Phishing for Phools: The Economics of Manipulation and Deception

by George A. Akerlof, Robert J. Shiller

Overview

Why the free-market system encourages so much trickery even as it creates so much good

Ever since Adam Smith, the central teaching of economics has been that free markets provide us with material well-being, as if by an invisible hand. In Phishing for Phools, Nobel Prize–winning economists George Akerlof and Robert Shiller deliver a fundamental challenge to this insight, arguing that markets harm as well as help us. As long as there is profit to be made, sellers will systematically exploit our psychological weaknesses and our ignorance through manipulation and deception. Rather than being essentially benign and always creating the greater good, markets are inherently filled with tricks and traps and will "phish" us as "phools."

Phishing for Phools therefore strikes a radically new direction in economics, based on the intuitive idea that markets both give and take away. Akerlof and Shiller bring this idea to life through dozens of stories that show how phishing affects everyone, in almost every walk of life. 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.

Phishing for Phools explores the central role of manipulation and deception in fascinating detail in each of these areas and many more. It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation. At the same time, the book tells stories of individuals who have stood against economic trickery—and how it can be reduced through greater knowledge, reform, and regulation.

Product Details

ISBN-13:	9780691173023
Publisher:	Princeton University Press
Publication date:	08/16/2016
Edition description:	New Edition
Pages:	288
Sales rank:	725,755
Product dimensions:	5.20(w) x 7.90(h) x 0.80(d)

About the Author

George A. Akerlof is University Professor at Georgetown University and the winner of the 2001 Nobel Prize. Robert J. Shiller is Sterling Professor of Economics at Yale University, the winner of the 2013 Nobel Prize in economics, and the author of the New York Times bestseller Irrational Exuberance (Princeton). Akerlof and Shiller are also the authors of Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (Princeton).

Table of Contents

PREFACE vii

INTRODUCTION Expect to Be Manipulated: Phishing Equilibrium 1

PART ONE Unpaid Bills and Financial Crash

CHAPTER ONE Temptation Strews Our Path 15

CHAPTER TWO Reputation Mining and Financial Crisis 23

PART TWO Phishing in Many Contexts

CHAPTER THREE Advertisers Discover How to Zoom In on Our Weak Spots 45

CHAPTER FOUR Rip-offs Regarding Cars, Houses, and Credit Cards 60

CHAPTER FIVE Phishing in Politics 72

CHAPTER SIX Phood, Pharma, and Phishing 84

CHAPTER SEVEN Innovation: The Good, the Bad, and the Ugly 96

CHAPTER EIGHT Tobacco and Alcohol 103

CHAPTER NINE Bankruptcy for Profit 117

CHAPTER TEN Michael Milken Phishes with Junk Bonds as Bait 124

CHAPTER ELEVEN The Resistance and Its Heroes 136

PART THREE Conclusion and Afterword

CONCLUSION: EXAMPLES AND GENERAL LESSONS New Story in America and Its Consequences 149

AFTERWORD The Significance of Phishing Equilibrium 163

ACKNOWLEDGMENTS 175

NOTES 181

BIBLIOGRAPHY 233

INDEX 257

What People are Saying About This

From the Publisher

"In an entertaining and lively account, Akerlof and Shiller show that while the pursuit of profits may lead to products that enrich our lives, it may also lead to manipulation and deception. Much of recent innovation has led to products that make cheating the public easier. The implications are complex and profound."—Joseph E. Stiglitz, Nobel Laureate in Economics

"Phishing for Phools is an intellectual tour de force. It may change your image of the invisible hand into an invisible phoot, always looking to trip you up. Read it for phun; read it for wisdom."—Alan S. Blinder, author of After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

"A phabulous book! This is economics after the behavioral revolution at its best."—Samuel Bowles, Santa Fe Institute

"Akerlof and Shiller provide a phenomenal guide to the pitfalls of the phree market. This redemptive revision of economic theory explains the built-in risks of rip-offs in a profit-maximizing world."—Nancy Folbre, professor emerita, University of Massachusetts, Amherst

