Thursday, 21 July 2016

Phishing for Phools

I don't often read book reviews before reading a book (or if I do, I will have mostly forgotten the review before I get around to reading the book). Not so Phishing for Phools, by Nobel Prize winners George Akerlof and Robert Shiller, where Alex Tabarrok's review was still quite vivid in my mind. Tabarrok mostly has the right of it when he says:
Phishing for Phools might have had a bigger impact had it been written 20 years ago but today its examples seem tired. Do we really need another book telling us how supermarkets “phish” us by putting staples like eggs and milk at the back of the store and the impulse purchases like candy and magazines at the front?
The basic premise of the book is this: 'phishing' is "about getting people to do things that are in the interest of the phisherman, but not in the interest of the target" (who is the phool). This leads to "people making decisions that NO ONE COULD POSSIBLY WANT" (the emphasis is the authors). People are susceptible to being phished because they have monkeys on their shoulders, whose preferences differ from what we really want or need, but who have an outsize effect on our decision-making.

There wasn't anything new or startling in the book, and the authors are up-front about that (if you can call it being up-front when they discuss the lack of novelty of their ideas in the afterword!). They also clearly missed a trick - the idea that there is a tension between a person's passions (the monkey-on-the-shoulder) and their rational deliberations dates at least back to Adam Smith's The Theory of Moral Sentiments in 1759!

To be brutally honest, there are much better books around if you want to read about some behavioural economics or market failure (try something by Dan Ariely for starters). However, having said that there are still bits to like about the book, but mostly they come at the end. It struck me that what they were really describing was an alternative type of market failure to the type we discuss in introductory economics. Nothing new in itself, but an interesting way of thinking about the issues that is worth exploring further. The underlying arguments against free markets, and the parallel they draw in the final chapter with an argument against free speech, will not suit some people. However, as one who strongly believes that free markets have gone too far in a lot of cases, it was a point well made. In that vein, the final words from the book are worth noting:
...phishing for phools leads us to quite different conclusions from the usual takeaways of the old economics. The modern economy with its quite-free markets brings those of us who live in developed countries a standard of living that would be the envy of all previous generations. But let us not fool ourselves. It also brings us phishing for phools. And that too is consequential for out well-being.

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