Phoolish economists

On a day of equity market plunges around the world, it seems timely to recommend the new book from George Akerlof and Bob Shiller,

. Princeton University Press have put the introduction online for free.

[amazon_image id=”0691168318″ link=”true” target=”_blank” size=”medium” ]Phishing for Phools: The Economics of Manipulation and Deception[/amazon_image]

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.


Non-satiation or the paradox of choice?

This week I’ve been travelling – two days in Newcastle and lots of meetings. It included a visit to the set of The Paradise, the BBC drama based on Zola’s

. It’s one of the novels I haven’t read, despite being a huge Zola fan. (Does any other British reader of this blog remember the superb, terrifying BBC dramatisation of Therese Raquin with Alan Rickman in the 1980?) So of course I’ll have to get the book now.

[amazon_image id=”0199675961″ link=”true” target=”_blank” size=”medium” ]The Ladies’ Paradise (BBC tie-in) (Oxford World’s Classics)[/amazon_image]

Meanwhile I bought Jeremy Bowen’s 

at the station bookstore, just in case I ended up with some unexpected free time and no book (hah!).

Then got home to my recent orders and a couple of incoming review copies. Here are the recent acquisitions. Good thing summer is coming up.

Recent acquisitions

Of course, this kind of appetite for more books (and I’m with Umberto Eco that it isn’t necessary to read all the books in one’s library/anti-library) lends support to the assumption of non-satiation in consumer choice theory. More is always better. The theory refers to more of the same and one could argue that each book title should count as a separate good, in which case non-satiation would not be a valid assumption (although a couple of my colleagues like to have the same book in physical copy and on an e-reader).

But that doesn’t mean Barry Schwarz’s 

is valid either. His examples include types of jeans or brands of cereal and toothpaste. But not only do I not want Prof Schwarz determining what kinds of jeans I’m allowed to wear, I never hear proponents of the paradox of choice arguing that there are ‘too many’ book titles, or charities to which to donate, or types of wine. Are we to suppose that the professional classes are less likely than the lower orders to be daunted psychologically by too much variety?