"As Akerlof and Shiller remind us, the same incentives that lead sellers to introduce innovations that improve quality and reduce costs also ensure that no profitable opportunity to cheat us will remain unexploited. This highly readable and insightful book will transform how we think about the role of government."—Robert H. Frank, author of The Economic Naturalist

"Akerlof and Shiller extend the standard ‘market failure' theory—which says that there is a potential role for government intervention when markets fail—by showing that markets fail not only because of the familiar reasons of externalities and unfair income distribution, but also because of the pervasive phenomenon of ‘phishing for phools' (profit-seeking through manipulation and deception). They point the way to a new paradigm freed from the constraints of market failure theory, able to illuminate ‘control by capital' (partly through phishing) and to prescribe for ‘control of capital' (partly by techniques for limiting phishing suggested here)."—Robert H. Wade, London School of Economics

"This insightful book exposes a fundamental contradiction in the market system. Consumers and policymakers beware: profit-seeking businesses foster efficiency and innovation, but have strong incentives to manipulate you and sophisticated new data tools allow them to do so in personalized ways."—Laura D'Andrea Tyson, University of California, Berkeley

"This fun but serious book tells how the standard story about free markets often gets it wrong. Indeed, Akerlof and Shiller suggest that we should drop the view of markets as generally benign institutions. The argument is laid out with the help of fascinating anecdotes, the language is conversational, and the book is easy to read. It is addressed to a broad audience, but economists will enjoy it too."—Dani Rodrik, author of The Globalization Paradox

"Phishing for Phools is a coherent and highly plausible explanation of why markets—although usually beneficial—can lead to undesirable outcomes. The book takes an intriguing approach and gives many interesting examples."—Diane Coyle, author of GDP: A Brief but Affectionate History

Editorial Reviews

"The book's central message is certainly thought-provoking."

The Economist

"This book was enjoyable to read, and the expertise and knowledge of the authors are abundantly evident."--William Holcomb, PsycCRITIQUES

"Bob and George urge us to slap Adam Smith's invisible hand when it steals from everybody's cookie jar. They ask us to ponder those situations, economic or political, that provide particularly tempting opportunities to phish for phools. . . . Penetrating insights rendered in accessible prose."--Marlene Lang May, Commonweal

From the Publisher

"No question, Phishing for Phools is a radical book. It may also be a radically important one."

Fortune

"It's a very clearly written book with tons of examples. And it makes a simple and powerful point about the fragility of the normative, welfare economics conclusions economists tend to draw."

Enlightened Economist

"This interesting book is written by economists mainly for economists, but it includes many entertaining stories about business behavior (and some disturbing ones), told in lively and accessible prose."

Foreign Affairs

"Using compelling examples of flawed decision making from advertising, health care and personal finances, the authors identify our rational weak spots and arm readers with the ability to resist manipulation."

Scientific American Mind

"A needed call for skeptical economics and financial mindfulness."

Nature

"A needed call for skeptical economics and financial mindfulness."

Nature Lib

10/15/2015
Nobel Prize-winning economists Akerlof (economics, Georgetown Univ.) and Shiller (Sterling Professor of Economics, Yale Univ.), who previously collaborated on Animal Spirits, here look at the concepts of manipulation and deception from the idea that markets give and take away. Narratives in this impressive book tell how to avoid being tricked by means of better enforcement and being told of pending scams. The authors show how money is spent up to the limit and the resulting concern about meeting the next month's bills. They also provide a useful explanation for the Great Recession. Actions of rating agencies such as Moody's and Standard & Poor's, explain the authors, have been built up over a century and generally do a good job of evaluating the probability of a default of bonds. In the late 1990s and early 2000s, however, the agencies took on the job of assessing more complex securities that were almost impossible to rate accurately, yet the public still relied on the assessments. VERDICT As one of the few titles dealing with fraud in the marketplace, this should be a part of any collection strong in business and economic holdings. A background in economics is presupposed. Readers might also consult Scambusters! by Ron Smith.—Claude Ury, San Francisco

Library Journal