This book is pretty much what you expect from a text authored by a behavioral economist. It has lots of entertaining stories which follow the history of the eternal conflict between unethical entrepreneurs, and the governments trying to protect fallible individuals.
Table of Contents
Profit Seeking And Morality
The core idea of this book is that humans are not 100% rational and everyone has weak spots which can be exploited by people who seek profit with no regard for the suffering that may be caused by chasing it. There is nothing wrong with profit per se, the authors do not deny that there are many honest businessmen with good intentions but there are also enough people who would do anything for profit, no matter what the consequences are.
Personally, I believe that markets and morality are different things, and it might be good for society if they stay this way. Businessmen are not philosophers, after all. They can be good at satisfying demand, but they might be delusional about anything else. We can take drug cartels as an example: I don’t think that selling or buying drugs is immoral but killing people in the process probably is. Should we blame business for discovering and satisfying this kind of demand? Maybe we should blame the consumers for creating demand for drugs in the first place? Or maybe we should blame the governments for outlawing the whole thing which made it attractive to the most ruthless criminals? Morality is a complex thing but profit seeking is simple at its base.
Irrational Behavior
One of the most interesting stories in “Phishing for Phools” is the story about the gambling industry. Gambling was much more popular in the past than it is now. A lot of people lost their money because of their gambling addictions. Is gambling rational? Of course not, and people know it for thousands of years but still, a lot of people do it. Gambling addiction can have many forms: it might be a lottery or a casino, or a slot machine in the corner store. People bet on everything from sport events to chicken fights and even market speculation can be considered a form of gambling. The authors praise the government for making many gambling activities illegal which has helped to reduce the number of addicted people. There are many potential gamblers who haven’t lost their money, thanks to the regulations!
Should We Enforce Rationality?
I think those stories are great, and they make a lot of sense. It’s hard to deny the positive effects of regulations. Gambling is prohibited in most of the countries, which prevents a lot of suffering. Anti tobacco campaigns have saved many lives but, unfortunately, it’s not the whole story. The war on drugs, for example, was lost and there is a lot of evidence that it only made things worse.
I think it’s very dangerous to make decisions for other people, and it’s tempting for any government to say “I know better!” and ban something. It’s disturbing that the governments treat people as idiots who do not know what they really want. I don’t doubt the benefits of certain restrictions, but the negative effects of centralization of power and control can greatly outweigh those benefits. History shows us that idiots can reach pretty high places in politics and force their will on others.
Another issue I have with such a solution is the moral one: should we make the lives of some people harder in order to make the lives of other people easier? Let’s take taxes on alcohol as an example: alcohol is not bad in moderation so why are we taxing it more than bananas? The regulation proponents would say it’s because some people can’t drink in moderation. Yea, that’s a good point, but why should the rest of us pay for that?
Conclusion
“Phishing for Phools” is a great book that tells us that we are not as rational as we may think we are. That’s a narrative you would expect from a behavioral economist, so no surprises there. This book has many interesting stories about people who profit from manipulation and deception and how our governments react to those “immoral” business practices. Behavioral economists tend to be pretty good when it comes to wrapping anecdotal data in a good story, and I wish they were as productive in creating some credible financial models. Personally, I don’t think that the regulation is a one-size-fits-all solution, and we should be wary of any kind of unnecessary government intervention. The recent war on free speech might be a good example of that trend. It’s easy to assume that people who don’t share our beliefs are either evil or stupid but the reality is more complex, and we should be wary of introducing more regulations and censorship. Paternalism tends to have a lot of unintended consequences, and it’s very easy to do more harm than good.