The concept of choice is really interesting, both in economics and its real-life implications. When you eat out for lunch, what makes you choose one restaurant over the other? It’s easy to justify decisions like that by saying, “It’s what I wanted.” But why did you want it?
Basic economic theory tells us that human beings are rational and make decisions that maximize their utility, or benefit, from a purchase. This makes a lot of sense and is pretty intuitive. If you’re deciding between an apple and an orange, if you want the apple more, you’re going to pick it because it provides you more utility.
But this model of human rationality doesn’t always hold, and it only leads us to wonder why we make the purchases that we do.
Take, for instance, the paradox of choice. This theory states that providing humans with more options can actually hinder people from choosing what they want the most. Traditional economic theory assumes that a consumer with more options will be able to evaluate the utility of each option and choose the one that’s best for them. Since consumers have more options, they should benefit through having more options to maximize their utility.
Contrary to this notion, a recent study revealed that consumers with just six options for jelly were more likely to purchase one than those who were offered 24. The intuition behind this idea is that humans have a more difficult time processing all the available options, and will therefore have a harder time coming to a conclusion.
See? How it can be much more complicated than, “It’s what I wanted?”
Traditional economics fails to incorporate human irrationality and psychological functioning into its model. This leads to a big problem, in that it insinuates humans are stiff in an unrealistically robotic manner. We’re not robots.
Instead, factors outside of rationality mix with utility to explain why we consume what we do. Take, for instance, our capacity for exerting energy. A robot is capable of performing tasks with the same level of energy and precision, but if we as humans are constantly bombarded with the need to make decisions, we get tired. Choosing something over something else requires energy. At times when we must make decisions in rapid succession, we have the potential to lose the desire to maximize our utility, and we just want to be finished with a task.
I’ve certainly experienced this. After winding through the aisles of a grocery store, I’m ready to check out. So when I get to the cheese section, I’m ready to just throw in the first pack of square dairy that I see, whether it’s pepper jack or muenster.
We’re also susceptible to our emotions influencing which decision we believe maximizes our utility. This is exemplified by the concept of overconfidence, which states that we’re more susceptible to purchase something when we or others have trust in it. It doesn’t matter whether the product is actually trustworthy, but rather, what’s important is that consumers believe something is trustworthy. For example, if you grow up in a household that only purchases Jif peanut butter, it’s pretty likely that you’ll develop an inherent trust in the product. If this happens, you’ll have more trust in Jif peanut butter, and likely purchase it, whether or not it’s actually the brand that you’d like the most.
So we’re not completely rational, but economics can still help us explain why we choose to consume certain things over others. Though the traditional model isn’t completely accurate, when we incorporate what we know about human irrationality, we can adjust the model to account for human emotion and psychology.
It’s important for us to recognize the power of what these theories can do for us. They have the power to tell us why we consume what we do, and what obstacles cause us to make irrational decisions. Knowing the intricacies of concepts like paradox theory provide us a portal into our own mindset and why we choose to purchase what we do. If we understand these theories, there’s also a possibility that we can become mindful of our irrationality, which could lead us to force ourselves to overcome our initial irrationality in place for what maximizes our utility.
At the very least, when you have 24 options of grape jelly, make sure to at least pick one. If you really can’t decide, I’d recommend grape. And don’t immediately pick the peanut butter that you grew up eating. Try some variety. Natural peanut butter does wonders over regular in stickiness value.
After writing this column, I’m going to need a peanut butter and jelly sandwich, whether it’s rational to consume or not.
Michael Schramm can be reached at email@example.com.