George A. Akerlof is University Professor at Georgetown. His research is based in economics, but it often draws from other disciplines, including psychology, anthropology, and sociology. He played an important role in the development of behavioral economics.
In 2001 he was co-recipient of the Nobel Prize in Economic Sciences, along with Michael Spence and Joseph Stiglitz . The Nobel Committee cited Akerlof’s 1970 paper, “The Market for ‘Lemons,’” which for the first time described the role of asymmetric information in causing market perversity. A vicious circle in used car markets illustrates the phenomenon. Potential sellers of used cars, with their superior information, withhold good cars from the market; buyers react by reducing the price they are willing to pay; and in turn sellers further reduce the quality of cars put up for sale.
In 2009 Professor Akerlof published Animal Spirits, with Robert Shiller; and in 2010, Identity Economics, with Rachel Kranton, He is currently working on a new book, again with Shiller, with the title Phishing for Phools.
Prior to joining Georgetown, Professor Akerlof taught, with only brief interruption, at the University of California at Berkeley from 1966 to 2010. He was Visiting Scholar at the IMF from 2010 to 2014. He has been senior economist at the President’s Council of Economic Advisers, and past president, vice president and member of the executive committee of the American Economics Association, and member of the Council of the Econometric Society. He is a trustee of Economists for Peace and Security, and co-director of the Social Interactions, Identity and Well-Being program of the Canadian Institute for Advanced Research. He was Cassell Professor of Economics at the London School of Economics from 1978 to 2010.
In 2001 he was co-recipient of the Nobel Prize in Economic Sciences, along with Michael Spence and Joseph Stiglitz . The Nobel Committee cited Akerlof’s 1970 paper, “The Market for ‘Lemons,’” which for the first time described the role of asymmetric information in causing market perversity.
Ever since Adam Smith, the central teaching of economics has been that free markets provide us with material well-being, as if by an invisible hand. In Phishing for Phools, Nobel Prize–winning economists George Akerlof and Robert Shiller deliver a fundamental challenge to this insight, arguing that markets harm as well as help us. As long as there is profit to be made, sellers will systematically exploit our psychological weaknesses and our ignorance through manipulation and deception. Rather than being essentially benign and always creating the greater good, markets are inherently filled with tricks and traps and will “phish” us as “phools.”
Phishing for Phools therefore strikes a radically new direction in economics, based on the intuitive idea that markets both give and take away. Akerlof and Shiller bring this idea to life through dozens of stories that show how phishing affects everyone, in almost every walk of life. We spend our money up to the limit, and then worry about how to pay the next month’s bills. The financial system soars, then crashes. We are attracted, more than we know, by advertising. Our political system is distorted by money. We pay too much for gym memberships, cars, houses, and credit cards. Drug companies ingeniously market pharmaceuticals that do us little good, and sometimes are downright dangerous.
Phishing for Phools explores the central role of manipulation and deception in fascinating detail in each of these areas and many more. It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation. At the same time, the book tells stories of individuals who have stood against economic trickery—and how it can be reduced through greater knowledge, reform, and regulation.
Abigail Sussman is an assistant professor of marketing at the University of Chicago Booth School of Business. She is interested in how consumers form judgments and make decisions, from underlying mechanisms to applications. She investigates questions at the intersection of consumer behavior, psychology, and economics, with the aim of improving human welfare. Her central research examines psychological biases that can lead consumers to commit errors in budgeting, spending, and borrowing. She also explores how the same biases extend beyond financial domains to choices in other areas. Sussman’s prior experience includes work at Goldman Sachs in its equity research division. She earned a bachelor’s degree from Brown University in cognitive science and economics, and a joint PhD from the psychology department and the Woodrow Wilson School of Public and International Affairs at Princeton University.
In recent years, regulators and consumer advocates have focused on improving credit card statements to encourage consumers to repay more of their outstanding debt. For example, the CARD Act of 2009 implemented new requirements for disclosures, including the amount of debt consumers would need to pay each month to clear their balance in three years. However, existing research on the effects of these values is mixed. Presenting minimum payments can actually reduce the amount people pay towards their bill (e.g., Stewart, 2009), while the net effect of the 36-month payoff value was to have a neutral to negative effect on overall payment amounts (Agarwal et al., 2015; Keys & Wang, 2014; Salisbury, 2014).
