The Law, Economics, and Psychology of Manipulation

This comment on Cass Sunstein's paper, Fifty Shades of Manipulation, argues that “manipulation” — “controlling or playing upon someone by artful, unfair, or insidious means especially to one's own advantage” — has always been regarded as wrongful, an indirect form of fraud, by common law courts and government regulators. The manipulator perceives that the victim brings incorrect assumptions to a transaction and does not correct them, or else anticipates and takes advantage of people's propensity to make incorrect inferences. Thus, the manipulator is able to effect a transfer from the victim to himself without resorting to explicit fraudulent statements or coercion. Within the various standard constraints like problems of proof, the government should and does try to restrict manipulation for standard efficiency and welfarist reasons. The law does not provide a remedy to fraud when it causes no harm, and similarly it should not for manipulation. Analogously, I argue that when government uses manipulation to advance the public good, it should be evaluated on welfarist grounds