Friday, March 22, 2013

On Choice and Opportunity Cost

In keeping with my theme of responding to other people’s arguments (instead of rambling on about my own), this post a response to the arguments put forth by Professor Barry Schwartz of Swarthmore University on the subject of choice, and why he believes that “less is more”. You should watch his TED Talk on the subject below before proceeding:
(keep in mind that this post addresses solely his first argument about “paralysis.” His other points about buyer’s remorse and the escalation of expectations will be addressed independently in a subsequent post).

Mr. Schwartz has made a series of astute observations that are probably backed by extensive research. From those observations he formed a well-organized argument that struck at the very core of what I believe in as a libertarian: the value of our right to choose. Naturally, that premise made me a little defensive while watching, but I don’t want to insinuate that I found the majority of the lecture to be anything less than reasonable and thought provoking. You don’t get invited to one of those TED Talks things unless you have something enlightening, innovative and intelligent to say, and Mr. Schwartz is no exception.

With that said, I found the policy implications the professor drew from his observations to be both unwise and unjust. While there do exist psychological downsides to having too many options, these are almost always exceeded by the benefits for society on net. Furthermore, those rare situations in which the downsides of having a choice outweigh the benefits are not universal for all people, but rather vary according to the tastes, preferences and priorities of unique individuals. Therefore, we as individuals are more effective at identifying those situations as we encounter them – and taking corrective action to avoid unwanted choices – than any centralized planning body could ever hope to be.

Schwartz argues that the more options we have to choose from, the longer it takes to choose between them, and the less time we have to actually enjoy the benefits of the things we’ve chosen. This is what economists call “opportunity cost,” which is essentially the cost of time, and the cost of the opportunities we forfeited when we decided to do something else with that time. For example, if you take a job that requires you to work 40 hours a week, the benefits of that job (your salary) are partially offset by the downsides of losing time out of your week – time you could have spent enjoying leisure, or doing some other job that might have paid a different salary. When we decide whether to accept a certain job offer, we determine the wisest course of action by deducting our valuation of this “opportunity cost” from the salary offered. Similarly, when we face a decision, the time spent making that decision eats into the benefit of selecting a superior option.

This is true, but what Schwartz omits is that free individuals can also minimize the opportunity costs of more choice (without sacrificing their benefits) by focusing on the decisions that are important to them, and skipping over the ones that are not. We can do this in several ways:
  1. Avoiding unwanted choices entirely.
  2. Postponing choices to a more convenient time.
  3. Choosing hastily or based on convenience.
  4. Choosing at random.
  5. Designating the responsibility for choosing to someone else (particularly somebody who’s more informed about the options than we are).

Of course, one must choose which of these abstract choice evasion tactics to implement, which Schwartz’s defenders might argue is a chore in itself. But the truth is we’ve become so accustomed to this that we do it naturally every day, oftentimes without even realizing it. Here are some examples from my own life:

  1. I don’t go shopping nearly as often as my sister, because clothing and apparel are not as important to me as they are to her. Without even trying to, I have therefore avoided some of the choices she faces in her life – particularly, choices which would have imposed greater opportunity costs on me than they do on her (relative to our perception of that choice’s benefits).
  2. As a college student, I put the pro in procrastination. While that may not sound like a wise strategy, all it really means is that I prioritize decisions which have to be made now, and postpone those which do not. Deciding which plane ticket to buy would be much more stressful and irritating during finals period than it would be over winter break. So I don’t do it over finals period. My inner clock of pressing priorities waits until a more opportune time to deal with that matter, and by doing so I minimize the opportunity cost that decision would have imposed on me when I had more pressing things to do.
  3. Sloth can be a virtue too. On lazy days when I don’t need to go out anywhere, I often just pick whatever outfit is on the top of the pile in my dresser. In doing so I might clash horribly, but I do avoid the hassle of comparing t-shirts in the mirror.
  4. I’ve used eeny-meeny-miney-mo to select many an ice-cream flavor. My reasoning is that it’s fucking ice cream: how unhappy can I possibly be with it?
  5. If I’m having trouble deciding what to order in a restaurant, I’ll often ask the waiter or waitress for their favorite dish. Since they know more about those options than I do (having served and perhaps eaten them many times), their ability to choose may be more informed.

