Table Of ContentPhishing for Phools
Phishing for Phools
the econ o m i c s of
manip u l at i o n and dece p t i o n
GEORGE A. AKERLOF
AND
ROBERT J. SHILLER
Princeton University Press • PRINCETON AND OXFORD
Copyright © 2015 by Princeton University Press
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co n t e n ts
PREFACE vii
INTRODUC TION Expect to Be Manipulated: Phishing Equilibrium 1
PART ONE Unpaid Bills and Financial Crash
CHAPTER ONE Temptation Strews Our Path 15
CHAPTER T WO Reputaton Mining and Financial Crisis 23
PART T WO Phishing in Many Contexts
CHAPTER THREE Advertisers Discover How to Zoom In on Our Weak
Spots 45
CHAPTER FOUR Rip-ofs Regarding Cars, Houses, and Credit Cards 60
CHAPTER FIVE Phishing in Politics 72
CHAPTER SIX Phood, Pharma, and Phishing 84
CHAPTER SEVEN Innovation: The Good, the Bad, and the Ugly 96
CHAPTER EIGHT Tobacco and Alcohol 103
CHAPTER NINE Bankruptcy for Proft 117
CHAPTER TEN Michael Milken Phishes with Junk Bonds as Bait 124
CHAPTER ELEVEN The Resistance and Its Heroes 136
PART THREE Conclusion and Afterword
CONCLUSION: EXAMPLES AND GENERAL LESSONS New Story in America
and Its Consequences 149
AFTERWORD The Signifcance of Phishing Equilibrium 163
ACKNOWLEDGMENTS 175
NOTES 181
BIBLIOGRAPHY 233
INDEX 257
v
p r e fac e
t’s “the economy, stupid!” said James Carville, campaign advisor to
Ipresidential candidate Bill Clinton in 1992. He wanted to stick it to
President George H. W. Bush for an array of economic problems that
were tied to the economic recession that started during the Bush pres-
idency. Well, we have a diferent, broader interpretation of Carville’s
statement: that many of our problems come from the nature of the
economic system itself. If business people behave in the purely selfsh
and self-serving way that economic theory assumes, our free-market
system tends to spawn manipulation and deception. The problem is
not that there are a lot of evil people. Most people play by the rules and
are just trying to make a good living. But, inevitably, the competitive
pressures for businessmen to practice deception and manipulation in
free markets lead us to buy, and to pay too much for, products that we
do not need; to work at jobs that give us little sense of purpose; and to
wonder why our lives have gone amiss.
We wrote this book as admirers of the free-market system, but hop-
ing to help people better fnd their way in it. The economic system is
flled with trickery, and everyone needs to know that. We all have to
navigate this system in order to maintain our dignity and integrity, and
we all have to fnd inspiration to go on despite craziness all around us.
We wrote this book for consumers, who need to be vigilant against a
multitude of tricks played on them. We wrote it for businesspeople,
who feel depressed at the cynicism of some of their colleagues and
trapped into following suit out of economic necessity. We wrote it for
government ofcials, who undertake the usually thankless task of reg-
ulating business. We wrote it for the volunteers, the philanthropists,
the opinion leaders, who work on the side of integrity. And we wrote
it for young people, looking ahead to a lifetime of work and wonder-
ing how they can fnd personal meaning in it. All these people will ben-
eft from a study of phishing equilibrium—of economic forces that
vii
build manipulation and deception into the system unless we take cou-
rageous steps to fght it. We also need stories of heroes, people who
out of personal integrity (rather than for economic gain) have man-
aged to keep deception in our economy down to livable levels. We will
tell plenty of stories of these heroes.
Products of Free Markets
The late nineteenth century was a busy time for inventors: the auto-
mobile, the telephone, the bicycle, the electric light. But another inven-
tion of the time has received much less attention: the “slot machine.”
Slot machine in the beginning did not have its present-day connotation.
The term referred to any sort of “vending machine”: you deposited your
coin in a slot; you got to open a box. By the 1890s slot machines were
selling chewing gum, cigars and cigarettes, opera glasses, chocolate
rolls in individual paper wrappers, even quick looks at the precursor-
to-the-phone-book city directories—all manner of things. The basic
innovation was a lock activated by the deposit of a coin.
But then a new use was discovered. It wasn’t long before slot
machines began to include gambling machines. A newspaper of the
time dates the appearance of slot machines in this modern sense to
1
1893. One of those early machines rewarded winners with fruit candy
rather than money; it was not long before everybody ascribed special
meaning to that rare coincidence: the appearance of three cherries.
Before the 1890s were over, a new kind of addiction, to gambling
slot machines, had been born. In 1899 the Los Angeles Times reported,
“In almost every saloon may be found from one to half a dozen of
these machines, which are surrounded by a crowd of players from
morning to night. … Once the habit is acquired it becomes almost a
mania. Young men may be seen working these machines for hours at
2
a time. They are sure to be the losers in the end.”
Then the regulators stepped in. Slot machines were ruining so many
people’s lives they had to be outlawed, or at least regulated, along with
gambling more generally. They disappeared from public life, relegated
almost entirely to the fringe: to special places designated as casinos,
and to loosely regulated Nevada, where slot machines are widely to be
found in supermarkets, gas stations, and airports; the average adult
spends 4 percent of income on gambling, nine times the US national
viii PREFACE
3
average. But even in Nevada there are some limits: in 2010 the Nevada
Gaming Control Board rejected a proposal to allow convenience store
customers to take credit on a slot machine, rather than their usual
4
change.
With computerization, the slot machine has entered a new career.
Following the title of the 2012 book by MIT’s Natasha Schüll, the
5
new machines are addictive by design. Mollie, whom Schüll met at
Gamblers Anonymous in Las Vegas, demonstrates the human side of
this addiction. Mollie drew for Schüll a map that represents how she
6
sees herself. It shows her as a lonely stick fgure, standing by a slot
machine, surrounded—entrapped—by a circular road. That road con-
nects six of the most important places in her life: the MGM Grand,
7
where she works as a reservationist; three spots where she gambles ;
the site of Gamblers Anonymous, where she tries to cure her gam-
bling; and, fnally, the site where she picks up medicine to fght her
anxiety disorder. Mollie is fully aware of her problem: she does not go
8
to the slots with an expectation of winning. She knows she will lose.
Rather, she is drawn by a compulsion. And when she gets there on her
binges, she is solitary; the action is rapid and continuous. Mollie goes
into what she calls “the zone.” Press the red button. The lights and
the show come on. She wins or loses. Press the red button one more
time. And one more time. And one more time. Again. And again. And
again … until the money is all gone. Mollie is not some outlier in Vegas.
Ten years ago deaths due to cardiac arrest were an especially serious
problem in the casinos. The emergency crews could not get through.
Finally, the casinos created their own specially trained defbrillation
teams. One surveillance video shows why such special training was
necessary. In the video, as a squad from the casino defbrillates the
heart arrest of a fellow player, the surrounding players play on, their
9
trance unperturbed, even though the victim is literally at their feet.
What Markets Do for Us
The history of the slot-machine-good / slot-machine-bad from the
1890s to the present illustrates our dual view of our market economy.
Most fundamentally, we applaud markets. Free markets are products
of peace and freedom, fourishing in stable times when people do not
live in fear. But the same proft motive that produced those boxes
PREFACE ix
