Friday, May 13, 2011

A problem with the "less choice is better" idea

(Reposted because Blogger mulched its first instance.)

There's some research that shows that people do better when they have fewer choices. For example, when offered twenty different types of jam people will buy less jam (and those that buy will be less happy with their purchase) than when offered four types of jam.

There's some controversy around these results, but let us assume ad arguendum that, perhaps due to cognitive cost, perhaps due to stochastic disturbances in the choice process and associated regret, the result is true.

That does not imply what most people believe it implies.

The usual implication is something like: Each person does better with a choice set of four products; therefore let us restrict choice in this market to four products.

Oh! My! Goodness!

It's as if segmentation had never been invented. Even if each person is better off choosing when there are only four products in the market, instead of twenty, that doesn't mean that everybody wants the same four products in the choice set.

In fact, if there are 20 products total, there are $20!/(16! \times 4!) = 4845$ possible 4-unit choice sets.

Even when restricting an individual's choice would make that individual better-off, restricting the population's choices has a significant potential to make most individuals worse-off.