Friday, April 12, 2013

Competition, Choice and Health Insruance

Came across this chart on efficient selections and number of different plan options, found it interesting. I am drinking so I am not going to write much. Basically, more choices lead to worse outcomes.  However, I always find it fascinating when I see a concrete and accessible example of more choices  to worse outcomes (in a less controlled environment a freer market is generally seen as being more choices and assumed to lead to better outcomes). Observationally, I find this unsurprising; I see it happen all the time. Conceptually, however, I know a lot of people have problems wrapping their heads around this kind of thing. We need better conceptions of choice and economic reasoning.


  1. More choices leads to better outcomes if you can look at any two and see which is better. Call it intuitive decision making.

    But suppose you have to *work* to determine which is better. For example you have to do even simple math, but involving more than one arithmetic operation (in the case here, multiplying 3 pairs of numbers and then adding the products). Then more choices increases the chances that you will stop checking before you make all the necessary comparisons. Or simply throw up your hands and not check at all. That may not be true for every example of large numbers of choices, but I think it was here.

    Or, to put it another way, if you have multiple variables which determine the "best" solution, more variables means more ways that one being negative can be outweighed by others being positive. And it takes time and effort to work thru all those possibilities.

    1. I'd definitely agree with that. The problem is that too often we tend to think about the economy as if it primarily consists of basic commodities that don't differ much, like an 18th century general store. The problem is that most of the economic growth of the past century consists of product of increasing complexity, not an expanding array of pots, cotton shirts, and table sugar that the classical economists are thinking of. Yet most of the more extreme free marketer types, especially the influential, carry around an essentially classical view of the economy that imagines little more complexity than shopping at the dollar store.