*Phishing for Phools*

The authors are Nobel Laureates George A. Akerlof and Robert J. Shiller and the subtitle is The Economics of Manipulation and Deception.  It’s a popular take on how markets trap you and your preferences in places you don’t want to be.  Self-recommending of course.

There are chapters on advertising, tobacco, alcohol, junk bonds, credit cards, pharmaceuticals (some), and yes government.  My main complaint about the book is that its chooses easy targets and doesn’t puncture enough sacred cows.  For instance the chapter on government criticizes spending money on lobbying, whereas I would have preferred an attempt to show that an apparently beneficial and popular institution is in fact bad and appealing to the weaker elements in our preferences.  I wonder to what extent what the authors call “The Resistance and its Heroes” is in fact another example of…phishing for phools.  In other words, I wish this book were more Hansonian.

By the way, I have never eaten too much ice cream.

Comments

It seems so popular to think that the psychological weakness of humans that is systematically exploited by diverse sellers is a sign of market failure. I mean yes people are stupid sometimes, they might fall for a shiny advertisement and buy the thing that don't need but that's human nature. We're not stupid all the time every time. We can learn from our mistakes, we are able to do better next time, we auto-regulate.
Also, why do we assume that people are trapped in places they don't want to be. How can we judge what is the place to be for person X? Maybe he does want to be trapped by the market, although for us it seems stupid. Maybe I don't need to change my perfectly fine smartphone with a xphone 6s or s6 but I do it because of the social pressure of my friends. For the external observer it might seems stupid and might seems that I am "trapped by the market" to buy the new phone that I completely don't need, but for me it is essential to buy it just to keep my social status which is very important to me.

You hypothesize a self-aware consumer, who trades rationality for utility, which is really itself a rational markets claim.

I think Thaller's experiments show that we are less aware of our own choice structure.

Just shut up and let your betters choose for you. It is economic!

So bayzad, I take it that you just woke up in the forest, covered in twenty years or so of leaves and brambles, and wandered back down into town?

"For instance the chapter on government criticizes spending money on lobbying, whereas I would have preferred an attempt to show that an apparently beneficial and popular institution is in fact bad and appealing to the weaker elements in our preferences." It's true that good intentions often go awry, in government but also elsewhere, but why? Good intentions don't have a mind of their own. They go awry because the good intentions are undermined by the self-serving people who sabotage them (including those lobbyists mentioned by Akerlof and Shiller). For Cowen and like-minded, good intentions and government are incompatible: it's not saboteurs (i.e., people) but government itself that is the source of the problem. However, Cowen gets it right when he says that an apparently "beneficial and popular institution" can be bad because it appeals to the "weaker elements in our preferences". An example on the left is the minimum wage, which is a cheap political gesture, whether or not it hurts the very people it's intended to help. An example on the right is saber rattling, which is a cheap political gesture, whether or not it hurts the very people it's intended to help. It's not good intentions and government that are incompatible, but politics and good government. Politics is supposed to be a filter for good intentions, to moderate them and, yes, avoid the bad in spite of the good intentions. If, however, one side of the political spectrum is dedicated to obstruction, committed by blind faith to the proposition that the only good government is a weak government, then politics isn't a filter, it's a vehicle for self-serving saboteurs.

Politics is supposed to be a filter for good intentions, to moderate them and, yes, avoid the bad in spite of the good intentions. . . . committed by blind faith to the proposition that the only good government is a weak government, then politics isn’t a filter, it’s a vehicle for self-serving saboteurs.

"Why do you people love the state so much? It doesn’t love you." Michael Munger

"Concentrated power is not rendered harmless by the good intentions of those who create it." Milton Friedman

"The real conflict in political theory ... is not between individualism and community. It's between voluntary association and coerced association." David Boaz

"The government is huge, stupid, greedy and makes nosy, officious and dangerous intrusions into the smallest corners of life..." P.J. O'Rourke

"Since the general civilization of mankind, I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations." James Madison,

"'Bipartisanship' sounds like a good idea in theory, but it usually ends up as broad congressional agreement that the American people have too many liberties or too much money." Jonathan Blanks

