We have known, for a fairly long time, that we can get swayed by short-term considerations and act against our long-term interests. We know we need to eat healthy and exercise to ensure a healthy future but many of us overeat and indulge in foods we should not consume and either do not exercise or not exercise enough. Many of us smoke and/or drink excessively even though we know, and there is no ambiguity about the evidence here, that smoking and excessive drinking are injurious for us.

Behavioural psychologists have also shown that there are significant biases and limitations in the way we process information in our decision-making. The order in which information is provided, salience of certain facts, how we process probabilistic events and how much information can we process at any point in time are all factors in how we decide.

Literature from advertising and marketing provides ample evidence that our wants and desires can be and are shaped by many factors. Consumer sovereignty is all fine and dandy as a concept, and there is hardly a time when, in more developed societies at least, we force a consumer to buy something he/she does not want to, but consumer tastes are very open to manipulation by advertisers and marketing people. They can create wants where none exist and shape existing wants in directions that consumers might not have thought of themselves.

Information is a crucial variable in the success of markets functioning efficiently. But, information is usually asymmetric and markets are, especially in many developing countries, not always complete. Using information revelation strategically, to one’s advantage, is also quite common where asymmetries exist.

If you are trying to buy a second hand car, the seller is likely to know more about the car and its faults than you. She might not reveal faults and over-emphasise good qualities. But, since she is an interested party, you cannot trust anything she says. This effects how the market for second hand cars can be organised: you need third parties to credibly reveal car quality.

Akerlof and Shiller do not go beyond what we have known in these areas, and for quite some time, in any way. Nor do they set out to do so. The contribution of their book, Phishing for Phools: The Economics of Manipulation and Deception, is that rather than seeing the above issues as special cases that in some ways make markets deviate from ideal forms once in a while, Akerlof and Shiller argue that the mentioned issues are an integral part of markets and how market economies are organised. This is the way we are and the way markets are.

Given the above, markets and people will always be open to manipulation and deception. We can set up regulatory regimes and we can make these regimes as dynamic and responsive as possible but the opportunities for phishing, given dynamic markets, will always be there. A new drug, a new financial instrument, a new idea or even old ideas and fads in new situations will create new and unforeseen openings for phishing. We can be vigilant and forestall more obvious forms of phishing and learn from the past but we will not be able to foresee all possibilities that the future will bring. In the same way as all contracts have to be contingent as we cannot foresee all future possibilities, regulation is contingent too: the regulator can also only forestall what she can anticipate. She can respond to new situations as quickly as possible, but that does allow phishing to be lucrative.

Food and Drug Administration (FDA) in the US has stringent requirements before they allow drugs to be available to people. Still there have been many cases where ineffective drugs or drugs with strong but hidden side-effects have been passed. Pharmaceuticals have found ways of working with and around all FDA regulations. FDA keeps regulations dynamic, but it is far easier for companies to find ways of phishing than for FDA to close or foreclose these opportunities.

Things are much worse in Pakistan. In many areas we do not even have functional regulators. What do private schools teach? Does anyone keep an eye on them? What percentage of medicines available in Pakistan is fake and/or spurious? Who can tell us that?

In others areas, where regulators are present, they have significant capacity issues. In some cases regulators have been captured by specific interests. Do NEPRA/OGRA safeguard consumers’ interests? Whose interests does PEMRA look out for? Did PTA, SECP and Competition Commission do their job when they approved the merger of Warid and Mobilink?

We are much more open to phishing activity than citizens of developed countries. As we continue to privatise, deregulate and liberalise without creating an efficient and effective regulatory structure, we become more open to such activity. In some countries even if the regulatory structures are weak, the judicial system offers effective checks and balances. But this is not the case in Pakistan: litigation is too costly and slow to respond in most cases.

Akerlof and Shiller, both winners of the Nobel Prize in economics, make the case for showing how phishing activity is an integral part of the market system very well. This book should be read and its insights internalised by all who are trying to understand the dynamics of markets, especially those who are living in the developing countries.

But beyond talking a little about individual vigilance and regulatory institutions/structures, Akerlof and Shiller do not talk of remedies. If phishing is an integral part of markets, the only option is that we should be prepared to live with it and just try to minimise its impact through individual awareness and what we can do through regulatory institutions? Given how long and deep Akerlof and Shiller have thought about these issues, it would have been wonderful if they had given us their thoughts on response aspect as well. Maybe that is for the future.

This book is a must read for not only students of social sciences, it should be read by bureaucrats, politicians and public policy enthusiasts. More importantly, it should be read by citizens: they need to know how they are open to phishing based on cognitive and psychological factors as well as due to information issues. And these issues are integral to how markets work. This awareness will help us design and develop better coping mechanisms individually, collectively and institutionally.