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  • MALE SPEAKER: Good afternoon.

  • Welcome to Talks at Google in Cambridge, Massachusetts.

  • Today it's my great pleasure to introduce Robert Shiller.

  • Dr. Shiller is Sterling Professor of Economics at Yale

  • and winner of the 2013 Nobel Prize in economics.

  • He's the author of the New York Times best seller "Irrational

  • Exuberance," and with George Akerlof, also a Nobel winner,

  • he's coauthored a previous book in addition to today's.

  • Dr. Shiller joins us today to discuss

  • the provocatively titled "Phishing for Fools:

  • The Economics of Manipulation and Deception."

  • As he says in the book, "Competitive

  • markets by their very nature spawn deception and trickery

  • as a result of the same profit motives that

  • give us our prosperity."

  • I'll let him take it from there.

  • Please join me in welcoming Bob Shiller.

  • [APPLAUSE]

  • ROBERT SHILLER: Thank you.

  • Jonathan told me that you recently had

  • Dick Thaler in the same series.

  • That's interesting to me.

  • Dick is an old colleague of mine.

  • We've been running a behavioral economics workshop

  • at the NBER, which is right near here, for 25 years.

  • And he wrote a book called "Nudge" with Cass Sunstein

  • about government policy.

  • And the book I'm going to talk about

  • could be considered the anti "Nudge."

  • It's kind of the opposite.

  • The presumption was that nudges are used for good purposes,

  • and maybe they are.

  • Do you know what a nudge is?

  • This is a new-- I'm drifting from my prepared talk.

  • We're all critical of economists.

  • There aren't any economist here, probably, right?

  • So economists have adopted a canonical model

  • of an economy consisting of self interested, utility maximizing

  • individuals who take prices as a given

  • and maximize their utility individually.

  • And that leaves to some kind of optimality

  • ultimately in the equilibrium that follows.

  • So both Thaler and I are critical of that model

  • that underlies economics.

  • And our criticism has something to do

  • with the field of psychology, of neuroscience, sociology,

  • which have a different approach to studying human nature.

  • I feel a little uncomfortable talking at Google.

  • I don't think I prepared adequately for you.

  • That's because a lot of what we talk about is marketing,

  • and we have an uncomfortable relationship

  • to marketing as you'll see.

  • Not necessarily negative, but just uncomfortable.

  • And I don't know what Google, isn't Google,

  • there's different ways of looking at it.

  • By the way, you're Google not Alphabet, right?

  • AUDIENCE: There's some Alphabet here.

  • ROBERT SHILLER: I'm all confused.

  • I'm talking to an organization in transition.

  • I don't know how to.

  • But I was thinking, I think of you as a search engine company,

  • but that's very narrow.

  • But I think maybe it's better to think of you as a marketing

  • company.

  • Is that a good?

  • You're a big data company, and we have mixed feelings

  • about all of these things.

  • [LAUGHTER]

  • So I thought I should start by saying that I've already

  • thought of Google as an ethical company in this space.

  • So just did a test this morning.

  • I went on to news.google.com, and I just

  • looked at what came up.

  • And there was, the way my computer does it,

  • I saw a big news story about Hurricane Patrick,

  • which is the biggest hurricane ever that's

  • about to hit Mexico.

  • That was the Google story.

  • And then to compare that I went, can I say it here?

  • Bing.

  • [LAUGHTER]

  • Now their screen, the lead story in their screen

  • was lone gunman kills one person at Tennessee State University

  • after a dice game.

  • OK.

  • Now that's sort of all right as news, but I think,

  • that's what we're going to call phishing in my mind.

  • We use the word phishing in our title,

  • you see it there, as a metaphor for a broader

  • range of deception.

  • So think about Bing putting that story on as the lead story.

  • Is that really high minded news reporting?

  • Well, to me it seems not, especially

  • since there's now a new website, I

  • forget the name, that lists every mass shooting.

  • And it turns out if they define a mass shooting

  • as, this didn't qualify but, four people killed at least.

  • And there's one every day in the United States.

  • So it's like why, is this really news?

  • And then at the bottom left of the Bing screen,

  • there was a news story, and the title

  • was "Drunken man breaks in by mistake to a neighbor's house

  • and crawls into bed with two young girls."

  • Now that is definitely not a news story

  • for me in the sense that it's wasting my time.

  • So I've had this good feeling about Google, largely

  • from that, well, in many things.

  • So what this book is about is about what's really,

  • it's a certain kind of general problem with free market,

  • unregulated economies.

  • And by the way, the co-author, George Akerlof

  • is as you mentioned is my coauthor on another book,

  • he to me is a very independent thinking person.

  • I wanted to write a book with him not quite knowing where

  • it would go, because I like working with people

  • who think differently.

  • And both he and I have always felt

  • somewhat critical about what goes on in our profession.

  • The point is to bring that out.

  • Now, the problem-- or also, what is

  • a fool, that's our coined word.

  • That's someone who may be very intelligent,

  • but doesn't appreciate how much manipulation and deception is

  • being foisted on him.

  • So the idea of our book is that we

  • would talk about many different kinds of manipulation

  • and deception.

  • Talk about it from a behavioral, from

  • a psychological standpoint.

  • And another thing about our book is that we're different from,

  • there's a long history of books on this topic as you may know.

  • We wanted to take it from a more economic perspective.

  • With both George Akerlof and I, when we were teenagers,

  • we didn't know each other then, we read Vance Packard's book

  • "The Hidden Persuaders."

  • Do you know this book?

  • It was a bestseller in the 1950s.

  • It detailed how advertisers use psychology to trick you.

  • And you are already aware that they do that sometimes, but you

  • read Vance Packard's book, and it comes across looking

  • much more frequent.

  • The problem with Vance Packard's book,

  • though, is that it doesn't have any economics in it,

  • and it seems to portray the marketers

  • as an evil conspiracy.

  • And we didn't feel that that was the right way to look at it.

  • So our book is about what we call a "phishing equilibrium."

  • It's not that people are evil, it's

  • that we have a market system that allows,

  • that almost forces people to play the tricks

  • that we don't like, and it's called competitive pressures.

  • So the theory of competitive equilibrium

  • is sometimes connected to Darwin's theory of evolution,

  • constant pressure on businesses to make profits,

  • and that means then that they will

  • be very efficient, because they will be struggling hard

  • to succeed.

  • But the problem is that they might

  • have to be dishonest within subtle,

  • it has to be within the law, of course.

  • But this more subtle form of dishonesty

  • underlies problems that we see in free markets.

  • We're going to come around at the end

  • to a plea for civil society, or an argument

  • that civil society is what really

  • matters in a successful free market economy.

  • By the way, I should add since I'm here,

  • I believe in free markets, and in fact, I

  • have something of an entrepreneurial history.

  • I started with Case and Weiss, a company

  • called Case, Shiller, Weiss in 1991

  • that produced home price indices and valuations.

  • We were ahead of Zillow.

  • We had an online in the mid 1990s home valuation service.

  • And the outcome wasn't as successful as Zillow,