"Libertarians favor limiting the size and scope of government precisely because they believe that approach will offer the greatest opportunity for people to seek their own happiness, whether as individuals, parents, church-goers, or, yes, even as business owners." Damon Root

"The urge to save humanity is almost always a false front for the urge to rule." H. L. Mencken

"The whole point of a free society is to reduce the number of things that are political, particularly at the national level. When everything is considered political, the totality of life is politicized. And that’s just a clunky way of describing totalitarianism." Jonah Goldberg

"The worst evils which mankind has ever had to endure were inflicted by bad governments." Ludwig von Mises

"Stupid is forever." Ron White

"Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience." C. S. Lewis

Beware the worship of false idols. Like "politics."

I'm guessing that these authors aren't on the syllabus in American public schools. Or at Harvard , either.

"If, however, one side of the political spectrum is dedicated to obstruction"

Yes, how dare those people not go along with something they disagree with!

"Good intentions don’t have a mind of their own. They go awry because the good intentions are undermined by the self-serving people who sabotage them"
Unintended consequences do not require malignant intent.

Establishing a system or program open to self serving in the name of good intentions is malignant intent.

what are good intentions? who doesn't have them? everyone has them and nobody has them.

I am honestly struggling to understand what point rayward is trying to make.

He seems to be saying that government would work as (well) intended if it weren't for people. Is that right?

I have eaten too much Greek yogurt.

These guys have doctorates and Nobel Prizes. Seems like they could easily get spots in the Iranian cabinet. That's a country that really takes an interest in guiding its citizens in the way of righteousness.

Statistically, 34.9% of you are obese, and complaining that no one should tell you what to do.

The whole idea that you should be healthy and strong, live long and prosper, is nothing but liberal paternalism

Well yes the groups which have the runaway rates of obesity in this country do have a pretty unyielding propensity to shout paternalism and racism. If the left wants to tackle obesity by focusing on those groups have at it.

Sam, you know there are far more obese white people than black ones in this country, don't you?

And it is a serious indictment of any rational choice theory. For individuals in markets to be "rational" we must declare greater "utility" in obesity in 2015, than say 1950.

And? What a disengenous way of framing the issue. This means of framing is never used when talking about arrest numbers, or police killings, or poverty.

Whites and Asians are less obese than the national average. Hispanics and blacks are not. Any kind of statistical analysis of the issue would recommend a targeted focus on those two groups. Talking about numbers vs. percentages is a complete red herring in this case.

Ah, Marginal Revolution, where you can find the argument "we're rational consumers, if you only talk white people."

Losers. And I say that as a tall, thin, rich, smart, person. I'm the kind of person you try to coat-tail when you fat, poor, lazy, slobs say you are all like me.

No, Sam, you want to go after fat people, you gotta go after white fatties too. Sorry bro.

The left really loves the idea that we're all hapless dupes of diabolically clever corporations and their big budget marketing departments. But they never seem to square that view with those evil geniuses failing. How do they explain GM going bankrupt (despite all the shiny SUVs and massive advertising budget) or McDonald's now struggling mightily despite selling every possible combination of cheap, fatty, sweet & salty foods (along with all that advertising) even while chains like Chipotle selling healthier foods have been thriving with much smaller marketing efforts? Or what about the decline in sales of mass-market, beer brands advertised on the Superbowl that have steadily lost market share to craft-beers and wine with no TV advertising?

The hapless dupe narrative allows the progressive to cast himself in the role of the hero.

That and the role of actually being smarter than anyone else.

"Chipotle selling healthier foods"

Chipotle food is not healthy. Or at least not in the portions people actually consume.

At the Chipotle I visit, most people are fit, therefore the food is healthy.

"How do they explain GM going bankrupt"

Yeah, Nobel-prize winning smartpants. Try explaining the bankruptcy of a corporation in the business of selling consumer durables during the biggest economic collapse since the Great Depression. Betcha can't do it. In your face!

Try explaining the Ford bankruptcy which occurred at the same time.

Fine -- explain the massive decline in market share and financial condition of GM in the decades preceding -- all of which left it on the verge of bankruptcy when the financial crisis hit. As they say, "When the tide goes out, you can tell who was swimming naked". Why was GM swimming naked? And then when you've finished explaining that, follow up with why McDonald's and mass-market beer brands are having such a hard go of it despite the best, slickest marketing trickery that billions can buy.

