Phishing for Phools

Phishing for Phools leaves me with a rather ambivalent feeling. Some parts I like and found interesting, in other parts Akerlof and Shiller seem to just state the obvious, and in the remaining parts they offer interpretations that I cannot agree with. The particular mix that equates legal and illegal actions, welfare enhancing activities and plain fraud seriously subtract from the (entertaining) value of their little book.

I like their discussion of finance and fraud. (They are not the first to offer such an account.) And I agree that “greed” (that is not really a bad thing in it self), the (bad) design of incentives, and the lack of proper regulation to ensure well functioning markets in the presence of information asymmetries are all contributing to the problems we have observed.

Also their discussion of the misaligned incentives in the pharma industry is not controversial. Others have, of course, beaten that horse before. Bad Science / Bad Pharma by Ben Goldacre come to mind. Recommending better regulation to reduce the problems caused by information asymmetries here is not a controversial issue.

The voter’s rational ignorance and the influence of special interest groups are also ultimately linked to information asymmetries. In contrast to the authors who seem to like to regulate lobbying more I do not believe that more and stricter regulation will necessarily lead to a better outcome of the political decision making process. It may reduce some waste, resources spent on lobbying may find better uses somewhere else. It will not change anything about he voter’s ignorance.

Read: PhishingThough there is nothing really new up to here — the authors admit that their book may not offer anything new except for their interpretation — these parts are both instructive and, yes, entertaining.

Finally, the moment Akerlof and Shiller talk about Phishing for Phools that is not linked to information asymmetries (that moment actually comes first in their book) I cannot agree with them. The provision of goods in convenient ways and places is not a bad. Yes, ceteris paribus I like to live healthy. But if I buy donuts the trade-off between the immediate satisfaction of my needs and wants and the long run effects of that satisfaction is decided. By me. I do not need any paternalistic restrictions of my choice set. Educate me but do not tell what to do or take my choices away.

I really do not like how the entrepreneur who provides a valuable service to his customers is placed on the same level as the con man and the financial fraudster, or even the price discriminating used car sales person.

Originally published at pro-libertate.net on February 12, 2016.