Does Cinnabon Prove We're Phools?

by Donald J. Boudreaux

Foundation for Economic Education
December 14, 2015

The phlaws in George Akerlof’s and Robert Shiller’s Phishing for Phools are many — phar too many for me to have addressed in the review of the book that I wrote that is forthcoming in Barron’s. One phlaw is Akerlof’s and Shiller’s inadequate appreciation for the role of entrepreneurship.

Akerlof and Shiller would likely dispute the above contention. They would insist that they treat entrepreneurship more fully than does standard microeconomic theory. This insistence would be correct, but that standard (please pardon the double entendre) is too low to be relevant. Genuine entrepreneurship seldom, if ever, appears in formal mainstream economic theory.

Akerlof and Shiller argue that people — as consumers and investors — are plagued by such a plethora of psychological quirks and informational deficiencies that their decision-making very often makes them prone to buy things that they don’t really want to buy and otherwise to act in ways that they don’t really want to act.

Arguing correctly that profit opportunities are not long left unexploited by profit-hungry entrepreneurs, Akerlof and Shiller insist that entrepreneurs predictably exploit people’s psychological quirks and informational deficiencies. Entrepreneurs do so by offering goods and services that appeal to those desires that spring chiefly from people’s psychological quirks and informational deficiencies. The result is a “phishing equilibrium” in which all opportunities for entrepreneurial profit are fully exploited.

But Akerlof’s and Shiller’s “phishing equilibrium” is no such thing. The authors fail to apply the logic of entrepreneurship as fully as it should be applied; they apply it only half-way.

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Law and Economics: Philosophical Issues and Fundamental Questions

Edited by Aristides N. Hatzis & Nicholas Mercuro

London/New York: Routledge, 2015

The Law and Economics approach to law dominates the intellectual discussion of nearly every doctrinal area of law in the United States and its influence is growing steadily throughout Europe, Asia, and South America. Numerous academics and practitioners are working in the field with a flow of uninterrupted scholarship that is unprecedented, as is its influence on the law.

Academically every major law school in the United States has a Law and Economics program and the emergence of similar programs on other continents continues to accelerate. Despite its phenomenal growth, the area is also the target of an ongoing critique by lawyers, philosophers, psychologists, social scientists, even economists since the late 1970s. While the critique did not seem to impede the development of the field, it certainly has helped it to become more sophisticated, inclusive, and mature. In this volume some of the leading scholars working in the field, as well as a number of those critical of Law and Economics, discuss the foundational issues from various perspectives: philosophical, moral, epistemological, methodological, psychological, political, legal, and social.

The philosophical and methodological assumptions of the economic analysis of law are criticized and defended, alternatives are proposed, old and new applications are discussed.

The book is ideal for a main or supplementary textbook in courses and seminars on legal theory, philosophy of law, jurisprudence, and (of course) Law and Economics.

Aristides N. Hatzis is an Associate Professor of Legal Theory at the University of Athens, Greece.

Nicholas Mercuro is Professor of Law in Residence ath the Michigan State University College of Law and Member of the faculty of James Madison College, Michigan State University, USA.

Here you can find the Preface, the Table of Contents and Two Chapters (by Judge Richard Posner and Prof. Martha Nussbaum)

How free markets make us fatter, poorer and less happy

by George A. Akerlof & Robert J. Shiller

Washington Post
October 22, 2015

It is now not uncommon for 11-year-olds to be diabetic. I see one reason for it every time I check out at my local Safeway in Washington. The candy is right there at the cash register, waiting to be eaten.

But this does not mean that the manager of the store is mean or even irresponsible. If she has qualms about this practice, she would face a real dilemma: She needs to show a profit. The margins at supermarkets are tiny. No matter what her morals, she has almost no choice but to place those sweet impulse buys where customers can see them. In other words, there is an economic equilibrium in which businesses take advantage of every opportunity to increase profits. In such an equilibrium, the candy will be at the checkout counter.

Curiously, while economists understand each and every such instance where people are tempted to buy things that are not good for them, they fail to appreciate that this occurs because of a general principle of economics. They fail to understand that free markets, as bountiful as they may be, will not only provide us with what we want, as long as we can pay for it; they will also tempt us into buying things that are bad for us, whatever the costs.

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See also

‘Date-Onomics,’ ‘The Sex Myth’ and ‘Modern Romance’

by Kristin Dombek

New York Times
September 9, 2016

Back when adultery and gay sex were widely criminalized in the United States, when masturbation was thought to make you crazy and fellatio was taboo, the Kinsey Institute famously revealed that Americans were secretly less faithful, more gay, more various in their sexual practices and more perverse than most wanted to think. Sixty years later, many of us have come to regard sex — preferably passionate, hot, transformative sex — as central to our lives. In the time of Tinder, our sexuality feels anything but secret. But romance is still mysterious — what does it feel like for everyone else? — and three new books try to explain modern mating.

