Tyler Cowen and Will Wilkinson both have interesting comments on the growing “choice makes people unhappy” literature. Both Tyler and Will point out that, if your choice set really is too large to sort through at low cost, then it pays to have people who will do the sorting for you – editors who select the best articles, waiters who tell you the best items on the menu, etc. I made the same point about a month ago. Will adds that the need for editors creates new entrepreneurial opportunities for those who can do the most effective job of helping others narrow their choice sets.
Although sometimes presented as evidence against the standard microeconomic theory of consumer behavior (and possibly all rational-choice theories), the “choice makes people unhappy” literature doesn’t really shake my confidence in economic modeling. It just changes my assessment of the relative importance of different economic models. The usual static choice model, in which a consumer just chooses the highest-utility point available in a completely known and well-defined choice set, has always been a simplification. For some contexts, it’s an innocuous simplification. In other contexts, particularly those with a greater informational burden, other models must be brought to bear, the most obvious being search theory (as Will indicates).
I’ve long thought that search theory deserves greater play than it gets at present. It’s been applied extensively in labor economics (for job search), but its use elsewhere is more limited. I’ve been working on a search theory of suicidal choice for a while now, and long-time readers may remember my search theory of romance. Search theory also provides the utility-maximizing explanation of satisficing. What I haven’t seen yet, but would very much like to see, is a thorough reworking of basic consumer theory along search theory lines. (Please email me if you know of anyone who’s working on this!)