Why Too Many Options Can Lead To Bad Choices

Having more options to choose from is usually a good thing. But researcher have found that when you actually have to make a choice, the frustration of picking one thing from dozens of options can take over and lead to choice overload.

Said associate professor of economics Tibor Besedes of Georgia Institute of Technology:

Standard economic theory will tell you that more choice is always better. Theoretically, that works out, but when you have to apply it, that’s very different. When you give people a lot of options, they can get bogged down and, at some level, become unwilling to consider anything because it just gets too complicated.”

The researchers in this study wanted to help people make better choices when confronted by a large number of options. They studied decision-making strategies that break down the options into smaller groups that can be evaluated more effectively.

Approaches to Decision Making

One approach, similar to a sports finals tournament, increased the likelihood that volunteer study subjects would make the best choice by 50 percent.

But the tournament approach was the least favored by the study subjects. Researchers thought that is perhaps for the reason that it forced them to make more choices and to abandon decisions they had already made. On average, the tournament process also required more time than the other two approaches studied.

Inspired by issues about the large number of Medicare Part D prescription plans available, researchers had begun the study to compare strategies for making choices from large groups of options.

Best Payoff Choices

They designed an online experiment to study decisions made by 111 volunteers. The study participants were asked to choose one option that would provide the best payoff from among 16 choices, and were rewarded by as much as $25 for making optimal selections.

Three types of decision strategies were evaluated:

• Simultaneous choice, in which all 16 choices were considered together.

• Sequential elimination, which began with choosing one option from among four choices. Three additional choices were then added to the one chosen from the first group, and the process continued through five rounds until all but one option was eliminated.

• Sequential tournament, in which four groups of four options were randomly chosen by a computer, and the subjects were asked to choose one option from each group. The options chosen from the first four groups were then put into a finalist group from which the final selection was made.

Participants were able to use all three approaches, and asked to state their preferences.

On the whole, the sequential tournament approach produced the best decisions. But it was the least popular of the methods.

Considering all of the options together was the most popular. But it produced the worst outcomes.

Why Less Choice is Good

Professor Besedes explains it like this:

We know from all the studies that we’ve done that if you have a smaller choice set, you tend to do better. There is a lot of information that you have to go through, and you have to understand what all of those things mean, and from that information, figure out what’s best for you. You can’t do that while choosing from 16 options at a time.”

The sequential elimination approach, where volunteers were asked to repetitively remove new options added to a choice they had already made, didn’t perform any better than simultaneous choice.

That may stem from the fact that people tend to avoid making new decisions by sticking with their first choice, even when offered potentially superior options.

Although the focus was on choosing prescription drug plans, the decision making approaches studied could be used for choosing health care insurance, retirement programs, automobiles, cell phones, homes, and other important products or services with many choices.

This approach could apply to any situation in which you have a lot of options,” Besedes says. “The difference between choosing a Medicare Part D plan and picking a cell phone is that the cell phone decision is less important financially.

If you choose the wrong retirement or prescription drug plan, the cost of making a mistake can be considerable. And by the time you realize you’ve made a mistake, it may be too late to correct it.”

Tibor Besedes, Cary Deck, Sudipta Sarangi and Mikhael Shor
Reducing Choice Overload without Reducing Choices
The Review of Economics and Statistics, 2015 doi:10.1162/REST_a_00506

Photo: Ian Ransley