A Stitch in Haste

There is a group of economists and psychologists, a subset of the growing behavioral finance school, who make an astounding claim: That too many consumer choices can actually make people worse off, and perhaps downright unhappy.

These social scientists argue thusly: All economic decision-making is costly. You must expend time and mental effort evaluating competing alternatives. No one is born knowing "Coke or Pepsi," "sedan or SUV," "Leno or Letterman." You have to figure it out, and that requires an effort.

Now, as the number of additional choices increases, the Law of Diminishing Marginal Utility may kick in at some point. Having a third choice of beer might be very useful, but is having a one-hundredth choice of beer equally useful?

The marginal cost of evaluating a new alternative, meanwhile, probably remains constant and possibly increases. So, the theory goes, at some point adding yet another choice results in the marginal cost of evaluating that choice exceeding the marginal utility of having that additional choice and the consumer is worse off.

Every so often a layperson "discovers" this (not very new) theory and decides to write a fluff piece about it. This time it's toothpaste:

A friend in Seattle...reports a full-scale identity crisis in the toothpaste aisle. There he stood, two coupons in hand. Was he ready to become a rejuvenating-effects, tartar-protection kind of guy, or was he wed to the fight against tobacco stains? And to think it all used to boil down to squeezing from the bottom.

The transformative power is dizzying. The pressure is on; the paralysis sets in. It's like a torture session with a demonic optometrist. If A is better than B, and 2 is better than 3, is A better than 2? How to choose among tartar-control and whitening and breath-enhancing?
...
Is there a name for what I'm experiencing? Of course there is, replies John Quelch, the Harvard Business School consumer marketing guru, who began laughing as soon as he heard the words "toothpaste aisle." He was quick to diagnose "analysis paralysis at the point of sale." Paco Underhill, perhaps our most diligent student of the science of shopping, terms it the "confusion index." And yes, it's growing. As are the fractures among us.

Okay, so that's the theory. Here's my competing theory:

People who can't pick a toothpaste are morons.

The key fallacy underlying this theory is the presumption that there are countless legions of people who suffer from this "analysis paralysis." But if it's such a common phenomenon, then why do we need fluff op-eds in the New York Times about it? As the saying goes: "Dog Bites Man" is not a headline; "Man Bites Dog" is.

Of course, history is replete with central planners who believed that they knew better than Colgate exactly how many brands of toothpaste an economy should provide. Nothing new there.

But there's actually a more insidious reason to tout the "too many choices" theory. Consider this publisher's description of a major work in the "too many choices" field, Luxury Fever, by Cornell professor Robert Frank (FULL DISCLOSURE: Frank was my graduate adviser at Cornell, which was a big part of why I left after my Masters):

Ordinary, functional goods are no longer acceptable. Our cars have gotten larger, heavier, and far more expensive. As the super rich set the pace, everyone else spends furiously in a competitive echo of wastefulness. The costs are enormous: we spend more time at work, leaving less time for family and friends, less time for exercise. Most of us have been forced to save less and spend and borrow much more.

In other words, "too many choices" may be a curious quirk at the toothpaste aisle, but when it migrates up to the appliance store, the car dealership or the travel agent, this "fundamental" human incompetence becomes more serious, not only to the individual miserable schmucks who — gasp! — work hard so they can buy stuff, but also to the economy, which degrades into "a competitive echo of wastefulness."

Frank's proposed solution? The same as every other central planner: social engineering, in his case taxing people "for their own good:"

To protect us from our greedier selves, Frank lobbies for a tax exemption for savings and a progressive consumption tax. If Americans spent less on luxury items, he writes, there would be more money available "to restore our long neglected public infrastructure and repair our tattered social safety net."

Exaggerating, or in some cases manufacturing, human defects is always an essential element of all calls for central planning: If people can't be trusted to make the "correct" decisions, then by definition the market, or the economy, also cannot be "correct." And the enlightened academics, politicians and bureaucrats — who of course never suffer from any defects of their own, call for controls — and always with themselves as the controller.

The more things change, the more they stay the same.

Other thoughts on the Times op-ed at Eclectic Econoclast, Half Sigma and Blackfriars.

UPDATE #1: Don Boudreaux --

Very seriously: I almost blogged on the Stacy Schiff column that ran in Saturday's NYT, but I concluded that it was probably a satire. Foolish me.

As he documents, Times readers are tripping over themselves to declare war on toothpaste, orange juice and other scourges of capitalism.

UPDATE #2: Virginia Postrel has more in Reason --

In a familiar environment, people aren't overwhelmed by choice. With experience, we learn to negotiate the alternatives. Schwartz may have trouble in The Gap, but a teenager who owns nine pairs of jeans doesn't. As [anti-choice psychologist Barry] Schwartz himself notes, "A small-town resident who visits Manhattan is overwhelmed by all that is going on. A New Yorker, thoroughly adapted to the city’s hyperstimulation, is oblivious to it."

What's more, as a Manhattanite, I can assure you that the reverse is also true. We do not have "supermarkets" in Manhattan as suburbanites understand the term -- we just have larger neighborhood grocers (and online grocer FreshDirect, which alleviates the dearth of choices somewhat). Whenever I visit my parents in North Las Vegas, or my friend in West Plam Beach, and we hit a real supermarket, seeing the immense variety almost brings me to tears, like Robin Williams walking down the coffee aisle in "Moscow on the Hudson."

I say again -- if you can't handle choice then the problem is with you and not with capitalism.

More thoughts at Marginal Revolution.