Krugman – Having Too Many Choices is Hurting Us

We all want to have choices, right? We want to be able to have control over our lives, and the ability to make our own choices. But is there a point where too many choices? Do we have the information and cognitive bandwidth to make the choices needed for today’s complex world.

That’s the question Paul Krugman explores in his latest op-ed. Krugman believes that having so many choices about parts of our life that used to be “background” may have been really bad for Americans. What used to be routine has turned into potentially make or break, life altering decisions, dramatically increasing stress levels, and ultimately causing people to make disastrous choices. Krugman uses three main examples to make his point.

The first is the one most recently in the news. the result of the recent blackout in Texas and the disastrous electricity bills that many customers got, if their lights stayed on.

Dan Patrick, the lieutenant governor of Texas, is clearly what my father would have called a piece of work.

Early in the pandemic he made headlines by saying that older Americans should be willing to risk death so that younger people could “get back to work.” More recently, he suggested that Texans who found themselves with $17,000 electricity bills after the February freeze had only themselves to blame, because they didn’t “read the fine print.”

Funny, isn’t it, how politicians who denounce liberal elitists sneer when ordinary Americans get into trouble?

Another example Krugman uses is health insurance. Unless you really know the future, deciding which health insurance plan is best for you and your family is a gamble. High or low deductibles? Drug coverage or not? Also writing in the Times, Margot Sanger-Katz tells us that most people choose the wrong plan, and insurance companies are incentivized to offer plans that cost more, and offer less.

But it turns out in real life most people are terrible at picking the health plan that is right for them. Health insurance is a complicated financial product, and study after study has shown that people routinely pick bad plans, even choosing options that leave them worse off financially in every possible scenario. And, because people are so bad at choosing good plans, the market often sends weird signals to insurance companies, encouraging them to offer more of the wrong plans instead of the right ones.

And then there are mortgages. One of the biggest causes of the 2008 financial crisis was people taking out mortgages that they never could afford. Or mortgages like “interest only” or “reverse amortization” that left the borrowers screwed when the housing market went bad.

Before the subprime mortgage crisis, Edward Gramlich, a Federal Reserve official who warned in vain about the potential for disaster, asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” The question, he suggested, “answers itself — the least sophisticated borrowers are probably duped into taking these products.”

As a whole, the problem is called the “Paradox of Choice”. We need some choice, we want to have some control of our lives, but having too many choices causes unhappiness.

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