Attribute Overload, Consumer Finance and Welfare
AbstractWhile economists have generally considered it welfare improving to offer an individual more options to choose among, a large literature has documented the phenomenon of “choice overload,” where provision of additional choices to individuals can actually lead to suboptimal choices and welfare loss. We investigate a related but distinct phenomenon termed “attribute overload” where increasing the number of characteristics, or attributes, per choice (while keeping the size of the choice set constant) may in and of itself lead consumers to make
welfare diminishing choices. In a two-stage experiment (the stages separated by seven weeks), we first gather time and risk preference information that is used to structurally estimate the individual-specific parameters of a CRRA utility function. For each participant the observed utility function is then used to inform a choice experiment in stage two over typical consumer finance payment card products. Based on their stage two choices we can measure simple dominance violations and measure the welfare implications of choosing the “wrong” card. Participants are randomized into two information architecture treatments that vary the size of the attribute set in otherwise similar choices in order to determine whether dominance violations can be decreased, and, therefore, welfare increased by adopting a simple disclosure policy. Assignment to the few-attribute treatment significantly reduces the chance of choosing dominated credit products, suggesting that indeed consumers experience attribute overload when facing multi-attribute choices.