How Your Weaknesses and Vices Fuel the World Economy

The more competitive and sophisticated the market is, the more businesses will identify and exploit people’s biological and psychological frailties

Revelers enjoying a drink at a pub in Israel.
Revelers enjoying a drink at a pub in Israel. Pavel Tolchinsky

Why do people gorge on chocolate and cake though they know it’s bad for them? Why do they consume huge amounts of cigarettes and alcohol, walk into casinos, or spend hundreds of shekels a week on lottery tickets knowing they’ll never win? In their book “Phishing for Phools: The Economics of Manipulation and Deception,” award-winning economists George Akerlof and Robert J. Shiller make a worrisome claim: In a capitalist market economy, the more competitive and sophisticated the market is, the more businesses will identify and exploit the biological and psychological weaknesses of people. A tendency to addiction is one such weakness.

Indeed, why are people attracted to things they know will kill them? According to Akerlof and Shiller, industries press the psychological buttons that bypass the part of the brain responsible for reasoning. Or, as they put it, people have “a monkey on their shoulder” that prevents them from doing the right thing.

That’s a revolutionary argument in economics. Since quantitative formulae and research methods were invented, economists have been describing people as sophisticated machines that can calculate what’s good for them, and act accordingly. That may not be true for everyone, but it is for most people, they assumed – and therefore the economy will wisely conduct itself in a way that optimizes economic good.

Or not. Akerlof and Shiller say not. People are far from being sophisticated machines that know what’s good for them. In fact, they fail at the very first step in the process. They don’t know what’s good for them, or they do know but choose to ignore it and do something else anyway.

So how could people possibly be efficient consumers? That monkey has several implications, one being that economists never did manage to create models for human, or economic, behavior because they don’t factor in these weaknesses. New models are needed.

Second, it is precisely in free, competitive markets that businesses will deliberately target addictions and weaknesses, very specifically, and legally too, because they can and will make easy money.

Akerlof and Shiller’s third observation may be the most painful for fans of the American free market: If the people cannot protect themselves against exploitation of their weaknesses by businesses, government regulation has to do it for them.

Yes, there are people out there scheming to use your addiction against you. Does that bother you? There ought to be a law, so push your government to enact one. Make it harder for the free market to exploit your feebleness.

Here are six industries that exploit your weakness and which regulation has failed to restrain.

A customer playing a slot machine in a pachinko parlor in Tokyo, Japan.
Tomohiro Ohsumi / Bloomberg

Gambling: Over $160 billion a year in the U.S. and Europe

The debate over the legality of gambling is not unique to Israel. People gamble everywhere. The question arises over whether it’s a conduit siphoning money from the poor to the rich. In 2015, in the United States alone, there were more than 1,500 casinos in operation, generating revenues of $71.1 billion. European Union casinos and online gaming companies turned over 85 billion euros ($91.5 billion) in 2015, and the EU predicts the gambling market will grow by 3% a year. Some think that’s a modest estimate.

According to Statistia, in 2016 the online gaming market turned over $46 billion – a figure slated to reach $56 billion in 2018.

None of that includes state-sponsored gambling like Israel’s Lotto lottery, or underground gambling. If you have the urge, you could really lose your assets pretty much anywhere.

Gambling supports a lot of election campaigns. Note that gambling baron Sheldon Adelson contributed $25 million to Donald Trump’s presidential campaign. That alone makes it hard to imagine that Trump will be bending over backward to regulate the industry. And in Australia, the situation is even more absurd: both big parties rely on donations from companies operating slot machines.

Alcohol: 3.3 million deaths

In a report published by the World Health Organization in 2016, the average alcohol consumption for drinkers from age 15 is 6.3 liters a year. Note that this figure doesn’t refer to the liquor but the pure alcohol component that people imbibed.

The WHO also found that 38% of people had drank alcohol during the 12 months before the survey. It also found that 3.3 million people died of alcohol abuse in 2012 – nearly 6% of all deaths that year.

More stats? U.S. alcohol sales alone totaled $220 billion in 2014. The WHO set itself a goal of reducing global alcohol consumption through pricing or advertising bans. In recent years, though, alcohol consumption has been rising, notably in the developed world.

It’s a tough battle, especially as politicians the world over are influenced by the alcohol lobby – though according to documents released on WikiLeaks in 2016, when alcohol companies hired U.S. lobbyists to thwart the legislation of marijuana there, it didn’t help: Several states legalized recreational use and, indeed, alcohol sales dropped.

