“Phishing For Phools” by George Akerloff and Robert Shiller

I have rarely been so disappointed by a book with such a promising premise, written by two Nobel laureates. In the tradition of Kahneman (“Thinking, Fast and Slow”), Tversky, and Sunstein and Thaler (“Nudge”), these authors suggest, plausibly, that humans often do not do what is in their longterm best interests. They go on to posit that unscrupulous actors in the market are able to manipulate outcomes that serve their interests to the detriment of their clients and society at large. Unfortunately, when the authors get to examples such as junk food, credit default swaps, used cars, credit cards, and junk bonds they blame the “too free” market and not the selective enforcement of existing laws by the government. Most of their market failures would be solved by simply enforcing the laws of fraud already on the books. When actions are not illegal, such as high interest rates on payday loans, the authors apply great hubris to claim that even though actors reveal their wants through actions, these actions are not their true wants after all. It is as if the authors are unaware of or feel they are above the subjective valuation of individual actors interacting in a complex society. It is a slippery slope to a nanny state (or worse) where people are protected from themselves for their own good, of course.