Examining these questions, research designs are often unable to disambiguate whether these values on credit card statements serve as anchors or as reference points, and researchers have been largely agnostic regarding this distinction. Instead, this literature often refers to minimum values as anchors despite the fact that they appear to have many properties of reference points (e.g., Stewart, 2009; Thaler & Sunstein, 2009). We propose that this distinction may be important for understanding which values can effectively be used to increase payments.
Rather than looking at existing disclosures, we examine additional values that could be presented on statements. We investigate (i) whether additional values on credit card statements can meaningfully influence subsequent payments (ii) whether these values act as anchors or reference points and (iii) when these goals encourage customers to increase their monthly payments. We couple a large dataset of payments from Chase cardholders with several experiments to understand how additional values can differentially influence motivation to repay.
We begin by examining how participants select their payments as a function of values proposed to them on credit card statements (Study 1). In Studies 2 and 3, we investigate whether suggested values take on properties consistent with reference points, namely loss aversion and diminishing sensitivity. We test for loss aversion by examining whether people feel different amounts of satisfaction if an identical payment is above or below the suggested amount. We also examine whether people have higher motivation to pay when they are close to (vs. far away from) their goal. Study 4 examines whether feelings of disappointment track the same patterns as motivation does as payments move away from the suggested amount. To test for the ecological validity of these findings, we turn to a data-set of cardholder payments from a large bank in the US. We examine distributions of payments around values that have been explicitly selected by cardholders as goals, and examine how inclusion of these values alters payments (Study 5). We conclude with a discussion of how our more nuanced understanding of values on credit card statements can be used to encourage debt reduction.
Stephanie Riegg Cellini is an associate professor of public policy and economics at George Washington University. She is also a research associate at the National Bureau of Economic Research, a nonresident senior fellow at the Brookings Institution, and an associate editor of Education Finance and Policy. Her research interests include education policy, labor economics, and public finance. Recent papers focus on the labor market returns to a for-profit college education and the responses of for-profit postsecondary institutions to changes in federal and state financial aid programs. Her work has been published in the Quarterly Journal of Economics, the Journal of Policy Analysis and Management, and the American Economic Journal: Policy, among others. She received an M.A. and Ph.D. in economics from the University of California, Los Angeles and a B.A. in public policy from Stanford University.
We draw on new administrative data from the U.S. Department of Education and the Internal Revenue Service to assess the earnings gains of students who enroll in certificate programs in for-profit colleges. We implement a difference-in-differences identification strategy that compares the pre- and post-enrollment earnings and employment of students who attend for-profit colleges, relative to students who attend similar programs in public community colleges. Our findings suggest that students in for-profit programs experience lower earnings gains and employment outcomes than students in the public sector. These results hold even after accounting for differences in programs of study and the demographic composition of students across sectors. However, we find evidence of substantial heterogeneity in returns across fields of study, with a few fields generating large positive returns for students.
Maya Shaton is an economist at the Federal Reserve Board of Governors. She graduated in 2015 from the University Of Chicago Booth School Of Business with a Ph.D in finance and an M.B.A. Her research interests are: household finance, corporate finance, behavioral finance, and law and finance. Maya received an M.A. in Financial Economics, a B.A. in Economics and an LL.B. in Law from the Hebrew University Of Jerusalem. Prior to joining the Ph.D. program at Booth, she worked at the Israeli law firm S. Horowitz in the International Transactions Department.
I show that household investment decisions depend on the manner in which information is displayed by exploiting a regulatory change which prohibited the display of past returns for any period shorter than twelve months. In this setting, the information displayed was altered but the information households could access remained the same. Using a differences-indifferences design, I find that the shock to information display caused a reduction in the sensitivity of fund flows to short-term returns, a decline in overall trade volume, and increased asset allocation toward riskier funds. These results are consistent with models of limited attention and myopic loss aversion. To further explore the concept of salience, I propose a distinction between relative and absolute salience and find evidence consistent with the latter. Overall, my findings indicate that small changes in the manner in which past performance information is displayed can have large effects on household investment behavior and potentially influence households’ accumulated wealth at retirement.
Ben Castleman is an Assistant Professor of Education and Public Policy at the University of Virginia. Ben’s research focuses on policies to improve college access and success for low-income students. Several of his papers examine innovative strategies to deliver high-quality information about the college-going process to low-income students and their families, and to ease the process of students and families getting professional support when they need assistance. He has conducted several randomized trials to investigate how the offer of additional support during the summer after high school impacts the rate and quality of low-income students’ college enrollment. In addition, Ben uses quasi-experimental methods to study the impact of state and federal need-based grant programs on students’ long-term collegiate outcomes. His research has been featured on National Public Radio’s Morning Edition, as well as in Time Magazine, USA Today, and the Huffington Post.
