When is One Choice One Too Many?

By Jonah Abrams

Jonah Abrams received the first place award in the HUEA x Harvard Economics Review international high school economics essay competition.

(Cover photo from Mark Rowland with Your Marketing Rules)

Patrick Henry asked for liberty or death. A group of economists and psychologists have

proven that too much liberty is, if not death, a different kind of sub-optimal. It turns out that

often when we have more choices, we paradoxically are worse off. We make poor decisions, and

we feel subjectively bad about them. In the market we see the practical response to this concept

in the limited number of offerings in a Bonobos store, the spare interface of an iPhone, and the

musings of tidying-guru Marie Kondo.

This now popular idea that “less is more” sounds wise and can be comforting, but it is

just as wrong as perfect liberty. Instead, we gain from additional options when the benefits of

having the additional options outweigh the costs of processing the choice. The costs rise with the

choice difficulty and complexity. The benefit of additional options is valuable when the stakes

are high so that the effort subjects are willing to expend is high as well. Even in this case,

sometimes the benefit of an extra option is offset by two behavioral biases - hedonic adaptation

and regret. Based on economists’ research over the last several years, we now have a structure to

help us determine when we should limit our choices.

The idea of choice overload has a long history beginning with Aristotle who described

the difficulty people faced when presented with two equally good choices. This idea more

recently was popularized in 2000 with what has been somewhat breathlessly called “one of the

most memorable economic studies of the last half century.” It used a simple product, jam. Thirty

percent of supermarket consumers that saw a 6 jam display bought a product. For those that saw

a 24 jam display, just 3% bought a jam. This “analysis paralysis” for jam ended up being just

one of many examples of the the impact of choice overload on many decisions we make. It was

found in other consumer discretionary products like chocolate selection and consumer

electronics , but also in areas as varied as pensions, medical choices, and dating. When 401(k)

plans offer more funds, participation rates fall precipitously - for every 10 extra funds a 401(k)

plan offers, participation rates fall by 1.5% to 2%. Similarly, when doctors are offered two

medicine choices to prescribe instead of one, they paradoxically double their referrals to

specialists because they are unable to make a decision. When online daters are offered a large choice of partners and can reverse their decision, they are less satisfied with their partner

selection than those offered a small set of partners with no chance of reversing their decision.

The economics of choice has not been without controversy. There have been many

studies that found no paradox of choice - that more choice is in fact better. For instance, Daniel

Mochon has written about single option aversion. When Williams Sonoma added a second $429

breadmaker to their previous single offering at $279, the sales of the $279 version doubled. The

same results hold for consumers choosing nightclubs and savings accounts. Consumers, at least

to a point, prefer larger assortments when presented with them. These types of results seem to

directly contradict the general thrust of the choice overload hypothesis.

Until recently, it was not known whether the paradox of choice was in fact a paradox.

However, two meta-analytic reviews, one by Chernev et al. in 2015 and a second by McShane

et al. in 2018 , focused on the context in which choice overload might apply, rather than

assuming that its effect was universal. These studies provide a new, more nuanced view of

choice. It turns out that choice overload is very contingent on the structure of the choice.

These studies found that the paradox of choice is in fact a paradox but that more choice is

not always worse. More importantly, they provided a taxonomy to help us understand when

choice overload might apply. There are four main factors that moderate the effect. The first is

choice difficulty. This is defined as how many attributes describe each choice or how well

ordered the presentation of the choices is. A second factor is choice complexity. Complexity is

reduced when there is a dominant option. It is increased when attributes of each option are not

alignable such as choosing between one car with an alarm system and another with a sunroof.

A third factor is the degree of preference uncertainty - do you know what an ideal choice would look like before you are exposed to the choices. Finally, there is effort; in particular, how much

effort you are willing to expend. This is generally proportional to the stakes of the choice.

The results of these studies are largely intuit