Published in December 2015 issue of Prospect Magazine
by George A Akerlof and Robert J Shiller (Princeton, £16.95)
“Modern economics inherently fails to grapple with deception and trickery.” That’s the central claim of the new book by Nobel Laureates George Akerlof and Robert Shiller. Economics, they argue, assumes that we make choices according to our best interests. In practice, though, we depart from our best interests: we eat too much sugar and spend money we don’t have. Hence the other people we deal with—Akerlof and Shiller are particularly interested in the behaviour of profit-maximising private firms—can often do better for themselves by exploiting our foibles rather than help us work in our best interests.
Can we wise up to this? The book doesn’t have much to say on that. However, it does provide brief examples of our “phoolish behaviour” (the authors make this “joke” roughly every three pages) and how it is exploited by phishermen. Neither does it explore the scope for firms to succeed by behaving better. If rivals are “phishing,” one route to success may be to show consumers how to behave differently yourself. Many firms do exactly that: cooperatives, price comparison websites, value supermarkets. But the authors don’t mention them. If the authors’ preferred solution is regulation, then that too isn’t considered.
In the end, this book is too slight to rewrite economics in the way it claims to do. It’s more like “An Evening with George and Robert” than a hard-hitting exposé. Yet its central idea is an important one and merits more attention….