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Phishing for Phools
October 20, 2015 @ 12:00 am
About the Authors — George Akerlof was co-recipient of the Nobel Prize in Economic Sciences in 2001, along with Michael Spence and Joseph Stiglitz . He was honored for his theory of asymmetric information and its effect on economic behavior. Akerlof was educated at Yale and the Massachusetts Institute of Technology, where he received his Ph.D in 1966. He became a full professor at University of California, Berkeley in 1978. He also has been President of the American Economic Association, and on the North American Council of the Econometric Association. In November 2014, he joined the faculty of Georgetown University’s McCourt School of Public Policy. Akerlof is co-author of Animal Spirits, with Robert Shiller; and Identity Economics, with Rachel Kranton.
Robert J. Shiller was awarded the Nobel Prize in Economic Sciences jointly with Eugene Fama and Lars Peter Hansen in 2013. He is Sterling Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and Professor of Finance and Fellow at the International Center for Finance, Yale School of Management. He received his B.A. from the University of Michigan in 1967 and his Ph.D. in economics from the Massachusetts Institute of Technology in 1972. He has written on financial markets, financial innovation, behavioral economics, macroeconomics, real estate, statistical methods, and on public attitudes, opinions, and moral judgments regarding markets.
Among his many books, he co-authored, with George Akerlof, Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism. He has served as Vice President of the American Economic Association and writes a regular column "Finance in the 21st Century" for Project Syndicate, which publishes around the world, and “Economic View for The New York Times.
About the Book — Standard economics is predicated on rationality, operating with the presumption that buyers understand what they want and make rational decisions. However, in market economies, realities and complications exist. Buyers don’t always know what is best for them, and are susceptible to sly psychological and informational tactics (phools). And whenever there is profit to be made, sellers will try to take advantage by exploiting gaps in buyers’ knowledge, or lack thereof (phishing).
Phishing for Phools covers the economics of manipulation and deception, giving a coherent and compelling explanation of why markets can and do lead to undesirable outcomes, often resulting in widespread economic distress. Akerlof and Shiller make use of many examples to demonstrate how phishing works, on both macro- and micro-economic scales; in housing and automobile markets, with the acquisition of credit cards, from junk bonds to gym memberships, in drug and alcohol consumption, even showing how it was behind the financial crisis of 2008-2009.
This behavior generates a lot of misery no matter one’s socioeconomic status, but also, as the book argues, phishing is a symptom of an otherwise healthy economy. The goal is to isolate the bad, and the authors call for public education, civic engagement, and government regulation to combat the worst effects of phishing.
The authors make two distinct contributions to economic thinking. First, they propose a ‘phishing equilibrium,’ and argue that if one seller doesn’t exploit this profit opportunity, another will. This makes consumers pay more than they should and contributes to broad-based social anxiety. They also observe that while they enable economic growth, markets also create constant opportunities for phishing.