Cass R. Sunstein via New York Review of Books:
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Phishing for Phools: The Economics of Manipulation and Deception
by George A. Akerlof and Robert J. Shiller
Princeton University Press, 272 pp., $24.95
Very few economists foresaw the great recession of 2008–2009. Why not? Economists have long assumed that human beings are “rational,” but behavioral findings about human fallibility have put a lot of pressure on that assumption. People tend to be overconfident; they display unrealistic optimism; they often deal poorly with risks; they neglect the long term (“present bias”); and they dislike losses a lot more than they like equivalent gains (“loss aversion”). And until recent years, most economists have not had much to say about the problem of inequality, which seems to be getting worse.
There is a strong argument that within the economics profession, these problems are closely linked, and that they have had unfortunate effects on public policy.