Rachel Hills, an Australian journalist who lives in New York, argues in “The Sex Myth” that there is a new gap between what we believe and what we do: Americans are secretly having less and worse sex than everyone thinks, and feeling bad about it. She cites a recent study, which shows that on any given weekend, 80 percent of male college students think their schoolmates are having sex (it’s actually 5 percent to 10 percent). Hills argues persuasively that when our value is tied to sexual desirability and performance, we live with a new kind of shame: If we’re not having good sex, all the time, there’s something wrong with us. In this way, the liberation of sex actually regulates us.

Motivated by her own sense of falling short of some sexual ideal, and by conversations with friends who felt the same way, Hills attempts to show how we moved from “a culture that told us we were dirty if we did have sex to one that tells us we are defective if we do not do it enough.” She examines social science literature and media, and interviews hundreds of people to contrast the “myth of a hypersexual society” with our lived reality. “The Sex Myth” provides a clarifying framework for understanding new versions of old contradictions — that women must choose between being “wholly ‘pure’ or ‘empowered,’ innocent Madonna or self-assured Gaga.” Hills makes a smart argument against that strain of neo- or anti-feminism that would have women rebel against objectification by objectifying ourselves: We might be better off, she argues, to stop identifying ourselves primarily with our sex lives.

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How Homo Economicus Went Extinct

by Carol Tavris

Wall Street Journal
May 15, 2015

As a social psychologist, I have long been amused by economists and their curiously delusional notion of the “rational man.” Rational? Where do these folks live? Even 50 years ago, experimental studies were demonstrating that people stay with clearly wrong decisions rather than change them, throw good money after bad, justify failed predictions rather than admit they were wrong, and resist, distort or actively reject information that disputes their beliefs. In recent years, a new field has emerged—“behavioral economics”—to propose an alternative to the rational man of traditional economics. A spate of popular books and empirical studies have been published exploring human irrationality—in decision making, beliefs and actions. Researchers in this field are making up for lost time, or perhaps realizing that they are social psychologists after all.

As the offspring of traditional economics and experimental social psychology, behavioral economics shows remarkable hybrid vigor, and Richard Thaler, one of the new field’s founders, acknowledges its debt to psychological science throughout his highly enjoyable intellectual autobiography, “Misbehaving.” Indeed, his opening aphorism is Vilfredo Pareto’s 1906 claim that “the foundation of political economy and, in general, of every social science, is evidently psychology. A day may come when we shall be able to deduce the laws of social science from the principles of psychology.” That day is here, as Mr. Thaler explains.

For all of his creative career spanning 40 years, Mr. Thaler, who is a professor of behavioral science and economics at the University of Chicago Graduate School of Business, has been studying “the myriad ways in which people depart from the fictional creatures that populate economic models.” As human beings who arrogantly and often wrongly consider ourselves “sapiens,” we simply don’t match the model of human behavior favored by economists, one that “replaces homo sapiens” (whom Mr. Thaler calls Humans) with “a fictional creature called homo economicus” (whom he calls Econ). “Econs do not have passions; they are cold-blooded optimizers,” he says. “Compared to this fictional world of Econs, Humans do a lot of misbehaving”—thus the book’s title.

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Voting is irrational. Emotions always win

by Eyal Winter

Guardian
May 7, 2015

One of my father’s vivid memories of growing up as a Jewish child in Nazi Germany concerned the horrifying visit of his uncle Walter one evening in 1933. Pale as a ghost and shivering with fear, Walter entered the house crying: “I’ve been bewitched!” On his way home from the train station he had come across a Nazi rally. At first he feared the mob, but when he gained some confidence that his Aryan appearance would disguise his Jewish identity a strange feeling slowly took hold of him.

When the rally sang the Nazi party anthem, Walter joined in, mumbling the words to the song. Not long after that he suddenly noticed that he was actually getting swept up in the emotions. Along with everyone around him, he was shouting “Sieg Heil”. He completely forgot that the ideology he so much wanted to be part of regarded him as one of its most hated enemies.

When we talk about politics, we tend to pretend that voting is ultimately a rational choice. The works of the great rationalists Thomas Hobbes and Immanuel Kant are set texts in political science departments. On the doorstep, most campaigners still win over voters by logical argument, or at least try to, weighing up candidates’ pros and cons on different policies. James Carville’s famous phrase from Bill Clinton’s early 90s campaign, “It’s the economy, stupid!”, reflects a conventional wisdom that voting is primarily about spending money wisely.

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Η Γιούλη Φωκά για τον εγκέφαλο και την ορθολογική συμπεριφορά

20 Μαρτίου 2015
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