Akerlof, George A. and Shiller, Robert J.: Phishing for phools: The economics of manipulation and deception

Abstract

In this book two leading economists provide, what I would like to call: The General Theory of Deception, Interest and Money. Transgressing established behavioral economics they develop the following general principle: whenever people do not act in their own best interest there will be others who exploit the profit opportunities arising out of such irrational or uninformedbehavior.Wherever there are fools (“phools”) there are fishers (phishers) who “phool” them. There arises then a “phishing equilibrium”. The policy conclusion is that government should step in to avoid such unfortunate outcome of the market economy. The book appeals to common sense by describing a large number of cases in which the “phishing equilibrium” prevails. One class of such cases is “addiction”: addiction to smoking, to alcohol, to gambling, to drugs, to Facebook etc. According to the Akerlof-Shiller anthropology human behavior is governed by two “persons”: the rational forward looking one, and the “monkey” on the other’s shoulders; the latter striving for immediate satisfaction of wants. Often then the “monkey” on the shoulders wins in a conflict situation—and the agent disregards the future costs of giving in to some vice. Behavioral economics has taken account of that—and has provided answers, like for example the “nudging” philosophy. “Libertarian paternalism” is the slogan. Akerlof-Shiller now focus on the supply side of vice goods: the cigarette industry, the suppliers of alcoholic beverages, the gambling casinos, the drug dealers, the men and women who have developed Facebook. The concept of the phishing equilibrium is important because of its consequences: it is not so much the bad character or the crimes of the suppliers of vice goods which are the problem. For, if the present suppliers were absent, other suppliers would take their place; and the world would not have