Abstract

A growing body of empirical evidence suggests the existence of a Paradox of Choice, whereby a larger choice set leads to a lower expected payoff to the decisionmaker. These empirical findings contradict traditional choice-theoretic results in microeconomics and even social psychology, suggesting profound yet unexplained aspects of choice settings/behavior. The Paradox remains largely as a theoretically-rootless empirical phenomenon. We neither understand the mechanisms and conditions that generate it, nor whether the Paradox stems from choice behavior, choice setting, or both. We present a general search model of consumer choice under incomplete information to examine the theoretical existence and conditions for the Paradox. The model departs from traditional microeconomic choice theory in assuming no “cognitive free lunches.” Search and evaluative efforts require time, focus, and opportunity cost in the model, as in real life. The model shows that conditions for Paradox readily exist, diminishing returns to potential value of the choice in choice set size is a necessary condition for a Paradox outcome, that a Paradox outcome can occur with or without a “choice overload” response by the decisionmaker, and that avoidance of a Paradox outcome is an impossibility in some choice settings (primitive to setting regardless of choice behavior). Lastly, we develop a pareto-improving choice set reduction algorithm that eliminates weakly dominated choice set elements and presents the restricted choice set to the decisionmaker. As such, it is shown that the algorithm acts to treat or mitigate the Paradox of Choice, as well as to pareto-improve choice-supporting evaluation more generally. Like established AI recommender systems, the novel algorithm filters choices. In the present case, the filtering is based upon identification of weakly dominated choice set elements.