On a day of equity market plunges around the world, it seems timely to recommend the new book from George Akerlof and Bob Shiller, Phishing for Phools: The Economics of Manipulation and Deception. Princeton University Press have put the introduction online for free.
Phishing for Phools: The Economics of Manipulation and Deception
It explains the basic concept, introducing the gap between the standard equilibrium where people know their preferences and select to maximise utility, and the phishing equilibrium where they also maximise but do not know what their preferences are – either because of behavioural psychology or information asymmetries of one sort or another. The book gives a coherent and highly plausible explanation of why markets – although usually beneficial – can lead to undesirable outcomes: the powerful force of competition in a market will not leave profit opportunities unexploited.
As you would expect, it’s a very clearly written book with tons of examples. And it makes a simple and powerful point about the fragility of the normative, welfare economics conclusions economists tend to draw.
Prof Shiller will be in London and in Bristol (at the Economics Festival as the keynote speaker in the RES session) in November.