I added this book to my reading list after I finished another book by Robert Shiller: ‘Irrational Exuberance’, which is full of entertaining stories that help readers to understand many concepts of behavioral economics. I expected a similar experience from reading ‘Phishing for Phools’ and I wasn’t disappointed.
Profit Seeking and Morality
The core idea of this book is that humans are not 100% rational and everyone has weak spots that can be exploited by people who seek profit with no regard for the suffering that may be caused by operating such a business. 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.
My personal opinion is that markets and morality are different things and it might be good 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. It’s all extremely relative so probably that’s good that markets prefer to stay away from moral judgments. Moral imperatives are fragile and vary from country to country, maybe demand is a better measure of what people really want and who are we to judge them?
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 and 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 and it’s hard to deny the positive effects of regulations. Gambling is legal in Canada and it causes a lot of issues because people spend tons of money on lotteries and casino tours. Gambling is prohibited in most of the countries, which prevented 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 but I find it disturbing that the governments treat their people as idiots who do not know what they really want. I don’t doubt the benefits of restrictions but the negative effects of centralization of power and control can greatly outweigh those benefits.
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?
‘Phishing for Phools’ is a great book that tells us that we are not as rational as we may think we are. This book has many interesting stories about people who made profit by manipulation and deception and how our governments reacted to those immoral business practices. 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. If we get accustomed to censoring speech and demand, only the censurers will win in the long run.