation of the Greek ph in lieu of the vulgar letter f), the two giants collide. They probably realise they don’t agree about much. Hank Paulson’s TARP was a phish in one guy’s view, but saved the world from a second Great Depression in the other’s.

The biggest phish in the history of Finance, Quantitative Easing, is taboo, because George’s wife remains heavily involved.

Defeated, they jump back out of the capsule, only to discover that their writing powers have been reduced to those of a diligent high school student. In horror, and facing a deadline on a book promised years ago and pre-sold on the store six months ago, they take a leaf out of said student’s book and copy down from Wikipedia the biographies of some evil advertisers and snake oil salesmen.

It works! Joseph Stiglitz, Alan (couldn’t be) Blinder, Dani Rodrik and Laura Tyson pronounce the book a triumph. It works out less well for you, the reader, unless you are a precocious 17 year old and have never heard of the Keating Five.

In fairness, for that audience it’s probably a rather good intro to Alternative Economics. But this is not the seminal work I was expecting. It’s a laundry list of standard stuff the two authors could agree on. Probably decent assigned reading for the one or two lectures on “alternative views” that the Stephen Marglins of this world are invited to give to Freshmen in Economics.

AHA! That’s precisely what it is. No wonder they praise N. Greg Mankiw. They want a piece of the $350 each Economics Freshman in the land must fork out for his magnum opus.

Originally posted on Mises.org. Written by Tyler Kubik
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The literature on market imperfection and market failure is voluminous, ever-growing, and filled with Nobel laureates. Identify a new source or instance of market “failure,” and you’re likely to win a Nobel Prize, or so it seems.

Phishing for Phools: The Economics of Manipulation and Deception, by Nobel Laureates George A. Akerlof and Robert J. Shiller, presents the thesis that we are overly confident in unregulated markets and that entrepreneurs accrue profit by preying on hapless consumers, exploiting “our weakness in knowing what we really want” through the market’s tendency “to spawn manipulation and deception.” Mavens of manipulation themselves, Akerlof and Shiller claim many, if not most people — especially the poor — are irrationally exuberant and are induced into buying things they really do not want. How do they know what the consumer really wants, one might ask? The answer is that anything the authors would not do themselves is ipso facto not in the best interest of the consumer. In fact, it is something that “no one could possibly want.”
We’ll Decide What’s Best For You

Their opening chapter is an exercise in convoluted methodology. In it, Akerlof and Shiller obliterate any distinction between adroit entrepreneurship/marketing and deception/fraud. The most fundamental problem, however, is that Akerlof and Shiller think that what people really want is what is (objectively) good for them. They refuse to recognize that even if consumers were aware of the costs of eating Cinnabon — their bête noire in the opening chapter — and consuming a high calorie meal devoid of nutrients, they still might choose to eat Cinnabon. In their paternalist fervor, they cannot fathom that some people, in some places, at some times, might be willing to make such a trade off.

Rejecting Mises’s economic tautology that business owners stay afloat by satisfying consumer preferences through voluntary exchange, they believe that, instead, business owners compete for who can best deceive their customers. They call Cinnabon’s efforts to attract customers by making their product more desirable and available in convenient locations “phishing.”

Is the alternative, then, to mandate that businesses instead locate their stores in inconvenient locations, where they are less likely to sell their products to increase market efficiency? No answer is forthcoming. Also never answered by the duo is, if advertising is so effective at deceiving consumers, why do firms not spend nearly all of their budgets on advertising? Wildly exaggerating the problem they present, Akerlof and Shiller even think that the cumulative effect of “phishing” that companies like Cinnabon do through luring people in with the aroma of their cinnamon rolls may be as significant as the financial crash of 2008.
“Information Asymmetry” or Just Division of Labor?

They also maintain that the incompetence of the average person prevents them from wisely investing their funds. What they do not show is that a disinterested bureaucrat spending someone else’s money has an incentive to invest carefully, which they simply assume. No matter that an individual has knowledge of his time, place, and preferences that a bureaucrat cannot have, regardless of whether or not consumers make systematic cognitive errors. What they call informational asymmetries, i.e., the different levels of knowledge among consumers and producers, should properly be called the division of labor and knowledge in society, which underpins all markets and gives us a basis to make exchanges in the first place. It is for the very reason, namely that producers of goods know more about the goods they produce, that we purchase from them. Hence, in criticizing information asymmetry in markets, they are criticizing all exchange. Akerlof and Shiller habitually succumb to this Nirvana fallacy, holding up the utopian ideal of perfect information as their (unreachable) model, and then when markets fail to reach this ideal, assume that this justifies government intervention, never giving us a reason why these systemic cognitive biases and information asymmetries can be avoided by bureaucrats more than they can by the average consumer.
Variety and Convenience Are Bad Things?