Because all those hippy dippy leftist are startic to make a dent with their kale this and organic that.

But how? How could that possibly work against multinational corporations that can afford Superbowl ads!?

So, GM's decline and failure reflected primarily the failure of efforts at consumer mind control? really? Had nothing to do with capital structure or organizational legacies?

"The Hidden Persuaders" by Vance Packard 1957

Brush your teeth before breakfast? - read this one book to find out why.

The description on the Amazon site might be summarized as their book is a restatement of caveat emptor.

While I have no doubts that marekts are not perfrect in this regard the guestion I have here is why do the authors think it's the case or do they merely set out some standard to measure the claim and then test it with marekt data and find the hypothesis supported?

Clearly if we assumes a little complexity, incomplete information and markets that are based on the caveat emptor principle one would expect to find a lot of such outcomes. I would assume a positive relationship of that outcome with complexity and degress of informational asymmetry. That doesn't seem a good explanation to me. Clearly most people would prefer markets that produce a different type of outcome of consumer experience (we're all consumers more so that priducers in a wolrd of well divided labor) so one would expect to see market owners (be that a Walmart, grocery story, department store, mall owner and even governments) seeking to maximize the value of their markets (though with government you might run in to a tragedy of the commons type of problem as well as the usual PC issues) by implementing rules that work to balance the buyer's interests with those of the seller.

Is the book arguing this isn't occurring, not at some "optimal" level or simply don't go there?

Thaller's Winners Curse would be a good place to find experiment and evidence.

Not sure I'm following on that. Are you saying that the Winner's curese applies to all markets, including those where we would expect to have lots of "winners" -- that is most consumer goods markets?

It is a great book, a collection of "anomalies."

"I would have preferred an attempt to show that an apparently beneficial and popular institution is in fact bad and appealing to the weaker elements in our preferences"

Nothing more than "I blame Obama" in flowery words.

I was wondering who you were quoting and then I realized that it was "rayward". I would love to see you and him square off in debate. Mulp could come in to give each of you a breather.

Oh, and I think his name is Thaler. But you knew that.

Needs more Masonomics: markets fail, let's use markets.

From the Amazon blurb: "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.' "

I was reminded of the "tricks and traps" of the marketplace recently when I went shopping for a new vacuum cleaner. It seems a simple enough device, yet how is one to choose? The marketing materials on the boxes/tags were less than useful, as practically all claimed their products were both "powerful" and "quiet" (even though more of one tends to produce less of the other).

Mostly I assumed that words like "powerful" and "quiet" were there because marketers were convinced that's what buyers wanted in a vacuum cleaner; thus, I considered the words to be more descriptive of marketers' perceptions of what buyers want than as attributes of the products themselves.

Markets are based on the assumption that buyers know what's in their interests better than anyone else. And (within some limitations) that seems reasonable. Mostly it reminds me of the quote regarding democracy (that it stinks, but the alternatives are so much worse). Might one not say the same about markets?

In short, marketers are indeed full of "tricks and traps," but consumers in market economies mostly become sophisticated enough to deal with that.

The limitation? Mostly it's that many products have become so complex (for example, pharmaceuticals) that buyers can't be expected to evaluate them without some sort of expert help and/or regulation.

'Self-recommending of course.'

'It’s a popular take on how markets trap you and your preferences in places you don’t want to be.'

Best satire site on the web.

'My main complaint about the book is that its chooses easy targets and doesn’t puncture enough sacred cows.'

Well, Prof. Zywicki would likely be very unhappy if we started discussing the payday loan industry in anything less than the most flattering of terms.

"Well, Prof. Zywicki would likely be very unhappy if we started discussing the payday loan industry in anything less than the most flattering of terms"

And how have the various non-profit and credit-union efforts to provide lower-cost alternatives to payday loans fared? Have those efforts been able to turn a profit (or even break even) while offering much lower rates & fees? Are they taking over the industry?

'And how have the various non-profit and credit-union efforts to provide lower-cost alternatives to payday loans fared? Have those efforts been able to turn a profit (or even break even) while offering much lower rates & fees?'

