When Choice Is A Bad Thing – The Marginal Utility of Choice

Being able to choose between different options is a good thing for the user! right? but when you can choose between 65 different kinds of blue, 1122 different fonts and whether a display should only work on Sundays between 11 and 12 for a special group, giving MORE choices to users start to be not so good or, to put it bluntly: bad!

In general most are brought up in a democratic state, where expecting to have a choice is as basic as eating or breathing. This is why choice in all its guises has a positive ring to it. But there are actually situations where limiting your choice is the best strategy. It has worked for artists and musicians to enhance creativity, but it also works for ordinary people. This is important to consider when you are designing and building new products.


The marginal utility of choice

In order to understand why and when more choice stops being a good thing I will introduce the concept The Marginal Utility of Choice: “The marginal utility of choice is the perceived benefit that the option of one more choice will offer”.

Let us look at an example. If your product is a car rental service, then increasing the choice of color of cars from 1 to 2 may be a significant increase in utility for the user. Now you can suddenly choose whether you want the car in black or white. Adding blue will also offer great utility. Continuing to do this will continually add some utility to the car rental service as a whole. But when you already have, say, 35 different colors to choose from how much will adding color number 36 improve the utility of the service as a whole?

This example shows that it is not a linear function, that is, adding one more choice will not indefinitely result in the same increase in utility. In the following I will offer a posible explanation based on human psychology that could help explain when having more choice stops is a bad thing.


The optimal number of choices

In general the value of an extra choice increases sharply in the beginning and then quickly drops off. Given the choice of apples, oranges, pears, carrots and bananas are great, but when you can also choose between 3 different sorts of each the value of being offered year another type of apple may even be negative. The reason for this phenomenon has to do with the limits of human consciousness.


In order to make a conscious choice there is one fact we know with Cartesian certainty: you need to be conscious about it. From half a century of psychological research starting with the seminal article by George Miller from 1956 “The magical number 7, plus or minus 2” we know that our consciousness has some severe constraints on how many things it can work with. It seems to be able to maximally hold 4 to 7 items at the same time (depending on the type of test and training). When the number of choices exceeds 4 to 7 items you can’t hold it in your consciousness anymore and the choices can’t be evaluated against each other. Therefore the marginal utility of choice quickly stops at the other side of 7.

I once got into a discussion with Chris Anderson (author of “The Long Tail”) about this observation. I argued that companies that offered only a very limited number of choices of products and functions of their products would be more successful, contrary to Anderson’s argument that the long tail and infinite choice was the way to go. We never really reached consensus on that though, but consider the following:

How many different phones does the worlds leading phone manufacturer, Apple, produce? 4, iPhone 6, iPhone 6 Plus, iPhone 5s, iPhone 5c

How many different choices does the worlds best restaurant offer their customers? 3 choices: 1 menu, a wine menu and a juice menu

How many car models does the worlds most hyped autoproducer, Tesla Motors, offer to their customers? 2, Model S and Model X

All of these leave the consumer with a number of choices that is below the threshold of our consciousness.

Expressed more formally we can stipulate that “the marginal utility of choice rises sharply between 1 and 7 choices and then decays”


Now the question is “what happens after that?” When choice cannot be held inside consciousness, it will try to group them into different segments. That could work well to some point probably around 50 (7 chunks time 7 choices). In this interval a new choice can still be grouped with others with some effort, but it will take mental effort to understand and compare it to all the other choices. This is why adding a new choice will be a bad thing, since it is cognitively costly.

In this range the marginal utility of choice is slightly negative, because the added mental burden of yet another choice detracts more than the utility of it.

More than 50

After about 50 everything will just be a blur because the possibility of comparing it to all the other choices has broken down in our consciousness.  So, adding another choice will not make any difference. The marginal utility of choice is zero.

This means that the aggregate utility might even fall below zero some and then stabilize. This means that if you keep adding choices there might come a time where the utility is lower than having no choice.


The marginal utility of choice curve

Please keep in mind that this is a hypothesis, that is based on theoretical observation and some, albeit anecdotal, empirical evidence. I think it aligns well with a lot of observations, but it should be tested more rigorously.

We can now draw a function for the marginal utility of choice. It looks something like the above

We see that the total utility rises sharply in the beginning, we can call this “The climb to enlightenment”. This is the section where adding another choice gives the most marginal utility until the it approaches zero. The curve then evens out and decays which we could call “The slope of attrition” where adding another choice reduces the perceived benefit. The marginal utility of choice is below zero, which means that every new choice added decreases the aggregate utility of the service. The reason is that each new choice adds cognitive friction. Finally it will stabilize “This we can call the plateau of indifference”, this could be above or below zero, because having a lot of choices could very well be more frustrating than having none at all.


Case study – SaaS pricing models

It would be interesting to see if we could see this in real life. Let’s examine the case of Software as a Service pricing. SaaS companies live from selling subscriptions. Usually the user can choose between several different plans. This is obviously a case where the number of choices is important. If it were true that there is an optimum of choice between 1 and 7 we should be able to see this in how many tiers are actually offered.

