Too many choices

by John Quiggin on March 3, 2021

In the NY Times, Paul Krugman makes the case that too much choice (particularly about retirement investment) can be bad

Ani Guerdjikova and I demonstrate this with lots of algebra

{ 12 comments }

1

Matt 03.03.21 at 9:26 am

Two times (when I was a federal court law clerk) I had health insurance through the Government Employee Insurance program. This wasn’t just one insurance program, but rather, access to a literally bewildering range of programs – some national, some much more local, most or all of them offering high/medium/low coverage and various add-ons. While I don’t remember for sure, I think there were, at least, 50 or 60 plans (maybe more) to choose from, and then the various sub-options w/in each plan. Despite being fairly smart and semi-sophisticated, I found it largely impossible to make a fully informed choice, so used some not very sophisticated heuristics and picked a plan. (Of course, it would have helped to know exactly how much medical care I would need over the relevant time, but that’s not easy to know before hand!) As it turned out, my choices were fine for me – the insurance was relatively affordable and provided very good care and coverage. (For comparison, my “take home” pay was higher than what I get for a nominally similar salary now in Australia, and the medical care I received under that insurance was typically as good or [usually] better, with fewer expenses out of pocket and less difficulty in receiving, care than I have in Australia.) But no doubt this was partly due to luck, and it was both stressful and less helpful to have so many choices than it would have been to have those narrowed down for me before hand.

2

Doctor Memory 03.03.21 at 4:02 pm

This has been a personal hobby horse of mine for a while: it should probably be somewhere between strongly discouraged and flat-out illegal to put personal IRA/401k money into anything other than a whole-market or S&P500 index fund, and the Fed should offer a zero-fee whole market index that is mandatory to offer in every employer-sponsored retirement program. Anything else is just lining the pockets of people who are, at the end of the day, thieves.

And yes, the same very much applies to health care “markets”.

3

NomadUK 03.03.21 at 4:42 pm

Anyone walking into an American supermarket is presented with the trivial proof that this is the case.

4

CJColucci 03.03.21 at 6:11 pm

Trivial example. Lately, I am routinely asked whether I want my receipt on paper, by email, or both (or, sometimes, neither). I genuinely don’t care, and do not wish to exercise any brainpower on deciding. I’m fine with whatever the store’s practice is. As far as I can see, I am no better off with any of the available alternatives, and I resent being put to the bother of making a meaningless decision. I’ve even tried randomizing, but that’s work. Maybe I should just set a fixed rule of taking whatever the second alternative is and be done with it.

5

dilbert dogbert 03.03.21 at 7:06 pm

I prefer to think not of “Choices” but “Fraud By Complexity”.

6

Adam Hammond 03.03.21 at 7:49 pm

Agreed. More choices are not always a benefit, and the task of having to choose is certainly a cost* – a cost that goes up with the number of options. This is so clear that it has long annoyed me to see increasing choices treated as an unexamined positive in economic formulae. This idea is as patently misguided as the idea that average behavior is approximated by rational behavior.

*CEOs job is basically to make decisions, and they universally think they should be paid a lot for that effort. At the other end of the spectrum, in the ultimatum game, the proposer frequently tries to justify getting more than half because they have to make the choice.

7

Mike Furlan 03.03.21 at 10:12 pm

“Anyone walking into an American supermarket is presented with the trivial proof that this is the case.”

I think this argument is overdone.

For something I have good understanding of or interest in, Beer, Books, Investment Instruments for example, I would prefer infinite choices.

I really would like to be able to choose from all the beers of the world, all the books ever printed, and all the investment choices that exist.

But then, I could have read the Griddy contract and understood that $9/kWh, means $9/kWh. Not everybody can. Nor does everybody know where the main circuit breaker to their house is.

As far as the OP, Maybe just have a start the list with:

SUBTRACT YOUR AGE FROM 100 AND BUY THAT PERCENT OF OUR STANDARD WHOLE MARKET FUND, THE REST INTO US TREASURIES.

