Thursday, October 22, 2015

The last book by Akerloff and Shiller

The recently published book by George Akerloff and Robert Shiller, "Phishing for Phools" as its subtitle says, is an analysis of "the economics of manipulation and deception." It can be read as the second part of "Animal Spirits," published in 2009, which is the bible of behavioral macroeconomics. The new book is more about behavioral microeconomics, but as the authors argue, they add two new perspectives to what has been previously written by other authors in the field. First, they explain how widespread deception and manipulation of consumers by corporate interests is a natural result of an equilibrium process, where rational firms in competitive markets must exploit any opportunity to manipulate and deceive. Second, and following a line of thought that was already present in "Animal Spirits," they convincingly argue that the multi-dimensional exploitation of the psychological biases of ordinary people has a common thread, which is the wise manipulation of the "stories" that people build to make sense of their experiences. Humans need coherent stories to explain the complexity of the world, although these stories fall short of explaining reality. Then powerful interests are very good at  changhing the focus of these stories in ways that suits their interests, in a similar way as magicians change the focus of their public when they perform a trick. Akerloff and Shiller argue that this common thread based on stories and focus is based on the work of anthropologists and sociologists more than psychologists, as it had been usual in other contributions of behavioral economics. It has to be said that they are not totally pessimistic, as they give examples of public servants, regulators and other leaders, who have raised their voice against these powerful interests in socially beneficial ways. They also have a chapter on how manipulation and deception works in politics. But one feels that they did not go enough in depth in this particular field. It seems to me that there is much more to be said about the role of stories and manipulating focus in the political arena.

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