Among the winners of the Economics Nobel  two of the most interesting are George Akerlof and Robert Shiller. Their book Animal Spirits provided me with much of the intellectual stimulus to write my own Zombie Economics. Their latest has the intriguing title Phishing for Phools: The Economics of Manipulation and Deception.
The central theme is simple. We are all prone to errors in reasoning. Given the complexity of the world, and the finiteness of our reasoning capacity, it could scarcely be otherwise. This obviously leads to decisions that differ from the perfect optimality assumed in simplistic versions of economics.
More importantly, markets create opportunities for others to exploit and amplify our errors in reasoning. Advertising uses all sorts of device to encourage us to make decisions that we would not make if we gave careful and rational consideration to our choices. The entire credit card industry relies for its profitability on the fact that cardholders don’t (as is almost always sensible) pay off their balances every month. And so on.
As Akerlof and Shiller observe, the fact that markets systematically amplify reasoning failures undermines the standard claims about the optimality of market processes.
The proposed policy responses are a bit limited, focusing mainly on regulation and consumer protection. Still, the book is well worth reading.
An interesting side point is an argument that the harms of alcohol, a notorious source of suboptimal decisions, have been greatly underestimated.
A couple of other new books:
The Rise and Fall of Classical Greece by Josiah Ober Is fascinating, combining careful use of quantitative data with a compelling story of how the Greek city-state system grew, survived the imperial conquests of Alexander and influenced the Romans enough to pass on a legacy of democratic exceptionalism.
Also, Andrew Leigh has continued to produce books regularly despite the work of being an MP and Shadow Assistant Treasurer. His latest Luck in Politics covers a bunch of themes I’ve been keen on.
One is the obvious, but often ignored, point that the role of luck in political outcomes is generally underestimated, particularly by pundits who want to assume that whatever happens must have had deep causes. For example, if the electoral boundaries had been drwan a little differently in 1998, John Howard would have been a one-term PM and serial failure.
More significantly, thinking about luck in general ought to incline us to a more egalitarian view of policy. We do well or badly in life as much because of luck as because of our own efforts. In particular, particular talents (say, picking stocks or kicking balls) lead to fame and riches in some social contexts and are valueless in others.
[fn1] If you’re thinking of making a point about the name, please don’t. I’ve already covered it .