Barry Schwartz’s The Paradox of Choice: Why More is Less talk at the User Interface 11 conference outlined his research on the impact of too many choices on consumer behavior. Schwartz walked through a series of examples that illustrated the problems inherent in our “official syllogism” that more freedom constitutes more welfare (well-being) and that to increase freedom we need to increase choice, which leads us to assume that more choices always increases welfare.
We have lots of choices. In a typical grocery store, you’ll find: 285 varieties of cookies, 75 iced teas, 175 salad dressings, 40 toothpastes, 230 soups, 275 cereals. There are 6.5 million possible stereo systems available at Circuit City. In health care, doctors offer a menu and patients choose. Whether or not you work is a matter of choice. Technology enables us to choose not to. Previously, marital and family arrangements (when and if to get married/have children) was not a question. Now everything is a choice.
Are all these choices a good thing? Yes. Having choices is good but we have always thought it was only good. There is a dark side as well:
- Paralysis: so many options that you end up not making a choice. A grocery store alternated allowing customers to sample 24 different flavors of jam & 6 different flavors of jam. With 24, more people came to the table but 1/10th as many people bought jam. In Speed dating, you are more likely to select a match with 6 dates vs. 10. For every 10 mutual funds made available, rate of participation in 401(k) investing goes down 2%
- Decision Quality: when presented with too many options, we do not use difficult criteria to decide but choose on the basis of what is most simple. For 401(k)’s the simplest choice is the worst choice: putting money in a money market account. In retail brand and price are the simplest choices.
- Decision Satisfaction: Even when people have chosen well, they are dissatisfied with their results. When you give people lots of options, they will get a better result. But they will feel worse due to regret and anticipated regret. If you did not examine ALL options, you assume one or more might have been better. This reflects opportunity costs: the reduction of value through comparison to other options.
- Escalation of expectations: the availability of many choices increases expectations. When things were worse (less choices): it was easier to exceed expectations (now as high as possible). There are no pleasant surprises left.
- Maximizer Impact: too many choices is an issue for people whose aim in life is to get the best (maximizers). How do you know if you got the best? You actually need to look at every possibility by making an exhaustive search. There is virtually no area where maximizing makes sense.
- Leakage: the conditions present when people are making a choice do not stop exerting influence after a choice has been made. People are less satisfied due to regret or missed opportunities and this dissatisfaction extends after the choice to the actual experience.
How can we cope with too many choices?
- Satisficing: Selecting a “good enough” option (instead of maximizing) helps cut through the problem of choice.
- Principal Agent Distinction: to stop the leakage of dissatisfaction of choice onto experience, we can separate the consumer from the decider. For example, someone or something makes the choice for you.
- Libertarian Paternalism: pay attention to what happens when people do nothing. Defaults can be put in place that serve the interests of most people. For example, 90% of Americans approve of organ donation but only 25% are organ donors. In some European countries, 90% are donors. There the sign-up form there is opt-out instead of opt-in. The difference in default has a huge impact.
- Capability vs. Usability: people don't know what's good for them. They prefer to have CD players with 21 features to ones with 7. But if they first use the 21 feature player for a while, they will prefer the 7 feature one.
When people have no choice, life is miserable. As you start adding options, you increase wellbeing. However, you reach a point where the curve flattens out and there are diminishing marginal effects. At a point in the curve, satisfaction drops and you are worse off than when you were neutral. The goal is to find the sweet spot on the curve.