People faced with too many choices when making complex decisions not only have difficulty discerning the right choice, they often make poor choices, contrary to classic economic theory, according to research by Vanderbilt economist Mike Shor.
Seniors facing critical decisions about health care are especially vulnerable, and may become overwhelmed by too many options. The resulting bad decisions come at a high cost to society, said Shor, assistant professor of management at the Owen Graduate School of Management.
Shor is the principal investigator of a recently awarded $360,000 National Institutes of Health (NIH) grant that seeks to better understand why people make poor choices when faced with complex decisions and to suggest guidelines that improve people’s decision-making performance, particularly older Americans choosing options for Medicare Part D, the prescription benefit.
“While the research has implications for a wide range of decision-making when lots of options are available, the application here is to health care,” Shor said. By the project’s end, the team plans to make policy recommendations on structuring complex choices to minimize selection errors.
“Our goal is to help under-performing groups make better choices about health insurance and drug coverage, improving the overall health of seniors and reducing the cost to society of seniors getting into prescription drug plans that don’t cover the drugs they use,” said Shor, whose co-investigators are Tibor Besedes, assistant professor of economics at Georgia Tech; Cary Deck, economics professor at the University of Arkansas; and Sudipta Sarangi, economics professor at Louisiana State University.
In Georgia, Arkansas and Louisiana, the researchers will conduct on-site research at senior centers and residence facilities. For the Nashville leg of the study, already underway, the researchers are tapping into Vanderbilt’s online eLab, an academic research center at the Owen Graduate School of Management dedicated to the study of human behavior, which provides access to tens of thousands of subjects willing to participate in experiments.
Preliminary research at Vanderbilt already has shown that people faced with too many options and details about the options make worse decisions as measured by optimal outcome, Shor said. Seniors were especially susceptible, selecting much worse choices than younger participants when faced with many options.
“Giving seniors too many options actually makes their decisions worse,” he said. “We’re not at all suggesting that government engage in blatant paternalism and rob seniors of their choices, but how we present these choices has an enormous impact on the likelihood a senior selects the right plan. While some may argue that people are responsible for their own behavior, ultimately we as a society pay for seniors who have inadequate coverage.”
The initial decision about which coverage plan to choose is critical because even though people can change their minds, most people don’t, either due to inertia or because they don’t realize they made a bad choice. “Even if people are unwittingly happy with their choice, if it’s the wrong one there’s still a cost,” Shor pointed out. “Once a decision is made, there’s a lot of evidence from previous studies that people usually stick with it. You can’t just assume they’ll learn over time.”
Profit-making companies have long exploited the human tendency to become overwhelmed by too many options, Shor said. Government, on the other hand, should present complex choices with an eye toward a positive outcome for society. “We are working under the assumption that the government wants people to make good decisions,” he said.
“Our study is not about making a decision that is profitable for the company presenting the options, but about making the best decision for the person choosing among them,” Shor said. “This is the first study I’ve been part of that is driven not by how the company would maximize profit, but how society could empower people to make better decisions for the general social good.”
Media Contact: Jennifer Johnston (615) 322-NEWS
Jennifer.johnston@vanderbilt.edu