It's no secret we do things we
know we shouldn't. We overeat, gamble away our savings and live like
tomorrow will never come. One reason, two Nobel laureates argue, is that
there are plenty of businesses happy to lead us astray.
Robert
Shiller, an economist at Yale University, used his understanding of how
human behavior can affect markets to predict the dot-com crash of the
early 2000s and the housing collapse of 2007. He won the Nobel Prize for
Economics in 2013 for his work showing that stock and bond prices can
move out of step with economic fundamentals even over the long run.
Shiller, an economist at Yale University, used his understanding of how
human behavior can affect markets to predict the dot-com crash of the
early 2000s and the housing collapse of 2007. He won the Nobel Prize for
Economics in 2013 for his work showing that stock and bond prices can
move out of step with economic fundamentals even over the long run.
In
his new book with George Akerlof, another Nobel-prize winning
economist, Shiller examines the many ways credit-card companies,
financial firms and other businesses lure people into buying things that
might harm them. The authors call that phishing, adopting the word for a
common email scam to a broad array of cynical business practices. They
call the person who takes the bait a phool. Their book is called
"Phishing for Phools: The Economics of Manipulation and Deception."
Theirhis new book with George Akerlof, another Nobel-prize winning
economist, Shiller examines the many ways credit-card companies,
financial firms and other businesses lure people into buying things that
might harm them. The authors call that phishing, adopting the word for a
common email scam to a broad array of cynical business practices. They
call the person who takes the bait a phool. Their book is called
"Phishing for Phools: The Economics of Manipulation and Deception."
big point: It's not that bad actors are gaming the free market, it's
that hucksters and dishonest marketing are part of the free-market game.
In
a recent interview with The Associated Press, Shiller talked about how
phishers lure phools, the appeal of one-armed bandits and the media's
misleading fascination with splashy stories. The interview has been
edited for length and clarity.
a recent interview with The Associated Press, Shiller talked about how
phishers lure phools, the appeal of one-armed bandits and the media's
misleading fascination with splashy stories. The interview has been
edited for length and clarity.
Q: What prompted you to write this book?
A: I often tend to think that things are not what they seem.
Q: Your focus isn't on malevolent fraudsters but people just doing their job?
A:We agreed that we shouldn't portray these people as evil. This is just
what you get with free markets, depending on how free you let them be.
My previous books were all about the positive aspects to markets. But
markets are often presented too positively, with a certain reverence.
Life is more complicated than that.
Q: Could you explain why you chose the word, phish?
A:
We use it as a metaphor because people are aware of computer phishing.
You can so easily be fooled by them because you don't see all the work
that went into luring you in. Things look perfectly plain and simple but
in fact it's all artifice. There are a lot of these phishers, some of
them are savvy operators, and they're experimenting. They find a ploy
and, man, it works.
Q: This isn't a new trend but it's getting worse?We use it as a metaphor because people are aware of computer phishing.
You can so easily be fooled by them because you don't see all the work
that went into luring you in. Things look perfectly plain and simple but
in fact it's all artifice. There are a lot of these phishers, some of
them are savvy operators, and they're experimenting. They find a ploy
and, man, it works.
A:
Yes. Take the slot machine. In the 19th Century, it dispensed sweets
and toys. It was the first vending machine. Now, it's optimized for
gambling. Companies experiment with different things. There's the
jingling and bright lights, all part of a mesmerizing effect. They like
to give you the sense that you've almost won, with three cherries, for
instance. You can program it so that two cherries come up, and you can
see the third cherry stopping just one off. You think, "I almost won!"
I don't actually play these machines, mind you.Yes. Take the slot machine. In the 19th Century, it dispensed sweets
and toys. It was the first vending machine. Now, it's optimized for
gambling. Companies experiment with different things. There's the
jingling and bright lights, all part of a mesmerizing effect. They like
to give you the sense that you've almost won, with three cherries, for
instance. You can program it so that two cherries come up, and you can
see the third cherry stopping just one off. You think, "I almost won!"
Q: The gist is that businesses keep casting new lures into the water until they get a bite?
A:
It's the same thing with Cinnabon. They don't publicize the
experimentation they do. Manufacturers of food try to get the optimal
ratio to tap into your impulsivity. They don't care about your health.
Cinnabon boasts about their genuine Makara cinnamon from Indonesia. They
can boast about that sort of thing. They can't say, "Boy, we really
cranked up the fat and sugar."
They
place them carefully indoors, in train stations and airports, where
you'll smell it. You're frustrated, your flight was delayed, and you're
in a bad mood. They catch you right there. The mind tends to have a
conversation, producing an excuse to eat it alongside a memory of your
resolve not to eat it. They try to help one side of this conversation
with the slogan, "Life needs frosting." It's a beautiful slogan, a great
justification for giving in. It works, I bet.
place them carefully indoors, in train stations and airports, where
you'll smell it. You're frustrated, your flight was delayed, and you're
in a bad mood. They catch you right there. The mind tends to have a
conversation, producing an excuse to eat it alongside a memory of your
resolve not to eat it. They try to help one side of this conversation
with the slogan, "Life needs frosting." It's a beautiful slogan, a great
justification for giving in. It works, I bet.
Q: You say the news media is guilty of phishing, too. How so?
A:
They often focus on things that aren't important because they know what
kind of story sells. In March of last year, this Malaysia Airlines
plane went down mysteriously. The logical thing is to think somebody
made a mistake. However, the news media latched onto a mystery story for
days and days. It's just a waste of time to think about. In terms of
human welfare, it would be much better if the cable stations put up the
periodic table of the elements to remind everybody. That would be useful
information compared to the Malaysian airlines story.
They often focus on things that aren't important because they know what
kind of story sells. In March of last year, this Malaysia Airlines
plane went down mysteriously. The logical thing is to think somebody
made a mistake. However, the news media latched onto a mystery story for
days and days. It's just a waste of time to think about. In terms of
human welfare, it would be much better if the cable stations put up the
periodic table of the elements to remind everybody. That would be useful
information compared to the Malaysian airlines story.
I
was on Neil Cavuto's Fox Business TV show. He asked me what I thought
about the Federal Reserve raising interest rates. I said I don't think
it really matters whether the Fed raises rates this meeting or next
meeting. He said, "Look we're doing a whole show about this." There's
too much attention to these little stories.
was on Neil Cavuto's Fox Business TV show. He asked me what I thought
about the Federal Reserve raising interest rates. I said I don't think
it really matters whether the Fed raises rates this meeting or next
meeting. He said, "Look we're doing a whole show about this." There's
too much attention to these little stories.