Of course not all of these will work for every decision, but remember we can also mix these options together by employing several strategies within the same decision. For example, some choices are too important to unscientifically randomize from the outset. However, we may be able to initiate the decision making process, only to truncate it by ultimately choosing randomly from among the narrowed field of options. For instance, instead of asking the waitress for their favorite dish overall, sometimes I’ll ask for their opinions on the dishes I was previously considering.

In order to demonstrate how all of this maximizes efficiency, let’s break down the first of those examples. My sister Emily and I have different interests. Emily spends much more time getting dressed in the morning than I do, because her appearance is more important to her than mine is to me. Her opportunity cost of time spent deciding what to wear is larger than mine, but she’s willing to spend that time because she also experiences a larger pleasure payoff than I would for choosing in a certain way. Inversely, I spend more time deciding how to set my fantasy football lineup in our family’s ESPN league than she does for her team, because she doesn’t care enough about football to know the difference between the players on her roster. If she were to spend as much time as I do checking statistics, it would bore her to tears. Schwartz correctly observes that for her, the time wasted making an informed decision on such matters would exceed the benefit she got from choosing correctly. He is right that she would be happier if she didn’t have to decide – which is why she doesn’t. Her roster is full of injured players every week, because she chooses not to choose.

Where Schwartz goes wrong is in his assumption that unwanted choices can only be avoided by restricting the options available to us. Emily has hundreds of players to choose from, just as I have dozens of T-shirts to choose from, but we each avoid unwanted opportunity cost on those choices nonetheless. Guided by distinct personal interests, we subconsciously make decisions about which decisions are worth making. Each of us must technically decide something on both matters, but we streamline this decision making process by zeroing in on the choices that will carry the greatest effect on our personal happiness.

This is not to say opportunity cost doesn’t exist. I acknowledge that sometimes, unwanted choices are unavoidable. I admit that sometimes, that’s a real pain in the ass. Mr. Schwartz’ story about the jeans – asking for “whatever kind used to be the only kind” – probably resonated with some viewers. Most of us have been in similar situations, made to choose between what we perceived as an obnoxious overabundance of options. But while we may prefer fewer options for some decisions, we also cherish having many options for others. And the problem with Schwartz’ preference for less choice is that nobody could ever agree on which choices to simplify, because those preferences depend on our unique and varied individual priorities.

Judging by his attire in this video, it is probably safe to assume that, like myself, Mr. Schwartz is not overly preoccupied by fashion. As such it makes sense that when he goes to buy jeans, he is a little exasperated by the abundance of options available at his disposal. To him, how his jeans look or feel is less valuable than the time it would take to find the most stylish or comfortable pair. But there are also people in this world who are fascinated by style, and those people are elated by all this extra choice. Ought those people be made to settle for less than what is possible just to serve Mr. Schwartz’ convenience? Might it not be more fair for him to absolve himself from that choice (perhaps by using eeny-meeny-miney-mo) while leaving the other options available for the fashion-minded?

The same concept applies to almost every decision we could possibly face in our lives: differences that seem trivial to us are of paramount importance to someone else, and vice-versa. The professor ridiculed the thousands of amplifier combinations available in the electronics store, but having those options to choose from is probably essential for a band going on tour. Those musicians must balance portability, volume, appearance, appropriateness for their instrument/sound, and whatever other technical specifications amplifiers have. Personally, I don’t care what the thread count of my bed sheets is, so I simply buy the cheapest sheets the store offers. Others need a certain softness in order to sleep, and so they pay more attention to that stuff. I do care what workout supplements I buy, because I know the science behind them and weight lifting is a hobby of mine. Others would just say “bah, eat some chicken, that’s plenty of protein.”

This diversity is a beautiful thing, but it becomes a problem if we lack the freedom to make our own choices about whatever it is that’s important to us. For any choice, there is always somebody for which the benefit of additional choices outweighs the downside of the time spent choosing. And for everyone else, those downsides can be greatly reduced if not eliminated by implementing the strategies I listed above.

The point is that time management is an extremely important skill in the modern world, and the fact that Mr. Schwartz is inconvenienced by the hassle of managing his own time does not give him the right to manage everyone else’s. Granting each person exclusive dominion over their own schedules is the best way to minimize opportunity cost by maximizing the time we spend doing the things we like to do. 

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