Interesting you mention credit unions, considering that Prof. Zywicki is highlighting the disadvantages of credit unions regarding the free exercise of your 2nd Amendment rights - https://www.washingtonpost.com/news/volokh-conspiracy/wp/2015/01/14/operation-choke-point-closes-another-gun-stores-bank-account/

Or here, where he notes their unfair advantages - https://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/10/17/consumer-credit-and-the-american-economy-part-5-government-regulation-of-consumer-credit/

So, yes, credit unions do turn a profit (at the supposed expense of the banking industry) - but they really, really shouldn't reduce profits for those more interested in profits, at least one viewed from a perspective like Prof. Zywicki's. The whole GMU law and economics crowd is full of people like him, starting in the mid-80s, when they first appeared in Arlington.

It seems you're rather spectacularly missing the point (not surprising) which is that regulation has the effect of denying credit and banking services to poor, high-risk customers. So these people end up at check-cashing places when regulations make them unprofitable for traditional banks and credit unions to provide them with accounts and credit or debit cards:

"Low-income consumers are being squeezed on all fronts. As banks boost capital ratios, tighten underwriting standards, and hunker down amid Dodd-Frank uncertainty, they have cut $70 billion in credit cards in three years. This has disproportionately impacted low-income families, forty percent of which report having their credit cards canceled, limits reduced, or been denied a new card during this time period, according to a national survey by Demos."

And:

"Even plain vanilla checking accounts have gotten more expensive. Free checking was long championed by the FDIC to bring the unbanked into mainstream banking, and it has all but disappeared as banks cut costs. In 2009, 76% of banks offered free checking accounts, according to Bankrate. In 2012, only 39% of banks do. To be fair, people can still get free checking if they hold enough money in their account. But the average minimum balance required to avoid fees is $723.02, a bridge too far for people living paycheck to paycheck."

http://www.forbes.com/sites/realspin/2013/09/26/dodd-franks-costs-will-be-paid-for-by-low-income-bank-customers/

And lack of checking accounts and credit cards drives poor shoppers to check-cashing shops and high-cost retailers that specialize in selling on credit to poor customers -- rent-to-own furniture stores and buy-here-pay-here car lots.

'It seems you’re rather spectacularly missing the point (not surprising) which is that regulation has the effect of denying credit and banking services to poor, high-risk customers.'

So, the Pentagon banning its employees from using payday loans is just another sign of 'denying credit and banking services to poor, high-risk customers'?

'America's generals have known for some time that the payday lending industry abuses its relationship with our soldiers, sailors and airmen. One Department of Defense survey has noted that 9 percent of enlisted servicemen and 12 percent of noncommissioned officers admitted to taking out such loans. A 2005 study by the Center for Responsible Lending estimated that 20 percent of active duty military personnel took out a payday loan in 2004.

And so, in 2006, the generals convinced Congress to pass the Military Lending Act, which forbade payday lenders from charging more than 36 percent annual interest rates on loans to servicemen. But the industry just kept growing.

------------------------

Last month, the Pentagon urged Congress to close these loopholes, releasing a report urging Enhancement of Protections on Consumer Credit for Members of the Armed Forces and Their Dependents. Citing "evolving predatory lending practices" in the payday loan industry -- the explosion of workarounds to avoid the restrictions codified in the Military Lending Act -- the Pentagon observed that the prevalence of payday loans in today's military is essentially unchanged from levels a decade ago. And it continues to challenge military borrowers' finances.

According to Pentagon figures, about 11 percent of servicemen and servicewomen have taken out "payday loans, vehicle title loans, bank deposit advances, [pawned goods at] pawn shops and/or [taken out] installment loans with interest rates over 36 percent APR."

Seeing as 36 percent APR is the interest rate Congress told these lenders not to charge military borrowers, the Pentagon deadpans: "specific definitions of problematic credit no longer appear to function well."'

http://www.dailyfinance.com/on/pentagon-declares-war-payday-lenders/

Prof. Zywicki would likely wholeheartedly support the idea that denying 36% APR loans to American service members is just another denial of their freedom to enter debt peonage while giving their lives in the pursuit of the freedom of the rich to get richer that is so much a part of the America that we (or at least the only few that matter) all worship.

