Saturday, March 11, 2017

Book review: Phishing for Phools

I finally got around to reading Akerlof and Shiller's latest book, Phishing for Phools. In fact, I saw Akerlof give a talk by that name at an INET conference back in 2011. The book was basically a longer version of that talk.

Phishing for Phools has one big important idea. The idea is that deception is fundamental to market economies - that it's not just the result of certain models or certain situations, but that it's always present to some degree. The reason is that companies are always looking for new ways to trick people out of their money - to find new information asymmetries, bounded rationality, suboptimal behavior patterns, and legal loopholes to exploit. Given that companies are always looking for these, their will always be some degree of trickery and mistakes in any market. This is just an obvious result of costly monitoring (though I'm not sure Akerlof & Shiller actually mention that explicitly). They call this a "phishing equilibrium".

I wish the book had spent a lot more time on this idea. Obviously not all of our economic interactions consist of trickery and mistakes (right?). What affects how much or little "phishing" an equilibrium entails? How can we detect which of the different kinds of phishing ("informational phishing", "behavioral phishing", etc.) is going on? What are the principles of market design that minimize phishing? How can one detect, empirically, how much phishing is present? How can individuals learn to better avoid phishing?

Sadly, the book mostly eschews these questions and spends almost all of its pages telling anecdotes about situations that the authors think involved lots of phishing. The 2008 financial crisis, the Vioxx recall, political lobbying, advertising, and so forth. This is sort of interesting, but a lot of these are stories we've heard before. And they usually don't cite much research verifying that phishing was indeed central to these screw-ups.

That's a shame. That research often exists. I've reported on it. But instead, Akerlof & Shiller sort of assume that the stories speak for themselves - that any reasonable person listening to these tales would instantly realize that phishing was the only explanation in each case. I wish the authors had seen fit to include a little more proof and a little less rehashing of well-known events.

Another problem I had with the book was the tone. It's full of the stilted phrasing of academic econ papers - "In the following chapter, we will show", and so forth. I think that's just bad practice for a pop book - the general public is probably turned off by that lingo, and economist readers don't really need it. Phishing for Phools was not nearly as bad in this regard as The Assumptions Economists Make (shudder). But if you're an economist writing a popular book, just go ahead and ditch the "we will show"s and the "it has been demonstrated that"s.

And what on Earth told Akerlof and Shiller that calling people "phools" was a good idea? No one's phooled by that "ph", you know (especially not in the audio version). You're calling people fools. You're saying that they're too irrational and/or dumb to make it in a market economy. Even if that's true, isn't there some nicer way to say that? I mean, presumably Akerlof and Shiller would like people to support government policies that curb "phishing". But if people think they're admitting stupidity by calling for those policies, I bet they'll often oppose the policies just to save face.

Anyway, to sum up, I think Phishing for Phools is an interesting book that injects one very interesting, very important idea into the economic discussion. But I think that the choices of topic and tone lessen the effectiveness of the message. We need both more academic econ papers and catchier pop books about this topic.


  1. Does this address at all the trickery that customers/employees can perform on business? I mean, as an employee, I have had many opportunities to trick my employers ("I totally did that!" "My email is down!"). Who's to say that business get the better of me more often than I get the the better of them?

    1. Good point! No, it doesn't. It sort of assumes that phishing has big economies of scale.

  2. 1. Are the 2008 crisis and lobbying just anecdotes?
    2. True, not much research, but Akerlof and Shiller style seems to be to suggest future agendas of investigation rather to present hard evidence on proven topics.

    1. 1. Not anecdotes, but I'd have liked to see some evidence of how the phishing worked. And I've read lots of histories of that crisis and the events and conditions leading up to it - we all have, by now.

      2. But there's a decent amount of this research already out there! It would be nice to see that acknowledged, and held up as an example for others to follow.

  3. quick typo alert: "their will always be some degree of trickery and mistakes in any market"

  4. I think you are reviewing this book from a vantage point that is not where its typical reader is. I read it sometime ago and found it interesting to me as a lay reader. I took macro-economics 35 years ago and have read probably 15-20 popular economics type books over the years, but I never really thought about how many markets rely on deception for a good chunk of their profits until I read this book. So much of economics 101 thinking assumes two parties that are equal in power and information. In reality, many (perhaps most) important transactions are between parties that have radically different resources to bring to bear on the decision. This was the first book I read that focused on that topic.

  5. Anonymous4:32 PM


  6. I don't think its about fools. I think that direction and deception are simply part of the strategic tool kit. Just about every transaction requires offering as good a deal as possible, then delivering as little as one can get away with. Think of flowers and bees. The flower advertises nectar, but really wants to use the bee as a pollen messenger. The bee comes for the nectar, but the flower makes sure it can grab some pollen from the bee and/or send some pollen away with it. Obviously, the bee tries to learn which flowers cheat and the flowers try to avoid cheating bees. This gets us into a red queen arms race, not unlike the one between buyers and sellers in the marketplace.

    Of course, the bulk of the transactions are pretty above board. The bee and the flower know what they are going to give and get, but there are arguments for having enough genomic variation to continually be testing the envelope. There may be other niches. You can get situations with free riders, like the Viceroy butterfly that looks like the Monarch butterfly, but is non-toxic. It avoids getting eaten without having to produce the toxins. Who wouldn't want a gig like that?

    It sounds like the book is a bit weak, but the basic program makes sense. I still think economists should doing a lot more cross fertilization with other fields, and if books like this help push the program, I'm all for it. I understand your concern with the anecdotal approach, but that is common in certain fields. The Origin of the Species is structured that way with anecdote after anecdote of natural and artificial variation and selection. It's easy to get lost in the individual stories and loses sight of Darwin's overall development. I know I did on the first reading back in middle school. Bumblebee Economics came out in the 1980s. It borrowed from economics to discuss bumblebee strategies. It's time economists borrow from the life sciences - and elsewhere - to advance the field.