Granulated sugar is poured in Philadelphia, September 12, 2016.
Matt Rourke/AP

Sugar: A bitter deal

Obesity has been declared the plague of the 21st century. Some researchers say sugar is as addictive as drugs. Global sugar sales totaled $77.5 billion in 2012, a figure BBC Research predicts will reach $97 billion this year.

Sugar is a central component throughout the food manufacturing industry, from the global giants to tiny local companies. Various nations have been forcing them to mark sugar and/or calorie content on packaging; the manufacturers don’t appreciate it.

Their efforts to fight back have centered on sponsored, ostensibly medically-based research. In late 2016, it was revealed that American food manufacturers had paid scientists in the 1950s and ’60s to blur the health costs of sugar and shift blame to saturated fat. In its defense, the sugar industry claimed its conduct was not extraordinary for the times.

An American woman who became addicted to opioid painkillers holding a handful of her medication bottles.
Chris Post/AP

Painkillers: 183,000 deaths in U.S. from 1999-2015

The global market for opioid painkillers reached $24 billion last year. Americans constitute only 5% of the global population, but were responsible for 80% of the 300 million prescriptions written for opioid painkillers in 2015.

The ease with which prescriptions for opioid painkillers are written in the United States has led to addiction, and is due in part to drug companies encouraging their use. A 2015 study in Pennsylvania found that 40% of patients with chronic pain who used opioid painkillers showed signs of addiction, and 4% became heavily addicted.

The U.S. Department of Health and Human Services even set up a team to fight opioid abuse. Meanwhile, in the 16 years from 1999 to 2015, some 183,000 Americans died from opioid painkiller overdoses.

Discarded cigarette butts in an ashtray outside a New York office building.
Mark Lennihan/AP

Cigarettes: $315 billion a year

Cigarettes kill 6 million people every year, yet people keep smoking. The WHO estimates there are about 1 billion smokers worldwide. The U.S. Center for Disease Control claims studies show nicotine is as addictive as heroin, and that more Americans are addicted to cigarettes than to any other drug.

Tobacco revenues were $315 billion in 2015. China’s national tobacco company, CNTC, is the biggest cigarette maker in the world and is owned by the government. Its revenues in 2012 were $170 billion, which is more than Apple made.

But the cigarette manufacturers aren’t the only ones to profit. The U.S. government is expected to collect $26.6 billion in tax and legal settlements from the tobacco industry in 2017 – only 2% of which will be dedicated to fighting smoking.

But the government is losing more than it gains. Tobacco-related financial losses run to more than $300 billion a year in the United States alone – $170 billion in medical costs, and $156 million in lost productivity. The situation in China is even worse: The country is believed to have around 300 million smokers; cigarette-related deaths are estimated at a million Chinese each year.

A 2015 survey in the United States found that 68% of smokers would rather quit, but the tobacco industry invests billions to thwart that ambition. In 2014, tobacco companies spent $9 billion on advertising – almost $1 million a minute – plus $20 million on lobbying Washington. (They spent even more in the past – for example, $73 million on lobbying in 1998, but as politicians became afraid of being associated with tobacco, the resort to lobbying diminished.)

More recently, the tobacco companies have tried to fight in court – for example, battling government decisions in Australia and Uruguay to crack down on them. In both cases, the companies lost.

A barista pouring a coffee at the Shenkin cafe in Tel Aviv
Shenkin Cafe

Caffeine: $48 billion a year in U.S. alone

Billions of people start their day with it. Caffeine is a bitter-tasting, psychoactive stimulant. Its natural color is white, and it causes addiction and physical dependence. At high doses it can be toxic. In nature, caffeine can be found in coffee beans, cocoa, tea, yerba mate and guarana; in industrial settings, it’s also in a lot of soda drinks and chocolate.

The global caffeine industry is vast. Estimates put global coffee consumption at more than 2 billion cups a day. The U.S. retail market alone is estimated at $48 billion a year. Some 90% of world coffee is grown in developing nations. Brazil grows about a third of it, and 5 million people make their living from it.

Coffee makes us alert and can even cause mild euphoria. It raises our blood pressure and pulse rate, and increases dopamine levels in the brain – which explains that uplifted feeling. It accelerates our metabolism, and some believe it helps them diet. Some people who consume it, however, suffer from anxiety, trembling, sleep deprivation and other problems.

Yosef Harash and Corin Degani contributed to this report.