By Cass R. Sunstein
Behavioral science has become the usual term for psychological and economic research on human behavior, often designed to explore people’s biases and blunders. For that research, 2015 has been a banner year, with an unusually large number of important books. Five of them stand out – and two of these weren’t even written by social scientists.“Phishing for Phools,” by George Akerlof and Robert Shiller, is an instant classic. Akerlof and Shiller contend that free markets lead companies to “phish” – to exploit both the ignorance and the behavioral biases of “phools” (also known as human beings). One of their major contributions is to show that if we care about people’s well-being, the invisible hand is often the problem, not the solution.That hand sometimes punishes companies that fail to take advantage of biases, such as the tendency to ignore fine print or to show unrealistic optimism. Akerlof and Shiller are well aware that the free market does a lot of good, but they demonstrate that it can reward businesses (such as mortgage providers, cigarette companies and sellers of high-calorie foods) when those companies really don’t help their customers, but actually harm them.