Jam Today - Tyranny Tomorrow?

Tyranny of Choice

One of the most famous experiments in social science published this century was on jam, or at least the impact of having more or less types of jam to choose from. This research, by Sheena Iyengar and Mark Lepper, in When Choice is Demotivating: Can One Desire Too Much of a Good Thing, suggested that consumers are often paralysed by choice.

By extrapolating from what was originally a pretty limited study researchers have created a whole new industry out of reducing the number of options for people to select from. Of course, that leads to the next tricky question – which is who decides what should be available, and to whom?

Less is More

The jam study is now so famous that it hardly bears recounting but, to simplify drastically, it showed that when people were presented with a limited selection of jams as compared to a much larger set they were ten times more likely to make a purchase. Moreover out of those people who did make a purchase those selecting from the more limited selection reported being happier with their choice. The researchers refer to the quandary of choice as choice overload.

Although the idea of choice overload has become popular in recent times it’s really an extension, albeit a very clever one, of behavioral effects that are already well documented. Perhaps the most relevant of these is regret, the anticipation of which can lead people into procrastinating over making decisions – often to the point of failing to do anything at all. When this leads to a lack of tasty condiments to go with your breakfast bagel that’s of limited concern – but when you end up failing to prepare for your retirement it really may be a case of no jam today and none tomorrow either.

Choice and Experience

It should be noted that the findings of the “less is more” research have been disputed. In Can There Ever Be Too Many Options? the researchers carried out a meta-analysis of choice overload studies – essentially analysing all of the research in this area and collecting it together – and came to the conclusion:

“In summary, we could identify a number of potentially important preconditions for choice overload to occur, but on the basis of the data on hand, we could not reliably identify sufficient conditions that explain when and why an increase in assortment size will decrease satisfaction, preference strength, or the motivation to choose. This might account for why some researchers have repeatedly failed to replicate the results of earlier studies that reported such effects”.

As is the way of such research this study itself has been criticised. Buried in this criticism is the critical point:

“Interestingly, the data show that varying the degree to which individuals had already established preferences (“expertise”), a factor that could conceptually account for choice overload, was indeed significant. Thus, choice overload reliably occurred for respondents without established preferences, and the opposite—the more-is-better effect—occurred for those with established preferences.”

To whit: if you approach a decision with pre-established preferences you’re not likely to have much difficulty making a choice, but if you don’t have such a starting point you’re likely to run into choice overload. In a world in which options seem to be proliferating faster than cultures on a Petri plate that matters, deeply. As is so often the case in behavioral studies, the results of research are dynamic and based on situational factors.

In fact this is reminiscent of research we’ve seen before in The Death of Homo economicus, where John List has shown that experienced traders are willing to sell at the right price while amateurs are unable to let go of their possessions due to fear of losing out in future. List 's research reveals that situation is critical, because the same experiment carried out in neutral laboratory conditions fails to expose the expert behaviour.

Choice in Pensions

Given the obvious overlap the original researchers were asked to look at the effects of choice overload on US retirement savings into tax exempt 401(k) plans. When Iyengar, Jiang and Huberman examined the impact of choice on US retirement savings they observed that:

“If a plan offered more funds, this depressed probability of employee 401(k) participation. Other things equal, every ten funds added was associated with 1.5 percent to 2 percent drop in participation rate ... If there were only two funds offered, participation rates peaked at 75 percent, but when there were 59 funds offered, participation rates dipped to a low of approximately 60 percent.”

Perhaps not unnaturally the conclusion is that a certain amount of paternalism is needed, in the best interests of the workers, by automatically enrolling them. Hence from jam we move to pensions and thence to the “Nudge” approach outlined by Sunstein and Thaler, as exemplified by the Save More ... Tomorrow approach to retirement savings.

Soft Politics

Unfortunately there’s are a couple of problems with these approaches. The first is the general one that this is something that politicians like, which ought to be a big red warning sign if there ever was one. The reason they like it is that it enables them to push real political problems away from the people who should understand the issues – i.e. themselves – to people who don’t – i.e. us.

The attempts to replace traditional economic strategies of price manipulation – which often involve unpopular tax raising measures – by soft behavioural economic mechanisms were speared by George Loewenstein and Peter Ubel in this NY Times piece.

“Behavioral economics should complement, not substitute for, more substantive economic interventions. If traditional economics suggests that we should have a larger price difference between sugar-free and sugared drinks, behavioral economics could suggest whether consumers would respond better to a subsidy on unsweetened drinks or a tax on sugary drinks.

But that’s the most it can do. For all of its insights, behavioral economics alone is not a viable alternative to the kinds of far-reaching policies we need to tackle our nation’s challenges.”

Who Chooses?

The second issue is that by reducing the options available to people we can’t un-invent stuff. Simply removing boysenberry, guava and cantaloupe jam from the list of options available to me doesn’t reduce the amount of choice overall – it just means that someone else is making that choice on my behalf. Who, then, regulates the people choosing on my behalf?

For those interested, Rizzo and Whitman provide an extensive review of the problems of paternalism. As they point out, this may simply move the behavioral issues from the individual to the policy maker, who's just as unlikely to be rational as the next ape:

“The slippery-slope potential is especially great if policymakers are not fully rational, but instead share the behavioral and cognitive biases attributed to the people their policies are supposed to help.”

Of course this debate around retirement savings is framed is entirely in the context of the world we experience, a world that’s all about government sponsored retirement savings. Behavioural researchers are as much framed by this environment as anyone else but perhaps they need to take a long, hard look outside their own particular environments before making sweeping generalisations that will ultimately reduce personal freedom. Here’s a quote from HSBC’s latest Future of Retirement report:

“Our findings suggest that where employees are coopted into default arrangements, where contribution rates are determined by the government, people think less actively about their retirement needs. While it was not covered within the scope of the survey, there may be a sense that the government has already made the big decisions for them”

Unsurprisingly, perhaps, the more governments intervene the less people think – and the less they worry – for themselves. Time, perhaps, for less intervention rather than more?


Related articles:  

Retirees, Procastinate at Your Peril 

Save More ... Tomorrow 

The Death of Homo economicus

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