Tuesday, January 17, 2017

The Paradox of Choice

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One of the key elements of democracies is competition. One of the key outcomes of competition is choice. Choice is supposed to afford the freedom that is at the heart of rational decision making. Or that is what Economics 101 would tell you.
Now consider this. The average grocery store offers some 300 varieties of salad dressings. Are you sure that the one you had today, or yesterday, or last week, was indeed the best? How do you know? Have you tried all the 300?
Or assume you want to build a stereo system that will provide you with endless hours of bliss. A well-stocked electronic components store can, in theory, allow you to build seven million varieties of stereo systems. How would you determine that the components that you choose would indeed provide the best possible sound?
Choice is a fascinating subject to explore. In his book, The Paradox of Choice, Barry Schwartz argued that more choices lead to more stress and thus are less helpful in making decisions. His work builds on the pioneering research of Columbia Business School Professor Sheena Iyengar, who has consistently questioned the notion that more choices make better decisions and suggests that on many occasions, fewer choices make better decisions. As you would expect, mainstream economists term this “hogwash.” People who welcome new ways of thinking based on well-established research principles acknowledge that choice has limits. The essence of the paradox of choice is that more options lead to fewer actions. Fewer options lead to more actions.
A profound but painful finding of Professor Iyengar’s research relates to choices that parents must make when faced with the challenge of when and if to remove a prematurely born baby from life support. Just imagine the trauma involved with the decision. Without life support, the baby will die in a matter of hours. With life support, the baby will survive but in a vegetative state. In some countries, such as France, the decision is made by the doctor. In the U.S., the decision must be made by the parents. Research suggests that the negative emotions, frustration, and a sense of guilt persist in American parents even a year after the event. In France, parents appear to come to terms with reality sooner and get on with life. Therefore, the inevitable question that arises is whether the availability of “choice” makes American parents better off or worse off in such a daunting situation.
Research also suggests that the very notion of choice is context-specific. On a lighter note, a Japanese waiter refuses to provide sugar with green tea because, in Japan, you do not drink green tea with sugar. When the matter escalates to the manager, the latter politely says that they do not have sugar. Change the order to coffee, magic happens. You get the coffee along with two packets of sugar!.
Similarly, for the citizens of the East European countries transitioning from socialism to a free-market economy, seven different beverages offered do not represent choice. For them, all the seven are “soda.” Offer them the beverages, along with a variety of fruit juices, and water, and then they perceive the offering as three choices – soda, fruit juice, and water. When experts cannot distinguish between beverages that are close substitutes in a blind test, why do companies keep offering more and more choices?
The plethora of choices available in health insurance can confound even the most rational person. How are ordinary people supposed to make decisions from a complex set of choices with so much fine print that one can make neither head nor tail out of any of them?

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An unintended consequence of a proliferation of choice is visible in match-making sites. One particular site boasts of over a million profiles. It is quite hilarious. Every male seeks a beautiful, tall, slim, well-educated, preferably employed female from a “respectable” family. Every female has similar requirements with some words getting substituted – for example, the prospective young man better is employed in an MNC, and located in the western hemisphere. Nobody is really good enough, and one is always worried that one might be missing out on something. In fact, social media has a new term for this” “FOMO” – Fear of Missing Out.
Or consider democracy as a process. The Indian state of Uttar Pradesh has elections for the state legislature scheduled in February 2017. Please remember that if the state were to be an independent entity, it would be the 7th largest country in the world. Many constituencies have as many as 45 candidates in the fray. Does this choice lead to better decision-making on the part of voters? (More than half the electorate are illiterate; I do not link intelligence and literacy; However, one would be stretching the limits of logic by insisting that people having no knowledge of the candidates or their antecedents and vote based on a visual symbol will make the wisest choice).
When one looks at all the evidence for and against choice, one is still none the wiser for it. As one scholar writes, “offering lots of extra choices seems to make no important difference either way.” The argument of many economists is this: “If the too-much-choice effect were true, producers and marketers would be simplifying the decision process for consumers by limiting the number of choices. A visit to any store reveals a proliferation of choices, not a reduction. Therefore the effect can’t be true.”
We can find examples in the real world where reducing choice has led to increased sales in a variety of industries. The interesting point to note is that practically in every case, the reduction of choice was made as a cost cutting measure, not a vehicle for generating more sales.
Professor Iyengar’s work suggests that when employees have many alternatives to retirement plans, fewer employees participate. When only a few options are available, more employees take advantage. A similar phenomenon is visible in health care. By passing up on the opportunity, employees lose the matching employer’s contribution. How does one explain this paradox?
For economists, the concept of choice overload is logically impossible. For ordinary people, choice overload is a reality. You have over 200 TV channels. That is an abundance of choice. Are you sure you are watching the most relevant or the most interesting or the most inspiring program?

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Choice has its uses but only up to a point. Beyond that, more choice may lead to a decision paralysis. A real challenge for all of us is to find that middle ground – the so-called “sweet spot.” The middle ground is one in which we can make better and wiser decisions. Psychology has many phenomena where one can indeed have too much of a good thing. That is true of choice as well.
How to find that sweet spot? Your guess is as good as mine.

1 comment:

  1. Every parent who is helping a toddler to get dressed in the morning knows that fewer choices cause less stress. (for both parties) Somehow we do not relate this known fact to ourselves as adults or to that same toddler as they grow up. The guilt and negative impact that follows the individual(s) that are in the position and required to make the "decision" to discontinue life support for a family member - young or old - lasts a lifetime. Too much of anything is never a good thing. This article made me think of my routine and how upsetting it is when I have to make a choice when a favorite product is discontinued.. Thank you!

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