In an excellent report by Price Intelligently “The SaaS Pricing Page Blueprint”, the authors studied 270 SaaS companies’ pricing page. If we look at how many plans the companies have it is overwhelmingly evident that most companies (88%) only let their customers choose between less than 7 options. About half of all companies offer three or four choices (55%). So, clearly SaaS companies have most success with offering less than 7 choices.

This seems to be an indication that there could be evidence for the stipulated rule that the marginal benefit is postitive between 1 and 7 .

Limiting cases

Now, this curve holds under the assumption that the user is doing his choice unaided by anything other than his or her own consciousness. It is important to note that this assumption doesn’t hold in all cases. Today we can often use AI to help us cut down the number of choices. When we look at a book on amazon a number of books are presented below. It is not a list of all books amazon has, but a subset based on what the algorithm thinks is relevant. The utility in this case depends on the precision of the algorithm, which is a completely different problem.

Another condition that should hold is that the choice should be comparative, that is, it should be a choice where the alternatives are compared rather than evaluated one by one. An example is finding a movie on Netflix or iTunes. you may go through a long list but you are not usually comparing every single movie to each other. Either you will create a short list (which will probably not be much longer than 4 to 7 movies) or you will just choose movie by movie: “do I want to see this now?” (a binary choice).


So, if you have a situation where the user should be given a comparative choice and there is no way to make AI support for that choice, then the marginal utility curve stipulates that about 4-7 choices is the best from a general point of view.



“Heat” – How to Train Your Decision Making

In one of the greatest gangster movies of all times,”Heat”, lies hidden deep wisdom for all decision makers big and small. It is not that you should change your business model and start robbing banks, hire Al Pacino or even that you have to grow a moustache and goatee to succeed. But our decision making is clouded by two problems that can be attributed to how our brains work. They can be overcome by heeding the advice of “Heat”.

Cool feature…
Before deciding to do something most people will investigate the possibilities. This is the first place where your decision making could go wrong. People have a tendency to attribute too much importance to the first information they get. This is sometimes called the anchoring bias. The effect is that all subsequent evaluations will be affected by that first thing you see even though that information is irrelevant.

It could be that you are looking to invest in a new Customer Relationship Management system for your company and you hear about a vendor that has close integration with facebook. Again this is a cool feature, but essentially irrelevant. All subsequent CRM systems will be reviewed in the light of whether they have facebook integration.

Jeans suck!
After having seen a couple of alternative solutions to your problem you will start to develop hypotheses based on your gut feeling, for example that products from Germany are inherently more robust. You may have seen two or three examples of this. Here comes the next hurdle: the confirmation bias. The confirmation bias makes you look primarily for confirmatory evidence and attach more importance to it than to contrary evidence.

It could be that in your recruitment process for a new ambitious account manager you encountered two polite applicants from, say, London. This has made you develop the hypothesis that people from London are polite. If an impolite applicant from London comes along, who may forget to shake your hand, you may not attribute his geographical origin any value in your evaluation. Chances are that you will use another hypothesis, for example that people in Jeans are impolite and this is why he is not as polite (at this point you have forgotten that the first applicant from London also wore jeans, but at that time you didn’t pay attention to it). You just made that up on the spot to make sense of the evidence.

Psychologically it just feels a lot nicer to have your hypotheses confirmed, than having them contradicted, even to the point where you make up new ones just to have some confirmation.

30 seconds flat
Flash back to “Heat”. At one of the absolute highlights of the movie the policeman, Vincent Hanna, who hunts the gangster Neil McCauley decides to have coffee and talk with Neil. At the climax of this conversation Neil McCauley says the sentence that has also given the movie its name: “Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you spot the heat around the corner.”

This is deep wisdom, because, if applied with sufficient discipline it will eliminate the above named decision problems. You should never get attached to any idea. Period. It doesn’t mean that you should change your opinion or hypotheses incessantly. Rather it means that you should always be psychologically prepared to abandon an idea if you find that evidence does not support it.

This is more difficult than you think. But so is pole vaulting. Yet, pole vaulting can be learned. This is done by training. And train, you can. Teach you, I will: Next time you are making a decision try the following.

  1. Before you start searching for information write down your hypotheses. That way it will be easier to challenge them
  2. When you research your alternatives write down all the new hypothesis you develop
  3. Make sure to continually test your list of hypotheses in your evaluation process
  4. All previously evaluated alternatives should also be checked against the new hypotheses
  5. Every time you find sufficient evidence against an hypothesis. Strike it from the list.

You can train this on everyday decisions like choosing the right restaurant for you wedding anniversary (yes, it’s not enough to bring home Chinese take away), buying a new TV (we all know you need it) or even finding a new boyfriend/girlfriend (I know, not necessarily an everyday decision, but still..)

Photo by Michael Gil, MSVP @flickr