Then you could let the brave or stupid ones click on the link for GME or Bitcoin.

8

J-D 03.04.21 at 1:06 am

Trivial example. Lately, I am routinely asked whether I want my receipt on paper, by email, or both (or, sometimes, neither). I genuinely don’t care, and do not wish to exercise any brainpower on deciding. I’m fine with whatever the store’s practice is. As far as I can see, I am no better off with any of the available alternatives, and I resent being put to the bother of making a meaningless decision. I’ve even tried randomizing, but that’s work. Maybe I should just set a fixed rule of taking whatever the second alternative is and be done with it.

Have you tried just saying, in exactly these words, ‘I don’t care’?

9

Trader Joe 03.04.21 at 12:14 pm

I agree with the sentiment, but frankly there is clearly a constituency that sees it differently and not only expects choice but demands it.

I’m aware of a large corporation that was taken to court because its 401k plan offered ONLY 17 choices (including an S&P 500 index fund and a US treasury fund which as noted is mostly all that’s needed). They settled the case by increasing to 40.

Go into any quick service restaurant and they happily offer dozens of choices of things that can be added to a sandwich and frankly look at you a little funny if you walk out with a plain ham and cheese sandwich (after choosing among 8 types of cheese and determining if you want white, wheat, pita, multi-grain or flatbread).

I’m likewise confounded by the receipt choice. My only hint is that I never opt for email unless its a place I frequent constantly because inevitably that means I have to enter my details into some sort of keypad – after first selecting my preferred language and probably again selecting if I want a hard copy or not.

Corporate America is gradually being taught that ‘Mass customization’ is the only way to retain fickle consumers and the abundance of choice (wanted or not) is the solution to providing ‘a good customer experience’ – except for those who prefer no choice.

10

nastywoman 03.04.21 at 11:01 pm

but didn’t Paul Krugman conclude:

”We’re a rich country — and citizens of other rich countries don’t worry about being bankrupted by medical expenses. It wouldn’t take much to protect Americans against being scammed by mortgage lenders or losing their life savings to fluctuations in the wholesale price of electricity.

So the next time some politician tries to sell a new policy — typically deregulation — by claiming that it will increase choice, be skeptical. Having more options isn’t automatically good, and in America we probably have more choices than we should”.

And isn’t THAT –
the point?

11

afeman 03.06.21 at 1:25 pm

I once counted some 50+ varieties of toothpaste at a US supermarket, not counting various package sizes.

IIRC Corey Robin once expressed his distaste of IPAs, and somebody commented that there were good ones if you know which to choose. His irritated response was that he didn’t want to have to know which one to choose. The evolution of beer selection might illustrate different paths: in the US it has gone from a small choice of lameness to cans of tiramisu stout and multiple goses (once a niche variety from Leipzig that almost went extinct) at my local small supermarket. I can scarcely keep in my head what I’ve liked, and I’ve had beer as a deliberate hobby. I imagine Corey would appreciate Czechia – in my experience any given location tends to have a small selection of lagers, all excellent, with some fancy varieties if you seek them out. This has scarcely changed in 30 years.

12

J-D 03.07.21 at 3:22 am

I’m aware of a large corporation that was taken to court because its 401k plan offered ONLY 17 choices (including an S&P 500 index fund and a US treasury fund which as noted is mostly all that’s needed). They settled the case by increasing to 40.

But who brought the lawsuit?

Go into any quick service restaurant and they happily offer dozens of choices of things that can be added to a sandwich and frankly look at you a little funny if you walk out with a plain ham and cheese sandwich …

That they look at you a little funny tells you about their attitudes, but what about the customers’ attitudes?

Corporate America is gradually being taught that ‘Mass customization’ is the only way to retain fickle consumers and the abundance of choice (wanted or not) is the solution to providing ‘a good customer experience’ …

If that’s what they’re being taught, who’s teaching them that?

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