For a con on consumers, = it's choice

August 13, 2003

Why does your heart sink when you open a lett= er from one of the outfits you deal with and read: "It's renewal time aga= in and this year we've introduced membership packages that offer added choice = and flexibility"?

Because, if you weren't born yesterday, you k= now it means they have put up their prices but are trying to disguise the increase= - or at least confuse matters - by jigging things around. (The outfit in ques= tion was the NRMA.)

At least since Bob Menzi= es' day, the Liberal Party has sung the praises of choice. More recently, econo= mic rationalists are always citing increased choice as one of the great benefit= s of the competition they are promoting.

Having a wider range to pick from is supposed= to be a benefit in itself, quite apart from lower prices or improvements in quali= ty.

But though some choice is obviously better th= an none, I think choice isn't all it's cracked up to be. In fact, I'm starting= to think choice is one of the great cons of consumer capitalism. It's supposed= to be a benefit to consumers, but more often it's a benefit to business.

For a start, consumers often find the choices they're presented with quite confusing. You're being asked to compare an ap= ple with an orange.

One bank offers you a loan with no up-front f= ees, whereas another has a $750 "establishment fee" but its interest r= ate is 0.25 percentage points lower. Which is better? (Answer: don't try to wor= k it out unless you have an intimate familiarity with discounted cash flow analysis.)

Psychologists tell us our brains are simply n= ot capable of making rational choices between more than two options with diffe= ring features. Consider this experiment involving someone choosing a flat to ren= t. To oversimplify reality, the person has only two concerns: the amount of the rent and the flat's distance from their workplace.

Flat A is very expensive, but wonderfully clo= se to work. Flat B is the opposite: a long way from work, but very cheap. So whic= h is better?

It's not really possible to judge, so people = divide between them pretty much 50/50.

But now add Flat C, which is near B but both = more expensive and further out. Now, more than 70 per cent of people pick B.

See how our reasoning processes fail us? Beca= use C is clearly worse than B, it's irrelevant to the real but tricky choice betw= een A and B. Because the choice between B and C is so easy, however, it diverts= our attention and misleads us into favouring B over= A when there's no sensible reason to.

It follows from this that, in their pursuit of higher sales and profits, businesses often use choice to manipulate their customers.

A real estate salesperson, for instance, will= often show you cheaper but nastier properties before they take you to the ones th= ey think you'll like. Why? They are softening you up to pay a higher price.

The phone companies' arrays of mobile phone "plans" are horrendously complicated and hard to compare. I can't believe this is accidental.

Often we're offered a choice between the ordi= nary product or a dearer one with more features. Exam= ples include the choice of private health insurance plans for "extras"= , or the choice between a "standard" variable home loan or a no-frills "basic" loan (the interest rate on which is 0.55 percentage points lower).

But when you study them carefully (or talk to= an insider), you find the cheaper version has pretty much all the features you= 're likely to use, whereas the dearer version has extra features you're unlikel= y to use (such as home nursing).

The dearer version is there to exploit people= with unrealistic expectations about what they may do in the future, or just those with more money than sense (in the home-loan case, those who think of themselves as "standard" people, a cut above "basic" people).

Shops selling food on the basis of quantity u= sually know better than to offer a choice of large or small. Small is for cheapska= tes, whereas large is for gutses. People will hesita= te at the counter for ages choosing between those unattractive options. But offer= the popcorn-at-the-movies choice of three - large, medium or small - and most people will quickly choose medium. Most of us are happy to think of ourselv= es as middle-of-the-road.

Another widely used choice of three is between deluxe, regular and economy. That range offers most people what they need to gratify their image of themselves. Economy is for people (particularly wome= n) who pride themselves on being price-conscious, canny shoppers.

Deluxe is for people (particularly men) who l= ike to think they "always buy the best". Being neither tacky nor flashy, regular is for people with "good taste".

With things like cars - or houses - we often = select the model not for its intrinsic characteristics so much as its ability to demonstrate to the world our success and social status.

There's often intense rivalry between the handful of big companies in an industry, but they usua= lly choose to compete on choice and marketing rather than price - because a pri= ce war would benefit only the customer.

Being able to choose gives customers the illu= sion of being in control. Against that, however, customers often find multi-face= ted choices frustrating. No matter which way they jump, they're left with a sneaking suspicion they jumped the wrong way. To this extent, excessive cho= ice makes people unhappy, not happy.

When it comes to deciding what to do with our= time, we have a much wider choice than we used to in, say, the 1950s. For work we= have to choose how many lunches or conferences to attend, how many newspapers and news bulletins to absorb. At weekends there's an infinite variety of leisure pursuits to pick from.

But I have a theory that so much choice is ma= king us greedy. We rush from one thing to the next, trying to fit in as much as = we can, while never getting to do all we'd hoped.

And then we wonder why we're feeling stressed= and not particularly satisfied.

Part of the secret to a happy life may be less choice, not more.

This story was found at: http://www.smh= .com.au/articles/2003/08/12/1060588391967.html