Phishing for Phools

I just finished reading a wonderful book: Phishing for Phools: The Economics of Manipulation and Deception (Princeton University Press, 2015). The authors are two of my favourite economists: George A. Akerlof of Georgetown University and Robert J. Shiller of Yale University.

The book is 272 pages long, plus a ten-page preface. The text itself is much shorter, however, because acknowledgements begin on p. 175, end notes on p. 181, a bibliography on p. 233, and an index on p. 257.

The book is very much an anti-Samuelson tract. Akerlof and Shiller are extremely critical of “standard economics”: the product of transformation in the mid-20th century of political economy into a ‘science’. Paul Samuelson (1915-2009), more than anyone, was responsible for making economics ‘rigorous’ by assuming that individuals have fixed preferences and rationally maximize utility (happiness) by choosing bundles of goods and services to consume, in addition to how much – and in what form – to save or invest.

Surprisingly, however, Samuelson’s name shows up in the pages of the book only three times: twice in the bibliography and once in an end note (#20 on p. 232):

Paul Samuelson, the MIT professor who wrote the leading textbook and set the tone of most standard economics in the post-World War II period, viewed “revealed preferences” as being at the heart of the theory of consumption. Regarding a formula derived from them, he wrote “The importance of this result can hardly be overemphasized [sic]. In this simple formula are contained almost all of the meaningful empirical implications of the whole pure theory of consumer’s choice.” Samuelson, Foundations of Economic Analysis (Cambridge, MA: Harvard University Press, 1947), p. III. See also the journal article on which this assumption is based: Samuelson, “Consumption Theory in Terms of Revealed Preference,” Economica, n.s., 14, no. 60 (November 1948): 243-53.

Here is the text, from page 170, to which this end note is linked:

A common precept of standard economics is that people only make the choices that maximize their welfare. This assumption even has a fancy name, “revealed preferences”: that people reveal what makes them better off by their choices. Such an assumption, of course, is exactly at odds with our concept of the difference between what people really want (what is good for them) and what they think they want (their monkey-on-the-shoulder tastes).

Note there is no mention of Samuelson by name in the text itself.

The Nobel Memorial Prize in Economic Sciences was first awarded in 1969. Paul A. Samuelson won the Nobel Prize in economics a year later for having “done more than any other contemporary economist to raise the level of scientific analysis in economic theory”. George A. Akerlof shared the 2001 Nobel Prize with Michael Spence and Joseph Stiglitz, “for their analyses of markets with asymmetric information”. George A. Akerlof (born 1940) shared the 2013 Nobel Prize with Eugene F. Fama (born 1939) and Lars Peter Hansen (born 1952) “for their empirical analysis of asset prices”.

All economists should read Phishing for Phools. Best of all, non-economists can and should also read it. The book is written in plain English. It is easy to understand. No prior knowledge of economics is needed to understand it.

Instead of postingĀ  more excerpts, I am providing this link to a pdf of the 11-page introduction:

You can read even more of the book online at Amazon.

The book itself is available in hardback, paperback, Kindle and as an audio book. It is also available at public libraries. (That is how I obtained a copy, on loan.)

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