Making markets work for people

The idea that markets are perfect if left free is profoundly wrong argues Robert Shiller, Nobel Prize winning economist, who was speaking at the RSA today. 

The concept of the perfection of markets is attributed to Adam Smith, but says Shiller, even he didn’t entirely believe it. 

In fact in the modern free market economy businesses grow up around human weakness. Markets are built on phishing and we have no idea as individuals how pervasive this is. 

He gave a couple of examples: cigarettes and slot machines.  The Malboro Man  grew out of research showing that the rugged cowboy was the character which the target customer most closely identified with – everywhere in the world. So Malboro cigarettes have huge consumer preference despite the evidence from research that all cigarettes taste pretty well the same. 

Gambling, he points out, is addictive and destructive. And slot machines are among the most addictive especially when you optimise them to take advantage of the weakness. It turns out, he says, that the optimal time between button pushes is 3.5 seconds. If the flow is broken the player may walk away. So now they are designed to do nothing to break the cycle. 

Shiller argues we need regulations to combat this characteristic of markets to phish. 

“If we didn’t have regulations we would have slot machines everywhere,” he argues. 

“Government intervention should not be considered evil.”

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