Kahneman, Thaler, Helliwell, and others have discussed the subject, but
it cannot easily fit in any simple model of utility maximization. In
fact, these people represent a major challenge to models of utility
maximization by arguing that decision making cannot be rational. In
fact, long term & short term decisions seem to be made in different
parts of the brain.
So, in the end, economics is the only science based on the determined
effort to avoid science.
I had a short section on this subject in Manufacturing Discontent:
According to the promise of consumer sovereignty this wide array of
choices benefits the customer. The reality is somewhat different.
Consider the 250 new shoe designs that Nike creates each season. From
my personal perspective, this quest for novelty is quite detrimental.
Writing as an aging basketball player with tender feet, I know that if I
find a pair of shoes that fits well, I will never again be able to find
a replacement with the precise feel and fit, since the style that I buy
today will soon be discontinued. So, every time my shoes wear out, I
must begin another search for a shoe that feels comfortable. Alas, in
the end, consumer sovereignty turns out to be a quite constricted form
of sovereignty.
These "search efforts" represent a serious cost. John Helliwell,
an economist who has studied the relationship between economics and
happiness, noted: "psychological studies show that increasing the range
of product choice becomes costly to buyers at a fairly early stage:
they find it harder to make decisions when faced with many alternatives,
take longer to reach their decisions, and are more likely to later
regret their decisions" (Helliwell 2002, p. 34).
For example, two psychologists set up tasting booths in an upscale
grocery store, offering the opportunity to taste a number of jams --
either 6 or 24. In the case of the 6-jam experiment, 40 percent of
shoppers stopped to have a taste and, of those, 30 percent proceeded to
purchase a jam. In the 24-jam experiment, a full 60 percent stopped to
taste, but only 3 percent actually purchased a product. They described
this difference as a "phenomenon of choice overload [in which] ....
people ... are burdened by the responsibility of distinguishing good
from bad decisions (Iyengar and Lepper 2000, pp. 1003-04).
Obviously, this problem is even more true when the commodity
involves a more complex set of considerations than the taste of a jam
sample. Think of the intense study required to select the best HMO
plan. I doubt that many people find that experience particularly
pleasurable. Perhaps more revealing, consumers, even the 40 million who
do not have health insurance, never get to consider the choice of a
national health care program that could avoid the excessive overhead
costs of profit-making HMOs, especially when clear and reliable
information is so hard to find.
So, in many, if not most cases, the number of new varieties offer
no substantial advantage -- just a variation in style. In fact, some
companies are now finding that a reduction in the choices that they
offer consumers actually increases sales (Iyengar and Lepper 2000).
--
Michael Perelman
Economics Department
California State University
michael at ecst.csuchico.edu
Chico, CA 95929
530-898-5321
fax 530-898-5901
