Have you ever felt a twinge of panic in Starbucks when confronted with a huge menu of options?Have you ever looked at all those wonderful holiday destinations, and then decided to go to the same resort as last year? Have you ever thought of moving to a new plan for your mobile phone, gone to the website, and found it all too hard?
“Choice overload” was hardly a problem for our grandparents for whom there was one generic product called “milk”, one brand of beer in each state (Swan in WA, West End in SA etc), and one telephone company, the government-owned PMG. And it’s still not a problem for Cubans and North Koreans.
But is not choice one of the great gifts of market liberalization? Economists have generally assumed that the more choice we have the more likely we are to find a product that meets our needs.
Sheena Iyengar of Columbia Business School and Mark Lepper of Stanford University decided to test theassumption. They conducted experiments in supermarkets in which they had tables displaying a number of varieties of jam. Shoppers who stopped by the tables were given a sample and a discount voucher which they could use towards buying jam. When they displayed thirty types of jam, only 3% of shoppers actually used their vouchers and bought jam, but when they had only six types on display, althoughfewer people took samples, 30% of shoppers bought jam.
Perhaps it doesn’t matter if we depart from the economists’ model of rational behaviour when it comes to jam or Starbucks coffee. But Sheena Iyengar and her colleagues found similar results when she looked at choice of 401(K) pension plans – the US equivalent of our superannuation plans. The more plans offered, even when simply described, the lower was the probability of people making any choice; they would walkaway without any pension plan.
There is no hard and fast explanation of this behaviour. Psychologists point out that making a choice involves rejecting one or more options; the more on offer the more we have to reject. Whenever we reject a jam (or a coffee, holiday destination, or potential life partner) there is a feeling of regret. “Perhaps I would have enjoyed the Java Chip Frappuccino more.” The greater our field of options, the greater our regret. Also, when people are presented with more options they need more time to search and compare – think of those times when you’ve reached the front of the line and are asked to choose, conscious thatyou are holding up five people behind you.
Economists may think that the most joyous activity in our lives is shopping. In reality, we have many demands on our time, and, rationally, we allocate our shopping time to those areas where we can gain most benefits. I may actually enjoy browsing through a book or music store, but searching thewebsites of phone companies hardly comes into the category of “enjoyment.” UK research, presentedto the OECD in 2006, showed that most electricity consumers did not take up beneficial switching opportunities, and of those who did, a third switched to worse plans.
In fact, the word “choice” has been appropriated as an ideological weapon. “Choice” of school, “choice” of health insurer, “choice” of superannuation fund. Those who present a more complex argument, qualifying this enthusiasm, are condemned as relics of a bygone age of Soviet Central Planning.
It is quite rational, however, to choose to have our choice constrained, for there are many situations where exercising my choice makes it harder for you to exercise your choice. Consider, for example, a society where almost all of us would like to send our children to high quality public schools where there would be mixing of ethnicities and social classes. But when some, in the name of “choice”, are encouraged to set up their own schools, all schools become segregated by religion, ethnicity or income, and we no longer have the option of mixed schooling.
When there is a flight of the elites from public education or public health care, people who would prefer shared systems are denied their choice. In 1978 Thomas Schelling, later to win the Nobel Prize in Economics, spelled out this phenomenon in his description of “tipping”.Ten years earlier Garrett Hardin, in his seminal essay “The Tragedy of the Commons”, pointed out that we freely choose collective means to limit our own freedoms when they impinge on the freedoms of others. (See the editorial by Ken Davidson in the Autumn 2008 edition of D!ssent for an outline of the relevance of Hardin’s work in broader public policy domains.) That’s why we restrict our “choice” of carrying a handgun, using leaded gasoline, or watering our lawn during a drought.
Yet our policymakers persist with their simplistic notion of choice.Paternalistically they deny us the freedom to make collective choices, because they know, better than we do, that individual choice is good. And it’s because, in public policy, there is an obsession with competition as a solution to all economic problems.
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