The paradox of choice…now in 2D
As Nudge blog readers know well, the paradox of choice is the paralysis that accompanies decision making as the number of available options increases. It’s harder to pick a prescription drug plan when there are 60 plans than when there are four.
Three marketing researchers think there’s more to the paradox of choice than, well, choice. In the paper “Variety, Vice and Virtue: How Assortment Size Influences Option Choice,” they argue that the object consumers are making a decision about matters too. Through five experiments that explore choices involving ice cream and fruit, and MP3 players and printers, they find that increasing the number of available options leads people to choose the more sensible goods–the fruit instead of the ice cream, the printer instead of the MP3 player–because they are easier to justify.
If these findings are true, as the authors note, there are plenty of ways it can be used to influence choice. Rather than limiting a menu to healthy choices only, cafeteria managers might actually expand it to include lots and lots of fried foods and lots and lots of healthy veggies and sandwiches.
This unanticipated benefit of assortment can potentially be used to improve consumer welfare — but with caution. Giving consumers more options should increase their reliance on justifications for choice, but this will only improve their welfare in cases in which those reasons point them to better options. Whether the overall combination of these factors has positive or negative welfare implications remains to be seen.
This caveat makes the lessons of this study potentially less powerful for policy areas of interest like health care and retirement savings, where lack of knowledge or undifferentiated types of products hinder people from generating accurate reasons about the advantages and disadvantages of good and bad products.
The overall lesson does raise a question common to other behavioral economics work: Have marketers picked up on these findings already? Not necessarily. Take a standard consumer electronics store, like Best Buy. There is an abundance of products, useful and indulgent, in any Best Buy, which are arranged by category, so all the televisions are in one section, the computer equipment in another, and so on. Typically, the store’s layout is meant to bring in the biggest profits by putting the most profitable electronics with the highest mark-ups in the highest traffic areas.
What happens when the utilitarian products end up right next to the stuff you splurge on? Can the less profitable needs steal sales from the splurges? Take the case of cell phones and MP3 players. In most Best Buys (certainly in the ones in Chicago), cell phones and MP3 players are very close to each other, and right near the front of the store since both are profitable and popular items. But the cell phone is a must-have compared to the MP3 player, particularly now that lots of cell phones play music. Depending on the difference in mark-ups (which are higher on MP3 players–do any readers want to correct this?), to confront customers with both products could shrink MP3 player sales relative to what they might seel against an even bigger splurge, like maybe a digital camera. Rather than reordering the whole store, Best Buy might sell more MP3 players if it built a small divider between the MP3 table and the cell phone counter. Either way, it looks like retailers have another variable to consider in their store’s choice architecture.
Addendum: Careful readers note that the paradox of choice may also refer to the poorer decisions that result as options expand.