paradox of choice
DESCRIPTION
A review of the behavioral economics concept of the paradox of choice where some choice is good, but too much choice creates paralysis and dissatisfactionTRANSCRIPT
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The paradox of choice:Too many good options?
Dr. Russell James III, Texas Tech University
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Past Expected Future
Alternative
Nearby additional
Relevant Observed
Current
Multiple Alternative
Our choices and our satisfaction
are driven by the comparisons
we make
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Behavioral Economics Concepts
Past Expected Future
Alternative
Nearby additional
Relevant Observed
Current
Multiple Alternative
Hedonic Adaptation
Placebo Effect;
Stereotypes
Peer Effects; Relative Standing
Altering Time Preference
Anchoring; Paradox of
Choice
Loss Aversion; Endowment Effect;
Status Quo Bias
Availability Effects
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Standard Economics:Simplicity is bad
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Standard economics:Hyper-choice is good
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Experimental findings:Simplicity can be good
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Experimental findings:Hyper-choice can be bad
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Choice variety in standard economics
Good
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Choice variety in standard economics
Better
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Best!
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In standard economics, more choice is always better because I can simply ignore the less desirable choices
< <
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Diminishing marginal utility and choice variety in standard economics
Variety is also important because diminishing marginal utility changes desires.Hot Dogs
ConsumedUtility from Each
Hot Dog1 +102 +43 04 -15 -46 -10
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Greater availability of tempting options leads to greater consumption.
But otherwise, more options are always a good thing, right?
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Hyperchoice and the choice paradox
We think more choice is better, but there can be problems with excessive choice:
1. Decisions become less likely (paralysis)2. Choice satisfaction drops
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Hyperchoice and
Paralysis
http://www.youtube.com/watch?v=VO6XEQIsCoM0:25-9:57
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Decision paralysis
Tasting booth for unusual jams in an upscale grocery story.
A: offered 6 jamsB: offered 24 jams
What percentage of tasters later purchased one of the jams?
A
B
Iyengar, S. (Columbia) & Lepper, M. (Stanford), 2000, When choice is demotivating: Can one desire too much of a good thing. Journal of Personality and Social Psychology, 79, 995-1006
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Decision paralysis
Tasting booth for unusual jams in an upscale grocery story.
A: offered 6 jamsB: offered 24 jams
What percentage of tasters later purchased one of the jams?
A
B
Iyengar, S. (Columbia) & Lepper, M. (Stanford), 2000, When choice is demotivating: Can one desire too much of a good thing. Journal of Personality and Social Psychology, 79, 995-1006
30%
3%
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Decision paralysis
What percentage of shoppers stopped at the display?Shoppers were more attracted to greater variety, but were less likely to actually make a decision.
A
B
Iyengar, S. (Columbia) & Lepper, M. (Stanford), 2000, When choice is demotivating: Can one desire too much of a good thing. Journal of Personality and Social Psychology, 79, 995-1006
40%
60%
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An extra credit writing assignment in a class at Stanford: some sections had 6 topic options. Others had 30 (6 + 24) topic options.
Iyengar, S. (Columbia) & Lepper, M. (Stanford), 2000, When choice is demotivating: Can one desire too much of a good thing. Journal of Personality and Social Psychology, 79, 995-1006
Which sections were most
likely tocomplete the essay?
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6 topics available 30 topics available
74% completed 60% completed
Iyengar, S. (Columbia) & Lepper, M. (Stanford), 2000, When choice is demotivating: Can one desire too much of a good thing. Journal of Personality and Social Psychology, 79, 995-1006
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800,000 eligible employees at 657 companies401(k) plans ranged from 2 to 60 investment options
As choices increased what happened to the likelihood of investing?
a) Decreased b) Increased c) Stayed the same
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S. Botti (Cornell) & S. S. Iyengar (Columbia), 2006, The dark side of choice: When choice impairs social welfare. Journal of Public Policy and Marketing, 25(1), 24-38.
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Choice paradox and satisfaction
http://www.youtube.com/watch?v=VO6XEQIsCoM
Barry Schwartz. 9:57-17:20
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An experiment with two digital video player versions
Before use, which had higher rating of “How satisfied would you be if you subscribed to the digital player?”a) Few features (7)b) Many features
(21)c) No difference
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Expected satisfaction3
3.5
4
4.5
5
5.5
6
Low FeaturesHigh Features
D. Thompson (U. Maryland), R. Hamilton (U. Maryland), R. Rust (U. Maryland), 2005, Feature fatigue: When product capabilities become too much of a good thing. Journal of Marketing Research, 42, 432-442.
An Experiment with Digital Video Players
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An experiment with two digital video player versions
After use, which had higher rating of “How satisfied were you with the digital player you used?”a) Few features (7)b) Many features
(21)c) No difference
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Expected satisfaction Actual satisfaction3
3.5
4
4.5
5
5.5
6
Low FeaturesHigh Features
D. Thompson (U. Maryland), R. Hamilton (U. Maryland), R. Rust (U. Maryland), 2005, Feature fatigue: When product capabilities become too much of a good thing. Journal of Marketing Research, 42, 432-442.
