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Choosing to Have Less Choice

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  • Maria Salgano

    (Northwestern University)

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    Abstract

    This paper investigates choice between opportunity sets. I argue that individuals may prefer to have fewer options for two reasons: First, smaller choice sets may provide information and reduce the need for the agent to contemplate the alternatives. Second, contemplation costs may be increasing in the size of the choice set, making smaller sets more desirable even when they do not provide any information to the agent. I identify which of these reasons drives individual behavior in a laboratory experiment. I find strong support for both the information and cognitive overload arguments. The effects do not disappear as participants gain experience with the task. Applications of these results include firms’ choices of product variety, as costs increase with the number of products offered, and the design of government policies, such as the Medicare Drug Discount Card Program, in which older citizens can choose among numerous cards for discounts in prescription drugs.

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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.37.

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    Date of creation: Feb 2006
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    Handle: RePEc:fem:femwpa:2006.37

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    Keywords: Choice; Opportunity Sets;

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    1. Marianne Bertrand & Dean S. Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2005. "What's Psychology Worth? A Field Experiment in the Consumer Credit Market," Working Papers 918, Economic Growth Center, Yale University.
    2. Malhotra, Naresh K, 1982. " Information Load and Consumer Decision Making," Journal of Consumer Research, University of Chicago Press, vol. 8(4), pages 419-30, March.
    3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    4. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
    5. Bertrand, Marianne & Karlan, Dean & Mullainathan, Sendhil & Shafir, Eldar & Zinman, Jonathan, 2009. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment," Working Papers 58, Yale University, Department of Economics.
    6. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
    7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
    8. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-77, May.
    9. Barry L. Bayus & William P. Putsis, Jr., 1999. "Product Proliferation: An Empirical Analysis of Product Line Determinants and Market Outcomes," Marketing Science, INFORMS, vol. 18(2), pages 137-153.
    10. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February.
    11. McFadden, Daniel, 1999. "Rationality for Economists?," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 73-105, December.
    12. Jacoby, Jacob, 1984. " Perspectives on Information Overload," Journal of Consumer Research, University of Chicago Press, vol. 10(4), pages 432-35, March.
    13. Manski, Charles F., 2000. "Identification problems and decisions under ambiguity: Empirical analysis of treatment response and normative analysis of treatment choice," Journal of Econometrics, Elsevier, vol. 95(2), pages 415-442, April.
    14. Michaela Draganska & Dipak C. Jain, 2005. "Product-Line Length as a Competitive Tool," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 1-28, 03.
    15. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
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