While educators and policy makers have invested substantial resources to support high school seniors and their families to complete the Free Application for Federal Student Aid (FAFSA), considerably less attention has been devoted to helping students re-file their FAFSA each year they are in college. Yet, students need to renew the FAFSA annually to maintain their financial aid; among freshmen Pell Grant recipients in good academic standing, a substantial share does not successfully re-file their FAFSA. In this paper we investigate, through a randomized controlled trial design, the impact of a low-touch intervention in which we sent college freshman a series of personalized text message reminders related to FAFSA re-filing. The messages (1) provided information about where to obtain help with financial aid; (2) reminded students about important aid-related deadlines and requirements; and (3) offered assistance on financial-aid related processes. The intervention cost approximately $5 per student served. The intervention produced large and positive effects among freshmen at community colleges. Specifically, text recipients at community colleges were nearly 12 percentage points more likely to persist into the fall of their sophomore year of college compared to community college freshmen who did not receive this outreach, and were almost 14 percentage points more likely to remain continuously enrolled through the spring of sophomore year. By contrast, the intervention did not improve sophomore year persistence among freshmen at four-year institutions, among whom the rate of persistence was already high.
Student loan borrowing has emerged as a top policy concern, particularly for community college and for-profit student populations, whose loan default rates have risen considerably over time. Much of the policy attention has focused on helping students make more informed loan repayment decisions. Yet supporting students to make more informed initial borrowing decisions may reduce the likelihood that students encounter debt-related challenges in the future. In partnership with the Community College of Baltimore County, a large, urban community college, we designed a text messaging campaign to prompt new loan applicants to make informed and active choices about how much they borrowed in student loans. The texts provided students with simplified information about the origination process and offered students the opportunity to connect one-on-one with a financial aid counselor for assistance. We find that the text campaign led to substantial reductions in student borrowing, with the most pronounced effects among Black students, low-income students, and students with lower high school GPAs. In future analyses we will investigate the impact of the text campaign on students’ academic and financial credit outcomes.
Annamaria Lusardi is the Denit Trust Chair of Economics and Accountancy at the George Washington University School of Business (GWSB). She is also the founder and academic director of GWSB’s Global Financial Literacy Excellence Center (GFLEC). Previously, she was the Joel Z. and Susan Hyatt Professor of Economics at Dartmouth College, where she taught for twenty years. She has also taught at Princeton University, the University of Chicago Harris School of Public Policy, the University of Chicago Booth School of Business, and Columbia Business School. From January to June 2008, she was a visiting scholar at Harvard Business School. She holds a Ph.D. in Economics from Princeton University and a BA in Economics from Bocconi University.
Dr. Lusardi has won numerous research awards. Among them is a research fellowship from the University of Chicago Harris School of Public Policy, a faculty fellowship from the John M. Olin Foundation, and a junior and senior faculty fellowship from Dartmouth College. She was also awarded the 2015 Financial Literacy Award from the International Federation of Finance Museums, the 2014 William A. Forbes Public Awareness Award from the Council for Economic Education, the 2013 William E. Odom Visionary Leadership Award from the Jump$tart Coalition for Personal Financial Literacy, and the National Numeracy Network’s inaugural 2012 Steen Award. Moreover, she is the recipient of the 2007 Fidelity Pyramid Prize, an award to authors of published applied research that best helps address the goal of improving lifelong financial well-being for Americans.
The Standard & Poor’s Ratings Services Global Financial Literacy Survey is the world’s largest, most comprehensive global measurement of financial literacy. It probes knowledge of four basic financial concepts: risk diversification, inflation, numeracy, and interest compounding.
The survey is based on interviews with more than 150,000 adults in over 140 countries. In 2014 McGraw Hill Financial worked with Gallup, Inc., the World Bank Development Research Group, and GFLEC on the S&P Global FinLit Survey.
George Washington University
Science and Engineering Hall, Room B1270
George Washington University School of Business
Duquès Hall, Room 651
800 22nd Street NW, Science and Engineering Hall, Room B1270
(main entrance on 22nd Street between H and I Streets)
800 22nd Street NW, Science and Engineering Hall, Room B1270
(main entrance on 22nd Street between H and I Streets)
800 22nd Street NW, Science and Engineering Hall, Room B1270
(main entrance on 22nd Street between H and I Streets)
800 22nd Street NW, Science and Engineering Hall, Room B1270
(main entrance on 22nd Street between H and I Streets)