Williams-Sonoma did not sell many units of the new item, but the sales of the
less-expensive appliance almost doubled.
The effect of added alternatives is not limited to decisions made by con-
sumers. In one study (Redelmeier and Shafir 1995), 287 experienced physicians
were presented with a description of a hypothetical patient suffering from
chronic hip pain and about to be referred to orthopedics. Half the physicians
were presented with a choice of whether or not to assign this patient a partic-
ular medication (Motrin); the other half were presented with two alternative
medications (Motrin and Feldene). The proportion of physicians who refrained
from assigning any new medication was 53 percent in the former group and
72 percent in the latter. Thus, the availability of a second medication reduced
the tendency to assign either. Evidently, the difficulty of deciding which of
the two medications was preferable led many physicians to avoid medication
altogether.
The experimental evidence shows that, contrary to the principle of value
maximization, the availability of additional alternatives can increase conflict
and lead the decision maker to maintain the status quo, avoid the decision, or
postpone it indefinitely. It is difficult to overestimate the significance of the
tendency to delay decision. Many things never get done, not because one has
chosennottodothem,butbecausethepersonhaschosennottodothemnow.
The following demonstration illustrates this point. Students were offered $5 for
answering and returning an assigned questionnaire by a given date. One group
was given 5 days to complete the questionnaire, a second group was given 3
weeks, and a third group was given no definite deadline. The corresponding
rates of return were 60 percent, 42 percent, and 25 percent. Thus, the more time
students had to complete the task, the less likely they were to do it. Just as
adding a second drug reduces the tendency to administer medication, so too
can extending time reduce the likelihood of completing an assignment.
26.7 Discussion
In this chapter we have applied a number of psychological principles to
the analysis of individual decision making. We have invoked the notion of
diminishing sensitivity to derive the shape of the value function, which reflects
people’s evaluation of gains and losses. This function accounts for common
observations of risk aversion in the domain of gains and risk seeking in the
domain of losses. Because the same outcomes can sometimes be described
either as gains or as losses, alternative framings of a decision problem can give
rise to predictably different choices. We have also considered the principle of
loss aversion, according to which losses have a greater impact than the corre-
sponding gains. Loss aversion accounts for a wide range of findings, notably
thereluctancetodepartfromthestatusquo.
Additional psychological principles were introduced to account for elicita-
tion effects. We suggested that different attributes of options are weighted dif-
ferently in choice and in pricing, and we invoked the notions of compatibility
and prominence to explain the discrepancy between these procedures. Finally,
we have appealed to considerations of conflict, or choice difficulty, to explain
some effects of the addition of options and the tendency to defer decision.
Decision Making 617