Wednesday, 11 January 2017

The Tyranny of Choice

Here's a secret: choice is paralysing. This has been obvious to me for a long time. It is also still necessary.

When we look at the various courses I've studied at university I've looked at choice several times. I remember quite vaguely something from Economics 101 about more choice adding more value but I may have constructed the specifics of this recollection from recently perusing a textbook that is recommended for (at the least) the prior form of an economics papers I have this year (we'll get back to this). And then there's the idea of information overload that we discussed in (I think) Business 102 (it may have been 101)... or, at least, we noted that emails can overwhelm. But it's probably marketing papers that have talked the most about making decisions insofar as I have taken Marketing 303: Buyer Behaviour. However, I think the "consideration set" is the most interesting idea I have come across: we may be exposed to X brands but our decisions are made based on the subset of that X that we actually think about (this is the consideration set).

Before we get to the textbook I just mentioned, I would like to discuss why I actually struggle to understand why people are interested in massive expansion of choice. Back in 2009 we had to choose a topic for our speeches but we were restricted to an enormous category... I think it was "an organisation you can persuade someone to support". In the end, I chose the National Geographic Society, but I spent a lot of time grumbling about how difficult it was to choose. As I remember things, it would have been better to have complete freedom (as I believe was the case the following year) or none/very little. But, in general, I spend a lot of time making directly educational choices... choosing essay topics (at uni), choosing research topics (for history internals at school) or, of course, choosing courses. I'm a bit more decisive when it comes to buying laptops (and I have regretted, to some extent, purchasing both due to being too "trigger happy") but the point is that when faced with a lot of choice, I have tried to deal with a lot. These days I use frameworks to help me but I don't see any particular reason why I should gravitate towards the framework that makes the best decision rather than a framework that makes the least emotionally turbulent choice. And that is where I will have to get off this couch and grab that textbook.

I will note two things before we discuss the couple of relevant paragraphs just to add in some important information that should hopefully explain why I am calling this "the tyranny of choice" rather than "the paradox of choice" (a famous phrase). Firstly, I read the chapter the paragraphs are from (about behavioural economics) because back in year thirteen our teacher played a video that discussed behavioural economics and I found it interesting (sadly, Auckland has no course like this one). Secondly, I was able to read the book because I needed help to make a decision. Basically, when I went to make my timetable for this year back in November I discovered that a course I wanted to do clashed with another course that I really needed to do if I want to leave the door open for a BA(hons). However, I discovered about half a month ago that there was another possible course and the choice for the original course was back on the table. To help guide my decision, I decided to look at the (out of date) outlines that the Business School produces and then look at the respective textbooks. My framework was, theoretically, employability here. Ultimately, though, my interest in the textbook's course was such that I did everything I could to try and find a way to take it (I succeeded)... note that while there doesn't seem to be any reason to think one course is more "useful" than the other, I never pursued that line of thinking seriously. Which brings us, I think, to pages 610 and 611 of the eleventh edition of the Nicholson and Snyder text:

The textbook's content looks pretty similar to what I discussed above. Namely that 'confronted by too many choices, [people] may simply shut down and not make any decision'. They then cited experimental results which showed people preferred their shopping experience with 'a manageable subset' of 6 jams rather than the 24 used in the experiment. The section then dwelt on how to cull such variety... a random selection may lack quality, an experienced wine enthusiast might be able to cut down 24 wines (based on whatever factors) whilst being lost when confronted with jams and the shop might be able to do the culling themselves... or possibly people can just think about the types of jams (e.g. strawberry jams are a separate thing to both boysenberry jams and, say, caravans). But the textbook does start off with 'economists tend to believe that more choices always make a person better off' and you can see why that would be the case. Look at, for instance, the reasons why I described American democracy as farce. Look at the principle of a captive market. Look at congestion. Look to monopolies and other forms of imperfect competition. That too much choice is paralysing is the reason for the tyranny of choice... without choices, we are worse off but with too many choices, we'll probably choose nothing.

Having choices allows us to make decisions that better match our wants and needs or, in many respects, allows us to have basic human dignity. One of the issues that many people take with employment is that employers are adequately modelled as monopsonies... they're the only purchaser of labour around. This is, of course, less true for more mobile people for whom it may not matter that there's one local choice but 30km or whatever away there are many employers. And in boom times we might consider labour to be scarce so it becomes a seller's market. But wages are sticky so when the boom inevitably falters, the increase in wages can restrict employment opportunities. I think the issues with monopolies are easier to understand. After all, if you can control quantity or control price, then there is no "input" from the consumer so why on earth would we expect decisions made in the social interest? The only answer is government, but not all governments are willing to do anything and not all government interventions are valid. For instance, if you could alter the incentives for monopolies through regulatory measures, then monopolies could well be preferable to breaking the monopoly up as economies of scale from one large firm allows for lower prices for consumers. Strong-arming firms in such situations may even be better. I also suspect that all firms are incentivised to become monopolies, which is why I think competition law (e.g. the commerce commission) is needed.

I have spent a lot of time talking about choice on this blog and I am sure I will spend some more time talking about this year. Choices and how we make them is one of the ways that I characterise economics (scarcity, choice and allocation) and my instruction in that subject has had a deep influence on how I think about choice. Perhaps one of the most interesting ones was way back in year eleven when we had to think about how to make a decision as a policy-maker. From what I remember, we took down information about the different viewpoints and then weighted information. This is a valuable process, I feel, but its sterility indicates the gulf between a good way of making choices and how we make choices in general. Perhaps the ultimate illustration of the issue with human choices comes from looking at decision making under uncertainty at uni. Basically, we have three people: risk-neutrals, risk-avoiders and risk-seekers. For that last group (who may or may not be living like Larry), being exposed to risk brings its own rewards. That begs additional questions of this last, surely now terrifying situation, where a collective choice is required.

With choice comes variety... and lots of other stuff too.

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