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By Root 428 0

the use of chips. When you step up to a blackjack or craps table to gamble, the first thing you do is exchange your cash for chips. Then you bet with chips, in various denominations. I don’t gamble much, but when I do, I quickly stop thinking of chips as money. I throw down a twenty-five-dollar chip on a craps table much sooner than I would ever put down twenty-five dollars in cash. The cash seems real to me—and why risk my hard-earned cash on a roll of the dice?—but a chip is just a piece of plastic. I’m much more likely to gamble longer and for higher stakes than if I had to put cash on the table for each bet.10

There is no coercion in casinos (setting aside gambling addiction). Everyone there chooses to be there. But everything about the environment is constructed with the knowledge that people can be manipulated. Perhaps not every one of us, every time. But enough of us succumb often enough to make running a casino a winning proposition, and going to casinos a losing one. Casino owners drive Bentleys; habitual gamblers take the bus.

Casinos understand that human decision making is done in the contested space of our conscious and subconscious, habit and intention. Our rationality is a battleground, and casinos are smart and greedy enough to fight hard on that field.

Casinos are markets perfected, but choice perverted. Rather than being places where people coolly measure their options and make decisions based on the various costs and benefits, markets are often places where people make unreflective decisions that are the product of manipulation and habit. Manipulation is a genuine source of constraint on choice in markets.

To economists, this is not a problem. To economists, markets depend on rational actors who use their own preferences to make choices. The theory of efficient markets depends on this notion because markets allocate resources properly only if people’s choices are voluntary. As long as choices are voluntary, they are rational to economists’ eyes.

It’s worth pointing out how thin the economists’ view of rationality really is. Something is rational because you choose it. If you voluntarily cut off your finger because the pain you feel is outweighed by the pleasure you will receive from showing off your new scar, then you have acted rationally. Economists do not consider it their business to question the substance of your choices, just that you made them voluntarily. Economists also do not care whether you used your higher faculties to make your choice. In fact, Richard Posner, perhaps the leading thinker in the field of scholarship called law and economics, wrote in his seminal book Economic Analysis of Law that it would not be a mistake to “speak of a rational frog.”11 To an economist, a frog is acting rationally when it chooses to sit on this lily pad rather than that one. If it preferred the other, it would move. Because it hasn’t, we assume it has chosen this one. Because the frog’s choice is voluntary, it has acted rationally to satisfy its preferences.

Economists are not terribly worried about manipulation within markets. Unless the manipulation consists of someone physically forcing you to buy, sell, consume, or produce something, your act is voluntary. You have made a choice, and your choice, by definition, is rational.

Thankfully, most of us are not economic theorists. We understand that rationality should mean more than sitting on this lily pad rather than that one. People’s choices can be better or worse, and voluntariness is something of a sliding scale.

One of the classic methods of manipulation in markets is creating or taking advantage of various compulsions. The cigarette companies’ infamous manipulation of nicotine levels is an obvious example—creating demand by creating a physical need in smokers for the next nicotine hit.12 A cousin of mine who worked for a large cigarette company told me once that making cigarettes was like printing money. This rings true, simply because the product they sell creates the need for more of the product.

But cigarettes are not the only product for