Do Markets Give Us Too Many Choices?

Lately, it has become common for critics of free markets to argue that they give us too many choices, and making all those decisions is too burdensome. Barry Schwartz’s book The Paradox of Choice is the best-known defense of this argument. Tyler Cowen links to a good statement of it by Megan of the From the Archives blog:

This is the other thing I don’t get about small government types. You protest so vociferously that government takes choices away from you. But a whole lot of choices are BORING. If I never once think about car bumper safety standards for 25mph crashes, I will never miss it. I do not want to carefully match my car safety standards to my most likely driving patterns and save two grand in the process. I would not enjoy that process. (Perhaps you would, and you would rather have the money.) I’ve never been a comparison shopper or a meticulous consumer. Maybe my model of the individual is too biased by my experience. But I don’t want to figure out how much coliform bacteria I can tolerate on my spinach, given my health. I don’t want to do that even if it saves me money. I don’t want to figure out what goes into paint in nephews’ toys. I don’t even want to handle my health care…..

I can hear you already: “But you are FORCING me to take that deal too.”. Yes. But right now our system FORCES me to comparison shop. Either way, someone gets FORCED to do something, and I don’t see a justice interest on one side or the other….

There are several flaws in this argument. First, the market does not in fact “force” anyone to do “comparison shopping.” If you genuinely don’t care much about the price or quality of a particular product, you can simply choose at random from the options on sale. In that scenario, you can still benefit from the comparison shopping efforts of consumers who care more than you do, since most manufacturers will cater to the preferences of the better-informed consumers at least to some substantial degree.

Second, if you do care, but simply don’t want to take the time and effort to choose intelligently, the market again provides solutions for the problem. You can 1) rely on the advice of better-informed friends and acquiantances, 2) use one of the many consumer publications (e.g. – Consumer Reports) that summarize product information in an easy to use format, or 3) pay an expert to make your decisions for you. Megan herself seems to approve of this third option:

People talk about being rational health care consumers, but they are maximizing some combination of health outcomes and money. I want to maximize my utility. My utility is optimized by going outside to play while someone who is interested in health care gets paid to balance my health care and money. I’ll pay a little extra to cover that person. I come out well ahead in that deal.

Of course, if I interpret Megan correctly, she means that she would like to pay government regulators to impose decisions on everyone rather than to hire a private sector expert on her own initiative; otherwise, her argument would not be a criticism of “small government types.” But a key advantage of the market over government is that you get to choose when you want to rely on experts, and which ones you want to hire. This gives the experts much stronger incentives to do what you really want, and also reserves to you the vital right to reject their advice at the end of the day – points I discussed in greater detail in my post on “Power to the Experts.”

Finally, Megan’s argument (and Schwartz’s more sophisticated version) don’t adequately consider the important fact that people differ from each other on what products and product attributes they care about. Choices that she and I would consider “BORING” or unimportant are intensely interesting and significant to others. In the market, people can choose for themselves which choices they want to study in detail, which ones they are willing to make more or less randomly, and which ones they prefer to delegate to an expert. With a mandatory government solution, we will at best get the menu of choices that the majority of voters consider appropriate – a result that will be deeply unsatisfactory to many who have minority preferences. At worst, the menu will be dictated by narrow interest groups that manage to capture the regulatory process and use it for their own benefit. Even “boring” choices that I have to make myself are preferable to that.