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Too much choice? Proliferation of choice and its effect on utility

English title Too much choice? Proliferation of choice and its effect on utility
Applicant Thöni Christian
Number 135166
Funding scheme Project funding (Div. I-III)
Research institution Schweizerisches Institut für Empirische Wirtschaftsforschung (SEW-HSG)
Institution of higher education University of St.Gallen - SG
Main discipline Economics
Start/End 01.04.2011 - 31.03.2014
Approved amount 94'347.00
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All Disciplines (2)

Discipline
Economics
Psychology

Keywords (2)

Choice Overload; Contextual Inference

Lay Summary (English)

Lead
Lay summary
In many aspects of their daily life people face a proliferation of choice: For example Amazon.com offers more than 8.3 million printed books in English and, among many other products, customers can also choose from a variety of over 18,000 teas. In psychological research, observing this proliferation of choice has raised the question: “Can there be too much choice?". Standard rational choice models predict that increasing the freedom to choose cannot make individuals worse off: those who find the new option attractive will benefit, while the others can simply ignore it. However, empirical papers in psychology and economics on “choice overload” have found that demand can decrease with menu size. Based on the this evidence, and self-reported satisfaction, some scholars in psychology argue that too much choice leads to a decline in personal well-being. Prominent examples include the books by Barry Schwartz “The Paradox of Choice: Why More is Less” and the book by Robert E.  Lane “The Loss of Happiness in Market Democracies”.

Our project focuses directly on the welfare implication of choice overload. In our controlled laboratory experiment we do not infer the welfare implication by simply observing changes in demand. Rather we elicit the subjective value of differently sized choice sets. Our elicitation is based on an incentivized, truth telling mechanism and measures the willingness to pay for different choice sets. Welfare implications in the psychological literature on choice overload are either based on non-incentivized self-reported questionnaire data or inferred from changes in the demand. However, without monetary incentives, answers might be driven by concerns of social desirability, or be prone to experimenter demand effects. Further, it is not clear if a decrease in demand necessarily implies a reduction in subject's utility.

If an expanding choice set makes individuals worse off, choice overload has important implications both for individuals and policy makers. Examples abound: a reduction in assortment size might increase firms profits. Proliferation of investment-options in old age provision may lead to an under provision thereof. Within a firm proliferation of worker's choice in the tasks they have to perform might lead to worse outcomes than under a restricted choice set. 
Direct link to Lay Summary Last update: 21.02.2013

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Abstract

In many aspects of their daily life people face a proliferation of choice: For example Amazon.com offers more than 8.3 million printed books in English and, among many other products, customers can also choose from a variety of over 18,000 teas. In psychological research, observing this proliferation of choice has raised the question: “Can there be too much choice?” (e.g. Schwartz et al. 2002). Standard rational choice models predict that increasing the freedom to choose cannot make individuals worse off: those who find the new option attractive will benefit, while the others can simply ignore it. However, empirical papers in psychology and economics on “choice overload” have found that demand can decrease with menu size (see Scheibehenne et al. (2010) for an overview). Based on the this evidence, and self-reported satisfaction, some scholars in psychology argue that too much choice leads to a decline in personal well-being. Prominent examples are the books by Schwartz (2004a) “The Paradox of Choice: Why More is Less” and the book by Lane (2001) “The Loss of Happiness in Market Democracies”. They even go so far as to claim a relation between an increase in the proliferation of choice in the last decades and higher levels of depression and suicide (Schwartz 2004b).Our project focuses directly on the welfare implication of choice overload. We aim to shed light on the impact of differently sized choice sets on utility. For our controlled laboratory experiment we use the methodology developed in experimental economics. With our research design, we are able to elicit the personal value of differently sized choice sets. Our elicitation is based on an incentivized, truth telling mechanism and measures the willingness to pay for choice sets. To the best of our knowledge, this has not been done before. Welfare implications in the psychological literature on choice overload are largely based on non-incentivized questionnaire data. However, without monetary incentives, answers might be driven by concerns of social desirability, or be prone to experimenter demand effects. Empirically, monetary incentives bring decisions closer to the predictions of normative models and reduce the variance in the data (see the extensive discussion in Hertwig and Ortmann (2001)). If an expanding choice set makes individuals worse off, choice overload has important implications for individuals and policy makers. These include consumption decisions, marketing, retirement savings and structuring tasks within organizations or professions. For example a reduction in assortment size might increase firms profits. Proliferation of investment-options in old age provision and a resulting decrease in savings gives rise to questions regarding policy intervention. Giving workers too much choice in the tasks they have to perform might lead to worse outcomes than under a restricted choice set.
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