Last year (2015), thirty-one years later, economists and Nobel laureates George Akerlof and Robert Schiller have to a large extent recast and expanded upon Cialdini’s ideas in their book, Phishing for Phools: The Economics of Manipulation and Deception.
While Cialdini’s formulation focused on how individuals respond to “professional compliance” techniques, Akerlof and Shiller offer a more general account of why free markets “make fools of us” by capitalizing on human weaknesses.
According to Cass Sunstein’s review (New York Review of Books, 10/22/15) Akerlof and Shiller distinguish between phish and phools. Phisherman such as banks, drug companies, real estate agents, automobile salesmen, and cigarette companies take advantage of human failings to do something that is in the phisherman’s interest, but not in the phools.
Human failings are any number of human errors such as overconfidence, loss aversion and short term, rather than long term bias. Sunstein writes:
Informational phools are victimized by factual claims that are intentionally designed to deceive them, …psychological phools [are] led astray either by their emotions…or by cognitive biases…
They also believe that phishing for phools “is the leading cause of the financial crises that lead to the deepest recessions.”
In his review Sunstein’s central message is that give and take of free markets are distorted by phisherman. They lead people to smoke by sowing doubt about current research; they lead people to underestimate the harmful effects of alcohol and overeating; they induce individuals to buy a product they don’t need or is unhealthy.
In these respects, the so-called “invisible hand” can readily go wrong. As a result, some kind of regulation is required to curb the phisherman’s power. It remains unclear what form regulatory interventions might take and how they can ever be implemented, let alone legislated given the current mood of this country.
In Akerlof and Shiller’s view “companies exploit human weaknesses not necessarily because they are malicious or venal, but because the market makes them do it.” Corporations seek to maximize their profits and in most cases will exploit every opportunity to do so.
In short, once we understand the extent to which individuals succumb to phisherman techniques, we will have yet another reason to call free market economics into question.
13 comments:
That's very interesting - have never really thought about it purposefully, but what they are saying makes a lot of sense. Why else do we behave so stupidly to our own detriment.
But the devil is always in the details - our lifestyle (materially, anyway) is the best on the planet thanks to a market economy, but we are not good at all in making it work fairly for everyone or avoiding the economic disasters created by the "phishermen and phools" - we seem to always close the door only after the cows are all out.
I'm curious - what do the authors mean by "the invisible hand"?
Linda: As I understand it, the "invisible hand" was a term originally used by Adam Smith to explain how a free market (unregulated) works to the benefit of all. How this happens is a mystery to me, although the metaphor is said to justify unregulated markets. Leave it alone and everything will be just fine. Of course that's a lot of baloney.
Otherwise once we are aware of compliance techniques or those of the phishermen, we might might be better able to resist their undesirable influence and make better decisions.
Do businesses, religions, and governments all seek to give people what they want? Should they give people what they want? Or should they give people what they think people should have – what they think is best for people? If businesses, religions, or governments do not give people what they want, then don’t people go elsewhere in search of what they want? If there are any fools are they self made fools who want things that are not good for them or that they want as a result of cognitive dissonance to block out any inconsistent information? Why does the blog and the published material that it relates to limit its criticism to businesses, without also criticizing religious organizations and governments? Are religions and governments not also engaged in seeking the approval and patronage of the people? Or are those who criticize businesses, and perhaps should also criticize religions and governments, looking for something of a “beneficial dictator” to force upon people what they think the people should have, without regard to what the people want? It appears to me that many people, if not most people, actually want to be “deceived” – they want to believe that they are entitled, etc. Am I inaccurately perceiving the world around me and the nature, motivations and actions of people?
Dom: I cannot imagine answering all your questions. There must be at least ten, perhaps twelve. I believe I mentioned governments as phishermen in my blog. But I did not mention religions, yes they can be phisherman too. I believe individuals should think twice, think very carefully before they make a decision. That's basically my message, as well as that of Cialdini Akerlof, Shiller and Sunstein. Are you being manipulated to do something you don't want? That's the question to ask yourself.
Richard:
Thank you for your quick response to my post. While my prior post did contain a number of questions, I included them as thought stimulants, rather than as specific questions for you to address and answer question by question.
I have followed your blog for quite some time. I always look forward to the next one. Your observations and questions are always excellent thought stimulants.
Whenever I am informed that you are taking a break and discontinuing your postings for various periods of time I am always disappointed and look forward to your start up again.
Dom:
I had no idea you followed my blog. And I very much appreciate your comments about it. I also stand corrected in so far mentioning governments as phisherman. On review, I didn't cite governments in the post, although I should have.
On the breaks I take: I do so in order to write essays. Writing essays and blogs are two different experiences for me and I find they are largely incompatible. Writing a serious essay requires research, depth and coherence that isn't a feature of blogs, most of which vary from one topic to another in succession.
Thanks again for your kind words. Yes, your questions were thought-provoking.
Richard
"Phishermen" have been around for as long as there has been any kind of trade, in other words, forever. I think they've got much better techniques these days though and the ability to far more damage than to hoodwink a few people. Regulation is a must but our current government doesn't seem to think so unfortunately because even if you are smart and avoid all the pitfalls on offer you are still affected when the economy goes south. Does the book talk about what needs to be done to change the system?
Stefanie: I've not read the book, only Sunstein's review, so I can't answer your question. I imagine Akerlof and Shiller write about regulations of some sort. Also, a public more aware of cognitive biases and the pitfalls of decision making would help. Once you know the tricks of a compliance professional, you are better able to overcome their influence and act the way you want. Still, this leaves unknown if and when some kind of regulation will be implemented to curb untrue and fallacious techniques.
