Phishing for Reviews

I've read several reviews of Akerlof and Shiller's new book "Phishing for Phools." The book is largely about the ways in which businesses trick people into buying things they "shouldn't." Below I provide some key quotes from 2 positive and 1 negative reviews of the book, followed by two short, negative reviews of the summary article Shiller wrote for the New York Times. Since even the positive reviews say the book lacks depth, I think the New York Times summary is probably a reasonable proxy for the book itself, at least in terms of its primary arguments.

I've not read the book, but based on the breadth of topics covered, it may be good to have as a reference for behavioral economics articles.

Positive Reviews
The Economist:
You Have Been Warned: Two heavyweights show how markets can turn against the unsuspecting

Economic models tend to assume that people are informed about the decisions they make; in the jargon consumers have “perfect information”. This supposedly enables consumers to make markets work to their advantage. But Robert Shiller of Yale University and George Akerlof of Georgetown University argue instead that this assumption is false. There are plenty of market equilibria, the authors find, where one party is being deceived, or “phished”. You may think you are doing well out of markets; you may behave quite rationally; but in fact you are being taken for a “phool”.

The London School of Economics and Political Science - Review of Books:
Book Review: Phishing for Phools

... Nobel Prize winners George A. Akerlof and Robert J. Shiller deliver a timely and much-needed plea against the free market dogma that surprisingly seems to have outlived the financial crisis. According to the two authors, big corporations take advantage of the ‘stories we tell ourselves’ and of our ‘monkey-on-our-shoulder tastes’. Our propensity to make choices according to multiple cognitive and psychological biases makes us easy targets for the phishermen. If one sentence could epitomise their thesis, it would be Jean-Paul Sartre’s’ famous saying: ‘We are what we make of what people want to turn us into.’

Negative Reviews
Arnold Kling (author, blogger, former Fannie Mae economist):
Phools and Their Money

Overall, I do not think that the authors chose well in starting with the Cinnabon example. They do not make the case that people who buy cinnamon rolls are doing something that those consumers would rather not be doing. Instead, it just seems that such consumers are doing something that Akerlof and Shiller find reprehensible. They need to come up with an objective way of making the distinction between satisfying consumer wants and manipulating consumers. It is demagogic to rely on one person's disgust at another person's consumption of fatty foods.

Michael Makovi (recent graduate in economics, Loyola University - New Orleans):
Do Capitalists Manipulate, Deceive, and Cheat?

But government regulation is not an infallible deus ex machina. The question is not whether the market fails, but whether the government is more likely than the market itself to correct those failures. Economist Harold Demsetz coined the term “nirvana fallacy” to make this point: it is not enough to find flaws in the real world; one must prove that some feasible alternative is likely to be less flawed. James Buchanan, one of the fathers of public choice economics, compared advocates of government regulation to the judges of a singing contest who, after hearing an imperfect performance from the first contestant, immediately award the second contestant, reasoning that he must be better.

Peter Klein (Baylor University professor of entrepreneurship):
George Akerlof, Meet Oliver Williamson

Shiller's worldview features a caricature understanding of free markets along with a naive and uncomprehending model of government regulation. I suppose we can blame the Times's editorial team, not Shiller, for the headline "Faith in an Unregulated Free Market? Don’t Fall for It." But it nicely illustrates the Shiller crowd's view that support for free markets is based on faith, rather than two centuries of reason and evidence. You might think that Shiller's coauthor George Akerlof could walk down the hall and speak to his UC Berkeley colleague and fellow Nobel Laureate Oliver Williamson for a better understanding of how markets work. Williamson, of course, is famous for explaining how market actors protect themselves against opportunistic behavior from other market actors through contracts, joint ownership of assets, reputation, exchange of "hostages," and similar practices. It is markets, not government, that enable cooperation and joint production in the face of information and incentive problems.

Relevant Farmer Hayek Posts
The Nirvana Approach in Ag Economics - Contributions of E.C. Pasour

Blackboard Theory Versus the Reality of Markets

Economics in TWO Lessons?!

Demsetz on Comparative Institutions