ABSTRACT
Psychologist Barry Schwartz’s 2004 book, The Paradox of Choice – Why More is Less, is a blow to one of the central assumptions of traditional economics. Economists traditionally assume that more is better, and more choice is always better than less choice. This stems from a misguided understanding of rationality. The notion of rationality in economics is simply based on the observation that human behaviour typically is motivated by some purpose. To the extent that people want to achieve their purpose, but there are dilemmas involving trade-offs, people would want to make the choice that best furthers their purpose. This is ‘maximisation’ or ‘optimisation’. But wanting to make the best choice does not mean that people are always capable of making the best choice. This is because choices must be based on perceived options and perceived payoffs from the options. But perceptions are always flawed. When the perceptions do not deviate too far from reality, people can still achieve a high level of utility, where utility is just another word for the intended purpose. But when the perceptions deviate from the reality significantly, or when people are confused, they are likely to fail badly in achieving their purpose.
