Phooey
The other Feature Article on Econlib today is “Phools and Their Money,” Arnold Kling’s review of Phishing for Phools: The Economics of Manipulation & Deception by George A. Akerlof and Robert J. Shiller.
A highlight, after Arnold gives their first example of manipulation, Cinnabon (which, by the way, I have literally never eaten, tempted as I have been):
Even if they fail to prominently display calorie counts, I do not think that Cinnabon’s success relies on deception. Nobody confuses iced cinnamon rolls with kale salad. Pretty much everybody who eats them has some sense that this is not health food. If Cinnabon is guilty of something, it must be manipulation, through the use of smell and location. But what are they supposed to do–set up shop in remote locations with no foot traffic and emit a smell of liver and onions?
And:
Overall, I do not think that the authors chose well in starting with the Cinnabon example. They do not make the case that people who buy cinnamon rolls are doing something that those consumers would rather not be doing. Instead, it just seems that such consumers are doing something that Akerlof and Shiller find reprehensible. They need to come up with an objective way of making the distinction between satisfying consumer wants and manipulating consumers. It is demagogic to rely on one person’s disgust at another person’s consumption of fatty foods.
And Arnold’s ending:
Akerlof and Shiller are Nobel Laureates, which they earned with previous research. That is what makes this book so disappointing. People may enjoy reading Phishing for Phools, but it is lacking in real intellectual nutrition. It is the literary equivalent of a Cinnabon.
READER COMMENTS
Capt. J Parker
Oct 5 2015 at 8:34pm
A few short years ago my job had me on a death march which included a four-times-a-week connection through O’Hare. The only bright spot in the whole mess was being able to grab a Starbuck’s Latte and a Cinnabon while heading from Terminal C to Terminal G. Please don’t tell me Cinnabon was not health food.
Damien
Oct 6 2015 at 5:10am
It does not have to be an either-or proposition. Even when they’re being “phools”, people can still be making decisions at the margin. Even if most people are aware that Cinnabon is unhealthy, they may still be eating more of it than they would absent these pleasant smells, or if they were provided with accurate information about how unhealthy it is, etc.
Cinnabon doesn’t need to convince people who would *never* eat their products to do so, they can just convince people who already like them to eat them more often or to eat more of them when they do. Doing what you’d rather not be doing can be about quantity and frequency too.
Or is there no difference between deciding in advance that you’re going to eat pizza every other Tuesday, and buying one on impulse even though you’re going to regret it later because you’re trying to lose weight?
Is it still controversial that we’re often influenced by our environment (smells, sights, etc.) and that we’re not just rational machines optimizing our well-being with perfect foresight and self-control?
Chris Koresko
Oct 6 2015 at 8:59am
From Kling’s description, it seems to me that Akerlof & Shiller may have ventured into deep philosophical waters without a boat. If they challenge the presumption that people make market choices based on free will, then it seems appropriate to demonstrate convincingly that assumption is commonly violated before attacking everyday commerce as an exercise in ‘phoolery’.
At one level it’s reasonable to suppose that some transactions aren’t really voluntary even when no force or threat of force is present. Does anybody really doubt the existence of addictions to drugs, and perhaps gambling and pornography? One can make the argument that an addicted purchaser may not be choosing them freely. I like to think that’s at the root of our society’s general acceptance of government regulation of those markets.
But to deny free will so broadly that every unhealthy purchase is implicitly a result of an exploitation of some addiction strikes me as dangerous. Where would it lead but to a call for regulation of nearly every personal choice we make?
This argument reminds me of the “You didn’t build that business!” meme being pushed by Progressives a year or two back. It’s part of an intellectual attack on the foundations of a free society.
Hasdrubal
Oct 6 2015 at 11:14am
Is regret the factor that makes you a phool? If so, then there are certainly situations where you cannot not be a phool: The opportunity cost of buying a pizza on impulse is not losing weight, but the opportunity cost of losing weight is not having those spontaneous pizza nights. Both are likely to cause you to regret your decision. Why does one make you a phool and the other make you rational? Is there something fundamentally better about long term or health goals than short term or unhealthy pleasures? How do you determine that?
@Chris Koresko
“Voluntary voluntary” transactions are called euvoluntary transactions, Mike Munger (of Kids Prefer Cheese fame) has written on that subject and even has a blog devoted to it here:
David R. Henderson
Oct 6 2015 at 6:19pm
@Damien,
Is it still controversial that we’re often influenced by our environment (smells, sights, etc.) and that we’re not just rational machines optimizing our well-being with perfect foresight and self-control?
Not at all. But I think you need to take seriously Arnold’s question:
“But what are they supposed to do–set up shop in remote locations with no foot traffic and emit a smell of liver and onions?”
Ian
Oct 7 2015 at 1:55pm
This is more about opportunity costs than it is
about Cinnabon’s deception of the consumers. Because people can choose not to buy the product to get something healthy but they instead chose to indulge in something that is very sweet and delicious. Yes Cinnabon has fatty foods but people still buy them because the cinnamon rolls are so tasty to eat. So they are more at fault for manipulation than anything because they place the stores in places with high foot traffic to get the most out of its sales model and the smell just brings people into the store to buy the product. That is no different than a Auntie Anne’s pretzel shop is the same because it is the smell that attracts its customers to the place of business in the first place.
While the fact that some people cannot control their urges to buy a Cinnabon product most people can control that urge. Also the buns are unhealthy but people deserve the right to treat themselves to something bad for them every once in a while to keep them on the path of losing weight because I have done that plenty of times before. Is that so bad though because yes sweets are bad for you but they also bring back childhood memories you may have forgotten about. But using smells is controversial because it can subconsciously have us make decisions we might not normally make.
Julien Couvreur
Oct 9 2015 at 3:47pm
In addition to the points brought above (how do you really know when someone is a phool?), there is the question of phoolery in the regulatory process…
And is phoolery more common in the market or in politics?
Charles Young
Oct 24 2015 at 6:07am
Kling has missed the point. The issue is not whether the Cinnabon shop should be somewhere else, or should emit a different smell. The issue is whether someone who has bought a Cinnabon has increased his welfare. Conventional economic theory says “Yes, always”. Akerlof and Shiller remind us that the common sense answer (“probably not, unless you were conscious of hunger before you smelt it”) is much more plausible. That is the answer most of us would give to a child in our care, and applies no less to adults.
Once we accept that market choices can be welfare-reducing, much has to be rethought. Of course, it doesn’t follow that the government should forbid us to buy these buns, but as Chris Koresko says, it opens deep philosophical questions. That is a matter for praise, not for criticism.
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