Is More Choice Always Better

Is More Choice Always Better?
by George Loewenstein1 ____________________________________________________________

_________________ Summary: Choice is viewed by many economists and some policy makers as always beneficial. Choice does confer major benefits. It can satisfy people’s varied tastes and promote competition among providers than lowers price and improves quality. Studies of thepsychology of decisionmaking find, however, that expanded choices can also impose costs on decision-makers. It can absorb scarce time that people would prefer to spend on other activities, result in decision errors, and produce anxiety and regret. Using Social Security as an example, this paper suggests that the costs can outweigh the benefits when new choices require expertise that people lack,introduce new risks when people want security, and require that people predict an inherently unpredictable future. ____________________________________________________________

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Margaret Thatcher, perhaps the most famous politician to advocate expanded choice, was known to her critics as TINA. When asked whether specific new choices were really needed, she inevitably responded,"There Is No Alternative." Like most economists and many policy makers, she assumed that choice is something that one can't have too much of, like clean air or beauty. Yet for most people at least some of the time, decision-making is both time-consuming and painful. We often don't know enough to choose among the options presented to us, don't have enough time or motivation to attempt to make goodchoices, and rightfully fear that bad decisions
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George Loewenstein is professor of economics and psychology at Carnegie Mellon University. This brief is based on his presentation at the National Academy of Social Insurance’s 11th annual conference. The full paper is: Loewenstein, G. (2000). Costs and Benefits of Health- and Retirement-Related Choice. In Sheila Burke, Eric Kingson & UweReinhardt (Eds.) Social Security and Medicare: Individual vs. Collective Risk and Responsibility. Washington D.C.: Brookings Institution Press.

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will haunt us in the future, tingeing our decision making with feelings of anxiety and anticipatory regret. Choice can be a wonderful thing, as any movie buff who has moved to a city from a small town will attest. But many policy analysts, it seems, failto understand that choices can also impose costs. Choices are beneficial when people know what they are deciding about and also believe that their decisions are important. However, most of us would prefer for experts to make decisions for us when we lack relevant expertise or are indifferent between the available options.

Benefits of More Choice

Expanded choices can benefit people in atleast two ways. First, when people have highly differentiated tastes and needs, more choices let them satisfy their own particular wants. For example, different people have different tastes in movies and the same person may like different movies at different times. After a hard week of work you might be in the mood for a comedy; by Sunday you might be ready for a serious drama. Theaters that offermultiple choices about movies satisfy these diverse wants and needs.

Second, even when people have similar needs, more choice can be beneficial if it promotes competition among providers that leads to lower prices or improved quality. Gasoline, for example, is a fairly standard product -- with about three different grades and prices that are easy to compare. While consumers may not have a strongpreference for, say Amoco or Texaco, they benefit when given a choice among companies because competition can drive down prices.

For the benefits of competition to be realized, however, consumers must be reasonably well informed about price and quality. This is more likely when differences in price and quality are easy to compare. To the degree that consumers can be easily misled, however,...