Monday, January 16, 2006

Is more (always) better?

We economists always argue that a rational individual would be better off if there are more choices than less. But psychologists may not. This book is one example. The author shows that modern day consumers are facing too many choices - from the choice of cereal or biscuits in the supermarket, to choices of insurance, retirement plan, education, even how to marry and build family (but ironically, less choice on politicians, he said).

This influx of choice may make consumers worse off, at least not better off, he argued, for some reasons:
  1. It needs more efforts to make one small decision ("tyranny of small decision"). Which cereal has less calories? Which insurance company offers higher benefit?
  2. More choice means the probability of getting the "right" choice declines. Especially for the "maximizer" type of consumer.
  3. The psychological consequence of choosing the "wrong" option can be severe. The thing is we like to compare, even if what we got is actually good enough. We hate when people who shops in the other store gets the same stuff with a discounted price. We hate when realizing that we can get cheaper airline ticket had we waited for another week. (People who couldn't get to Harvard, Princeton or Yale while their classmates could should not be too pissed off when reading this...)

[Aco once raised this issue and provided a fourth answer -- that was after a "quarrel" with his wife...]

The book is in line with Prof. Kahnemann's work that brought him a Nobel Prize several years ago. The big question is whether our famous assumption regarding individual rationality is still valid.

I'd say, after reading the book, we won't need to revise that assumption. Especially for teaching purposes. I want to elaborate my reasons. But unfortunately, I have too many options to do now. And deciding which one I'm going to do may take a few minutes.... Oh well, maybe I'll just surf this website. Or this? Or this?


  1. I think we can also combine the insight of two Nobel Prize winner here. Amartya Sen and Herbert Simon.

    Sen (as I understant him) put greater emphasis on increase of capability that increase of choice brings (can call it elasticity). If the increase of choice is only expanding matters that do not increase capability then it matter little.

    In Sen's latest book, 'Rationality and Fredom'(2002) page 13, he give example of choice set A (to be hang, to be shot and to be burnt alive) as counter example against cardinal base approach to choice. It is the quality of choices that matter

    Herbert Simon focus on bounded rationality. Human has limited ability to process ability to process information. Thus, we have to calculate the mental cost (time and energy to think, compare, read reviews, etc) of increasing choice to the benefit of increasing choice.


  2. seems that your choices are more like the sum of guilty pleasures rather than your so-called rational benefits. any theory on trashy-junk preferences, sire?

  3. Hahaha, don't get trapped by Ape's trick :-) Read carefully his last paragraph: "[U]nfortunately, I have too many options to do now. And deciding which one I'm going to do may take a few minutes...". The answer lies exactly there.

    By the way, me not quarrel with my beloved wife :-) Not at all. See?

  4. "Social psychologists Sheena Iyengar, PhD, a management professor at Columbia University Business School, and Mark Lepper, PhD, a psychology professor at Stanford University, were the first to empirically demonstrate the downside of excessive choice. In a 2000 paper in the Journal of Personality and Social Psychology (JPSP, Vol. 79, No. 6), the team showed that when shoppers are given the option of choosing among smaller and larger assortments of jam, they show more interest in the larger assortment. But when it comes time to pick just one, they're 10 times more likely to make a purchase if they choose among six rather than among 24 flavors of jam"


  5. but Aco, i wouldn't be surprised if AP is so into infotainment gossips. let's just say, there's a team of it from BOE Clan, serving class-A (unpublished) shit.

    plus, clearly AP has a current fixation on Tiara Lestari. it it her mind, her body, her boobies? whoops, mind my French, i just watched King Kong last night...

  6. Roby, thanks for the reference. Also, the latest issue of The Economist has an article about McFadden's remark in the AEA meeting. McFadden thinks consumers are sometimes "wrong": they don't act rationally when they face too many options in the market. McFadden calls this "agoraphobia". But I agree with The Economist, when reality bites, don't blame it; instead, fix the theory. In this case however, even the theory is still defendable (Frank Taussig's claim stands corrected, I think).

  7. On the act of choice and husband-wife --intellectual-- quarrel, I like this illustration from, again, Sen's 'Rationality and Freedom', 2002, p177, on Ragnar Frisch and his wife, as follows

    "...Assume that my wife and I have had dinner alone as we usually do. For dessert two cakes have been purchased. They are very different, but both are very fine cakes and expensive --according to our standard. My wife hands me the tray and suggests that I help myself. What shall I do? By looking up my own total utility function I find that I very much would like to devour one particular one of the two cakes. I will propound that this introspective observation is completely irrelevant for the choice problem I face. The really relevant problem is: which one of the two cakes does my wife prefer? If I knew that the case would be easy. I would say "yes, please" and take the other cake, the one that is her second priority..."

    Certainly Sen, and maybe Frisch too, is more romantic than compound personal utility maximizer like Gary Becker, who would merely incorporate this loving act into one's personal utility function –that is, Frisch's--; as Sen then interprets this act into joint outcome utility analysis, or the so called fiduciary responsibility for what the wife gets. Economists are supposedly romantic, no? :-)

    As for AP’s fondness to tiara-what's-he-rname, well, I hate to break your fantasy, AP; but my reliable source said that the weblog is not written by herself –-maybe you do that? :-)