In Predictably Irrational, Dan Ariely discusses the clever (ex)-subscription menu of The Economist that purportedly manipulates people to subscribe to a pricier plan. In an experiment based on the menu, Ariely shows that addition of an item to the menu (that very few choose) can cause preference reversal over other items in the menu.
Let’s consider a minor variation of Ariely’s experiment. Assume there are two different menus that look as follows:
1. 400 cal, 500 cal.
2. 400 cal, 500 cal, 800 cal.
Assume that all items cost and taste the same. When given the first menu, say 20% choose the 500 calorie item. When selecting from the second menu, percent of respondents selecting the 500 calorie choice is likely to be significantly greater.
Now, why may that be? One reason may be that people do not have absolute preferences; here for a specific number of calories. And that people make judgments about what is the reasonable number of calories based on the menu. For instance, they decide that they do not want the item with the maximum calorie count. And when presented with a menu with more than two distinct calorie choices, another consideration comes to mind — they do not too little food either. More generally, they may let the options on the menu anchor for them what is ‘too much’ and what is ‘too little.’
If this is true, it can have potentially negative consequences. For instance, McDonald’s has on the menu a Bacon Angus Burger that is about 1360 calories (calories are now being displayed on McDonald’s menus courtesy Richard Thaler). It is possible that people choose higher calorie items when they see this menu option, than when they do not.
More generally, people’s reliance on the menu to discover their own preferences means that marketers can manipulate what is seen as the middle (and hence ‘reasonable’). This also translates to some degree to politics where what is considered the middle (in both social and economic policy) is sometimes exogenously shifted by the elites.
That is but one way a choice on the menu can impact preference order over other choices. Separately, sometimes a choice can prime people about how to judge other choices. For instance, in a paper exploring effect of Nader on preferences over Bush and Kerry, researchers find that “[W]hen Nader is in the choice set all voters’ choices are more sharply aligned with their spatial placements of the candidates.”
This all means, assumptions of IIA need to be rethought. Adverse conclusions about human rationality are best withheld (see Sen).
Further Reading:
1. R. Duncan Luce and Howard Raiffa. Games and Decision. John Wiley and Sons, Inc., 1957.
2. Amartya Sen. Internal consistency of choice. Econometrica, 61(3):495– -521, May 1993.
3. Amartya Sen. Is the idea of purely internal consistency of choice bizarre? In J.E.J. Altham and Ross Harrison, editors, World, Mind, and Ethics. Essays on the ethical philosophy of Bernard Williams. Cambridge University Press, 1995.