Until basically, today, there were ways for service members to evade these restrictions with rolling lines of credit:

http://www.wsj.com/articles/u-s-to-expand-military-lending-act-in-effort-to-protect-service-members-1437472801

So, going forward, what do you predict will happen, either: A) Service members will find credit just as available under the new regulations as before, or B) Some service members who previously used payday loans will find it difficult to access credit, or C) Some enterprising individuals will figure out a new loophole?

Wal-Mart seems to be somewhat successful at selling low-end financial services (although as far as I know they offer nothing to compete with Payday loans).

Part of the problem, perhaps, is some people discount the future at a very high rate, and thus see even exorbitant interest rates as "reasonable," and protecting such customers from themselves may be an impossible task.

For example, some poor people continue to obtain low quality furniture from rent-to-own stores instead of buying used but better made stuff from thrift stores, presumably because they want something new and they want it now and appreciate the convenience of the rent-to-own. Doing this seems foolish to me, but perhaps that's because my discount rate is a whole lot lower.

"There are chapters on advertising..."

I wonder, do they mention left-oriented *science-based* advertising?

THE ORGANIC EFFECT - What happens when a family that usually doesn’t eat organic food suddenly starts?

https://www.coop.se/Vart--ansvar/Ekoeffekten/The-Organic-Effect/

Some pretty weak results there. Reduces pesticides in the body...to any positive health benefit?

There should be a law banning bad intentions.

I don't understand how these consumer manipulations are sustainable absent market power by the sellers.

If your competitors are effectively chagrining above-market prices because of "predatory" framing effects etc., can't you gain market share by pointing that out? In fact, isn't "NO HIDDEN FEES!" a ubiquitous marketing slogan/strategy that tries to do just that?

This presumes truly rational actors in the system. There may be none, just pants-wearing-monkeys in both roles, buyer and seller. The continued bounded rationality, on all sides, of course brings more and more sales. Why else would "vaping" even be a thing?

What sacred cows is Tyler referring to? Examples please!

I nominate the Smithsonian. An Institution incredibly skilled at picking national pockets.

'An Institution incredibly skilled at picking national pockets.'

But not skilled enough to afford a couple of F22s, or a couple of F35s. Unlike the American taxpayer, who will be buying, as of April 2010, a total of 2,443 F35 aircraft for an estimated $323 billion - the most expensive defense program in US history. Not that the F22 is exactly a bargain - 'It was estimated by the end of production, $34 billion will have been spent on procurement, resulting in a total program cost of $62 billion, around $339 million per aircraft. The incremental cost for an additional F-22 was estimated at about $138 million in 2009.[35][38] In March 2012, the GAO increased the estimated cost to $412 million per aircraft.' https://en.wikipedia.org/wiki/Lockheed_Martin_F-22_Raptor#Production_and_procurement

'The Smithsonian’s federal appropriation for fiscal year 2015 (Oct. 1, 2014–Sept. 30, 2015) is $819.5 million.' http://newsdesk.si.edu/factsheets/facts-about-smithsonian-institution-short

But to be fair the f-22 doesn't fit Tyler's criteria, no one respects it.

Sounds like a dumbed-down version of Addiction by Design

That's a great book (Addiction by Design) that I read in one sitting! But I was a bit disappointed that Mrs. Schull didn't tell more about the neurophysiology of gambling addiction. I would be interested in that. Any pointers?

I read it in a half of sitting while doing 3000 crunches and sealing three separate multi-billion dollar takeover bids. I'm like Donald Trump but even less modest.

When I typed "Addiction by Design" into Amazon's search, I got the Natasha Dow Schüll title, but then I also got "Hooked: How to Build Habit-Forming Products" by Nir Eyal and Ryan Hoover, and "Evil by Design: Interaction Design to Lead Us into Temptation" by Chris Nodder.

Downside of too much free choice, you might eat more ice cream than is good for you. Downsides of too little free choice, you might end up in a labor camp. I know which one I would err on the side of.

"By the way, I have never eaten too much ice cream."

In the same way someone who has never missed a flight spends too much time in airports, someone who has never eaten too much ice cream clearly eats too little.

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