The impressions that I have gotten from 45 years of providing legal and financial advice to entrepreneur individuals is that the emotional component of their decision-making process plays a much greater role than the rational component. It has appeared to me from my experiences that in more situations than I anticipated:
(X) the more successful the client-person has been in the past in their business or occupation the greater the emotional component of their future decision-making process, and the smaller the rational component, of their decision process – they have gone with and want to go with their “gut feel”, as they have in the past and want to continue to do so in the future, and
(Y) if they are given logical advice that conflicts with what makes them comfortable emotionally, they will feel uncomfortable and will look for some other advisor or “voice” that will tell them what they want to hear and at the same time tell them that what they want to hear is the most “logical” course of action for them to take. In other words, a large portion of the entrepreneurial population that I have encountered is looking for someone to tell them what they want to hear – but they will not admit that. If you tell them that, they are insulted.
As a result, advisors and sellers of products or ideas are frequently faced with a situation where they have to choose between:
(X) telling people logical rational truth, and being shunned by those who find the truth uncomfortable, or
(Y) telling people what they want to hear emotionally and what makes them feel comfortable emotionally, and being sought after with money and praise by those who are seeking immediate emotional satisfaction.
While it is certainly true that in many of these situations the customer-decision-maker may not be maximizing their best interest in the long run from following this process it appears to me from my experiences that many people will consciously or unconsciously assume the risk of future problems and discomfort in return for immediate present short-term emotional satisfaction – like people who smoke in the face of medical evidence of significant adverse likely effect of smoking.
So from the point of view of an individual or organization seeking to promote goods, services, or ideas, is the best advice to such individuals and organizations that they should:
(X) commit commercial suicide, by making sound logical, rational appeals to the population, and then be rejected by the large portion of the population that is more interested in short-term emotional satisfaction than long-term benefit, or
(Y) thrive commercially, and sometimes become rich and famous, by telling people what they want to hear now?
Given the public adulation of and desire for fame and fortune, rather than reputation for being a commercially unsuccessful rationalist, if a poll were taken I suspect that the most popular approach would be “phishing for phools”, which in the short run would be a win-win for both sides to transactions – the seller would generate significant profits and the purchaser would get immediate gratification. But perhaps others see the situation differently than I do –
Thank you, Dom. I'll try to respond to your detailed comments tomorrow. Richard
Dom:
I think your hypotheses are largely correct. I'm not sure if they have ever been investigated in a randomized, double-blind natural situation. No matter, we know that short term interests generally outweigh long term interests. Most individuals find it hard to take the long view. The only research I know about on this issue is with children in the well known "marshmallow" studies by Walter Mischel.
Do you know the film Merchants of Doubt?
Climate change. Cancer and cigarette smoking. Vacinations. What do we know?
Whatever knowledge we have is grounded in probabilities. What is the likelihood that carbon emissions lead to climate change? Does cigarette smoking causes lung cancer. Do immunizations prevent disease?
The merchants of doubt say we don’t know, we can’t be sure, we could be wrong, the evidence is suspect, we need more evidence.
Merchants of Doubt, a film made from the book of the same title, depicts the efforts to sow confusion and skepticism about the scientific research on these questions. Most of these efforts are corporate financed public relations campaigns designed to confuse the public.
Lies are spread, so is dishonesty and deception. The men and women who engage in these efforts couldn’t care less. They have a job, the untruths they spread are part of the deal. Their unapologetic propaganda is appalling.
Of course, there is always the question of who does and does not succumb to their playbook, the effects of their deceptions. Not everyone, that is for sure, but enough to block widespread acceptance of the research.
In any study, there are individuals who do not succumb to phishermen. We can learn a lot by looking more closely at their reasoning, why, unlike the majority, they were able to take the long view.
Thanks very much for you conjectures.
Richard
Richard:
Thank you for taking the time to consider and address my latest comments. I am appreciative.
Thank you for bringing to my attention the film and book “Merchants of Doubt”. I have not seen the movie nor have I read the book.
Since reading your comment I have read the Wikipedia entry for that book/movie which states, among other things:
• The film traces the use of public relations tactics that were originally developed by the tobacco industry to protect their business from research indicating health risks from smoking.
• Using a professional magician, the film explores the analogy between these tactics and the methods used by magicians to distract their audiences from observing how illusions are performed
• The premise of these interludes is that there is an analogy between the techniques of professional magicians and the tactics of public relation organizations
• The principal distraction tactic has been the use of convincing personalities who claim that the uncertainties in the risks militate against taking action.
I have also bookmarked the Kindle version of the book to remind me to read the book.
Your thought-provoking comments led me to wonder:
(X) are the merchants of doubt all or virtually all businesses and/or advocates of those on the “rightest side” of political issues, or
(Y) are merchants of doubt just as prevalent among individuals, groups, and organizations on the “leftist side” of contentious social, economic, political, etc. issues?
If there are any independent objective analysis results providing an answer to this "rightest" – "leftist" merchants of doubt question, I would certainly be interested in learning about the results of such study. Perhaps a review of the book “Merchants of Doubt” would address this question.
As always, you are very helpful in encouraging and assisting your blog followers in thinking more deeply and probing beneath the surface.
Dom:
I appreciate your Wikipedia summary of the film. I haven't read it before, but as I recall the film, it is accurate.
I know of no research to answer your questions X and Y. The key point is the use of uncertainty to cast doubt upon research results in a large number of disciplines. That's easy to do, for there is always a wide variability in any measure taken in a study.
In addition, my hunch is that merchants of doubt and phishermen, in general, can come from any political persuasion.
Onward,
Richard
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