Too Much Information: Effects of Complexity on Decision-Making

Study Finds That Too Many Choices Can Cause “Option Fatigue” and Confusion

It began with a menu—or, in this case, menus. Mike Shor and his wife Leslie were sitting in a Nashville restaurant shortly after moving to the city.

"The waiter handed us five enormous sheets and began to explain it all—this was the wine list, this was the appetizer list," says Shor. "We were used to little New York bistros with one-page menus, and we just looked at each other like, 'This is too much thinking.'"

Shor knew that if he, as an economist and researcher, could be overwhelmed by something as supposedly simple as ordering dinner, he must have a lot of company.

"It led to a lot of discussion among friends," he says, and it led him ultimately to rethink the notion, part of classic economic theory, that more options are always better. Along with colleagues representing both experimental and theoretical economics, Shor is now in the process of sorting out the complexities of decision-making as the number of options increases, in a study that may well help private and public entities present health care and retirement options in a way that optimizes good choices.

Shor's journey from dinner to study passed through a well-known government program that subsidizes prescription drugs.

"When Medicare Part D came out," he says, "seniors were given a huge number of options. The White House was saying what a good thing that was, since each consumer could find the perfect fit, but many seniors were saying they had too many choices. The psychological reality is that people don't like to have to choose between 80 or 100 plans."

Shor’s research is in experimental economics, which examines whether highly mathematical economic theories really apply to human beings. He earned degrees at the University of Virginia and Rutgers, developed an interest in game theory, and in 2001 joined the faculty at the Vanderbilt Owen Graduate School of Management, finding that its very composition fed his research.

"Owen is incredibly interdisciplinary," he says. "The faculty is small and tightly knit. The economics group is tiny and I'm the only one working in this area, so by necessity I have to find colleagues outside economics, which helps me to ask questions not in the traditional economic rubric. It leads to cross-fertilization, and that helps work like this."

He and his colleagues—Tibor Besedes, Cary Deck, and Sudipta Sarangi (of Georgia Tech, University of Arkansas, Louisiana State University)—stripped the study to its essentials, making it a purely theoretical look at decision-making when there are different numbers of options. The standard view is that someone given 50 options is better off than someone given five, especially if the five are contained in the 50. Psychological studies, on the other hand, point to what amounts to option fatigue, commonly known as information overload—like Shor in the Nashville restaurant, people get overwhelmed. Older people—the very ones apt to be facing choices among prescription drug programs or Medicare supplement plans—are especially vulnerable.

Shor's study is designed as a game of chance, reflecting the nature of insurance or investment, which essentially involve placing a bet on future events such as the need for a specific medication or the direction of a stock in accord with the laws of probability. Study subjects select from among several options and seek to optimize payment they receive for outcomes. In avoiding the mention of health care, retirement plans or the like, the study eliminates the effects of subjects' fears or predispositions about them. It simply asks subjects to pick "options" based on how likely they are to occur from among varying numbers of possibilities.

"We get to find out in a pure framework how people make decisions and draw conclusions," Shor says. “It is the equivalent of a clinical trial involving an experimental drug conducted in a test tube before it is administered to a human being. You lose a little realism, but the researcher can observe the specific pathways the drug takes apart from the complexities of the human body—you gain knowledge in a strictly controlled environment.”

The study is in one sense a refinement of a well-known and often-cited experiment in which people are given the chance to taste a sampling of jams, asked to pick their favorite, and given coupons to buy one. One group selects from 6 jams, another from 30. Researchers found that people who tasted 6 were more likely to buy something than those who tasted 30—the latter simply had too many choices.

Still, says Shor, "There are questions you can't answer with that experiment because you don't know objectively what the best jam for a given person is. In this case, we controlled for the right decision—we give them options each with a monetary value and know which has the better value."

The experiment is being done in two segments. The first, already well underway, presents the options to subjects online. It found that the more options or the more detail about each option, the worse the decision as measured by the optimal outcome. In breaking down subjects demographically, the researchers further found that increasing age significantly impairs decision-making ability—sex made a slight difference, with women "studying the decision a little more closely," and level of education made some difference. Those differences increase with the increasing complexity of the problem.

"If you talk about health care plans for seniors," says Shor, "giving them a lot of options actually makes their decisions worse, so that may be a bad strategy."

As findings emerge from the study, the researchers are learning that relevance is no guarantee of acceptance. At a recent conference on experimental economics, Shor and his colleagues reported the mathematically accurate finding that if a researcher randomly selects 6 of, say, 80 options available in a health care package, and shows them to a group of subjects, they will make better choices than if they can choose from all 80.

"It caused a real stir among a few conference participants," says Shor. "People were worried that this could tempt government to engage in blatant paternalism, robbing seniors of choice. But we're not suggesting you shouldn't let them see options. We're reporting that they make better decisions if you do so, as a way of stating that there is a serious problem here. We need a better way to present these things."

That cat is already out of the bag when it comes to private companies, who know that presenting a limited number of options is more likely to prompt a choice—and a sale—from customers than making them wrestle with the full range of choices.

"One of my students worked for a major phone company," says Shor, "and he said they had over 100 combinations of long-distance options. But when people called them, the computer would pick three it thought would be good for the person, and the customer representative was forbidden to tell them about others, even if they would be better for them. That's because if you tell them there are 20 plans, they will say, 'Why are you making things so confusing for me?' and will call another provider with a simpler menu."

Shor and his colleagues have received funding approval from the National Institutes of Health to continue their research.

"The first part of our work showed that there's a problem," says Shor. "There is a tension between the basic model of decision-making in economics and observed choices. That's the preliminary result. The second part is, 'How do we solve it? What ways can we find to present options to people to make decisions? Can we understand the psychological factors well enough to present a person with a simple approach that will help lead to better decisions?' That might involve a series of smaller choices, or a default option. We're looking at several different ways to represent a complicated decision." Seeking to counteract the potential self-selection bias of internet-savvy seniors in the study's first phase, Shor and his colleagues have included face-to-face test-taking in retirement homes in the second phase.

Tellingly, given the nature of marketing, he adds, "Our study is not about making a decision that is profitable for the company presenting the options, but about making the best decision for the person choosing among them. This is the first study I've been part of that is driven not by how the company would maximize profit, but how society could empower people to make better decisions for the general social good."

As Shor's study sorts out potential ways of addressing such choices, he and Leslie have found their own means of dealing with the dinner problem. It involves a favorite restaurant and, in essence, the default option.

"There's a waiter we love," Shor says. "When we call to make reservations we ask for him. He doesn't hand us menus. He knows our tastes well and makes good decisions. He simply brings us food and wine, and we get great food without all of the thinking."

It represents a continuing test of a real-world approach that feeds into the research Shor is conducting.

"In addition to the business and government applications of our study," he says, "I've got a much more fundamental and trivial motive. I want to be able to give restaurants data that will make them stop giving me 20-page menus.”

Send comments to mike.shor@owen.vanderbilt.edu

Reported by Rob Simbeck

Published 2/15/08 in OWENintelligence
© 2008 Vanderbilt Owen Graduate School of Management