Fundamentally, they mistake the beauty of the market and its convenience with manipulation. When they see a wide variety of products to choose from within arm’s reach, such as in a supermarket, they view it as a scheme to induce consumerist depravity and indulgence, rather than as a wonder to behold. They critique overpaying for health plans at the same time they critique obesity. We also see them succumbing to extraordinarily misleading explanations of history. For instance, in chapter six, they repeated the canard that Upton Sinclair’s The Jungle exposed the meatpacking industry’s unsanitary practices, when in fact his book was a complete fabrication, making no mention of this.

In general, Akerlof and Shiller appear oblivious to the roles consumer reporting institutions, competition, reputation, repeated dealings, and quality assurance play in doing just what they claim markets fail to do. If they desired to write a complete, and balanced look at the phenomenon they studied, rather than forward their agenda — what is in reality a jobs program for economists — they had ample material with which to work. The “heroes” of the story, instead, are primarily government regulators, and others who “step back from the profit incentive.” The profit incentive, for them, is essentially a one-way trip down Deceit Drive toward Manipulation Station. This single chapter focuses on the ways these problems are overcome, but they present nothing but impotency regarding the ability of businesses to do anything other than manipulate and deceive. The market, apparently, cannot provide solutions to or protect against this predatory behavior they attribute to these businesses, evidence to the contrary notwithstanding. We are left with the impression that these phishing problems are real, devastating, pervasive, and unresolved, as well as the impression that the solution is government regulation and bureaucratic administration. Nothing could be further from the truth.

In every instance, Akerlof and Shiller showcase their own “irrational exuberance” and monomania for decrying consumer choices, rather than market failures arising from information asymmetries. What else can we conclude from the foregoing but that there are informational asymmetries abounding about the true value of the information in Phishing for Phools — and that it is, objectively, something that “No One Could Possibly Want” to buy? If there is anything that could shake one’s faith in unregulated markets, it’s that anyone could be duped by Phishing for Phools.

As stated by the editor of Againstcronycapitalism.org, The search for profits is good. Competition is good. Markets are good. This is obvious. Life is better, we have better cars, computers, toothbrushes, and everything else because of free enterprise. Where there is no free enterprise, no markets, no competition, no search for profits, people suffer. This is the too long history of economic management.

But the managers do not learn it seems, since they must have something to manage. It’s very hard for someone trained in the august halls of the world’s “greatest” economics departments to just say – “Hey, mostly this stuff works on its own.” No, that almost never happens. That would take too much humility.

(From Real Clear Markets)

Behind every capitalistic door they see a self-interested individual looking to swindle us. But most of us appreciate—and many around the world would give anything to be able to share—the “quiet desperation” of stores being open on Sundays, diners and restaurants open 24 hours, cars, computers and apartments getting better and better thanks to competition for our business.

Not only that, our gyms get nicer with better equipment year after year. Yet to Akerlof and Shiller, even gyms are out to get us. Since we “do not do what is really good” for us, gyms take advantage of our optimism by convincing us to buy workout plans that we don’t need.

Business owners who read Phishing for Phools will marvel at the business environment constructed by these two economists. While in the real world, store owners strive mightily to win and maintain business, these eminences are here to point out that all that’s happening is we’re being bamboozled into emptying our pockets. Readers are solemnly told of the “predatory” food retailer that is Cinnabon (apparently the ExxonMobil of the 21st century): “They carefully placed the outlets, with placards and mottos, in the track of people who would be vulnerable to that smell.”

Yes, businesses want to win our business. How tawdry, think Akerlof and Shiller. They believe that “modern economics inherently fails to grapple with deception and trickery.” Actually, it deals with both quite well. As consumers we know this. We take our business elsewhere if our needs are not met, or if we feel scammed. We also know this by virtue of the fact that we get up and go to work every day. We’re working so that we can buy—if it were all a swindle, we wouldn’t work in the first place.

To call Phishing for Phools a bad economics book is to give it way too much credit.

What's outrageous about the "phishing for phools" narrative is the authors' conscious choice to avoid discussing politics and religion, two empires of "phishers and phools," making instead a concerted effort to denounce market and business failures, fields where "phools" are much harder to come by. Talk about taking people for "phools."