An Experiment with Digital Video Players
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Do more television options make you better
off?
• 72,012 respondents from 24 nations with varying numbers of available television stations
• Comparing among those with similarly high or low levels of television watching compared with group norms
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C. Benesch(U. of Zurich), B. Frey (U. Zurich), & A. Stutzer (U. Basel), 2006, TV Channels, Self Control and Happiness, Working Paper - Institute for Empirical Research in Economics, University of Zurich
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Choice paradox and satisfaction
No choice can be bad.
Excessive choice can be bad.
Limited choice may be best.
Satisfaction
Choice availability
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Participants choosing from a selection of 30 chocolates instead of 6 chocolates were “more dissatisfied and regretful of the choices they made.”
Iyengar, S. (Columbia) & Lepper, M. (Stanford), 2000, When choice is demotivating: Can one desire too much of a good thing? Journal of Personality and Social Psychology, 79, 995-1006
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Participants were given a picture representing a set of gift boxes with a certain number of alternatives. They were asked to choose the gift box they would buy to pack a present for a friend.
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Different people were tested with different numbers of gift box options. According to standard economic theory, which group should be the happiest with their selected option?a) 5 optionsb) 10 optionsc) 15 optionsd) 30 options
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Different people were tested with different numbers of gift box options. When asked afterwards, which group actually reported the highest satisfaction with their choice?a) 5 optionsb) 10 optionsc) 15 optionsd) 30 options
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E. Reutskaja (IESE) & R. Hogarth (Universitat Pompeu Fabra-Barcelona), 2009, Satisfaction in Choice as a Function of the Number of Alternatives: When “Goods Satiate. Psychology and Marketing, 26(3), 197-203.
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When asked afterwards, which group most enjoyed the process of selecting the box?a) 5 optionsb) 10 optionsc) 15 optionsd) 30 options
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E. Reutskaja (IESE) & R. Hogarth (Universitat Pompeu Fabra-Barcelona), 2009, Satisfaction in Choice as a Function of the Number of Alternatives: When “Goods Satiate. Psychology and Marketing, 26(3), 197-203.
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Breaking apart the choice paradox
E. Reutskaja (IESE) & R. Hogarth (Universitat Pompeu Fabra-Barcelona), 2009, Satisfaction in Choice as a Function of the Number of Alternatives: When “Goods Satiate. Psychology and Marketing, 26(3), 197-203.
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When all options are
negative, even limited choice
can be undesirable
• Increases time spent contemplating negative results
• Attaches personal responsibility to the negative outcome
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An experiment with unpleasant yogurt flavors: sage, chili powder, tarragon, or celery seeds
Either asked to pick one or told they would be given one randomly.
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Did you like the fact that you were given a choice?
5.50 agreementDid you like the fact that you did not have to choose?
4.41 agreement
But, did choice result in greater satisfaction?a) Yesb) Noc) Made no difference
S. Botti (U. Chicago) & S. Iyengar (Columbia U.), 2004, The psychological pleasure and pain of choosing: When people prefer choosing at the cost of subsequent outcome satisfaction. Journal of Personality and Social Psychology, 87(3), 312-326.
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Not too many options here (only 4), but all options were negative
No Choice Choice2
2.2
2.4
2.6
2.8
3
3.2
3.4
3.23
2.44
Satis
facti
on w
ith Y
ogur
t
S. Botti (U. Chicago) & S. Iyengar (Columbia U.), 2004, The psychological pleasure and pain of choosing: When people prefer choosing at the cost of subsequent outcome satisfaction. Journal of Personality and Social Psychology, 87(3), 312-326.
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“Although increased choice is perceived as desirable, in some circumstances, the provision of choice either inhibits decision makers’ likelihood to make a choice or detrimentally affects their experienced well-being after the choice is made.”
S. Botti (Cornell) & S. Iyengar (Columbia), 2006, The dark side of choice: When choice impairs social welfare. Journal of Public Policy and Marketing, 25(1), 24-38.
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Simplicity v. Variety
Sometimes too many options…• can make decisions difficult.• may lead to doing nothing.• are more likely to cause regret.
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Diversification Bias• We hate losing options, even
when they are bad ones. • We love diversification, even
when it is pointless and costly.• We avoid focusing, even when
there is only one correct choice.
Paradox of Choice: Too many options • can make decisions difficult.• may lead to doing nothing.• are more likely to cause regret.
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Diversification Bias• We hate losing options,
even when they are bad ones.
• We love diversification, even when it is pointless and costly.
• We avoid focusing, even when there is only one correct choice.
The Paradox of Choice Too many options• can make decisions
difficult.• may lead to doing
nothing.• are more likely to cause
regret.
Controlling your decision environment often means eliminating options
The struggle is important because…
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Slides by: Russell James III, J.D., Ph.D., CFP®Associate Professor Division of Personal Financial Planning Texas Tech [email protected]
Please use these slides!
If you think you might use anything here in a classroom,
please CLICK HERE to let me know.
Thanks!
The outline for this behavioral economics series is at http://www.slideshare.net/rnja8c/outline-for-behavioral-economics-course-component