The Cost of Choice

30 Oct

One of the founding economic beliefs of both conservatives and liberal – and one which suffuses much contemporary thought amongst people who think they are not political at all – is that ‘choice’ is a good thing.

There’s a host of things wrong with that claim in many areas of life, not the least of which is that those who believe in it most strongly in economic affairs so often seek to deny women ‘choice’ in the control of their own bodies.

I don’t want to look at those, more important, areas however.  I just want to point out, with a single small example, one difficulty with ‘choice’ in economic reasoning that I’ve never seen dealt with anywhere.  This is simply the time it takes to make choices.

Time, so the axiom goes, is money.  Let’s accept this for a moment, and attempt to apply it to a single person choosing which company to buy electricity from.  Let’s assume, in addition, that they have electricity and internet access to research their choice and that they do not face any exit fees from their existing contract, and that every company they may wish to deal with is as helpful and honest as is possible.

The customer has eighteen possible suppliers in Wales, England or Scotland, according to Which?  Each of these offers several tariffs.  Eon offers four, and in the interests of saving myself time, I’m going to treat that as typical.  It’s also possible for an individual to join a community or consortium that buys energy at another rate from some of those companies – but I’ll ignore that too.

If our customer reads and absorbs details at truly superhuman speed they will have worked out the preferable tariff – including the awkward ethical ones about sustainability, economic degradation, company donations to the Conservative Party, company attitudes to and take-up of workfare, industrial relations policy and cross-ownership issues with only a couple of minutes work per tariff.  Note that many of these issues are ethical and therefore can’t be decisively dealt with by comparison websites.

Two hours and twenty-four minutes of our customer’s time has been taken up with research.  It’s lucky they’re superhuman and didn’t need to stop for coffee and a fag halfway through.  Being superhuman and possessed of the ability to combine complex calculation with an intimate knowledge of their daily electricity consumption for the next year with decisiveness in the face of a murky moral universe of corporate and political strategy, they choose instantly.

Having an immaculate credit rating, money in the bank, and perfect knowledge of when to place the call in order to switch their account, it takes them only a few more minutes to get through and set the new supplier account up.  Let’s call that an even two and a half hours for the sake of roundness.

Being superhuman, their time is valuable and their labour likely to be more valuable than most people’s in the economy.They combine within themselves the skills of a high-level executive, a research librarian, a corporate lawyer, an IT consultant, a professor of ethics, and a slew of working-class jobs too numerous to mention.  They are either Sherlock Holmes or the guy who appears in Tarantino films to help dispose of a body.

I wouldn’t even like to contemplate a realistic hourly rate for their services.  But I’d like to suggest that they could have done something more useful with the time.

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6 Responses to “The Cost of Choice”

  1. henacynflin January 31, 2016 at 7:14 pm #

    But the point is, in a free market, we do not have to do all of this complicated calculus – the market itself helps. Because of the free market multiple decisions, made at different times, by different people, in differing places all meld together to give information about price and value. We use this to help us make our decisions and are thus armed with the results of other individuals’ choices.

    • nosuchthingasthemarket January 31, 2016 at 8:01 pm #

      Thanks for your comment. It’s both illustrative and amusing, as an example of how the free market myth works.

      I suggested that there is not time – economically – to make effective choices. Note that I did this in a specific context, which do you not actually refer to, at all, in your reply. The context I used did not involve anybody using ‘calculus’, as in the more complicated branch of mathematics. Just somebody, quite simply, trying to check out utility prices for their own specific (individual) position.

      You respond by saying that a mythical ‘free market’ has already given them information about price and value. The ultra-rational individual consumer I hypothesized, however, was actually researching precisely that information. And, in consequence, was wasting very valuable time. As you’ll have noticed from the very simple maths I used.

      You also miss the fact that I specifically mention ‘moral choices’. These include, of course, choices relating to market externalities – things that a narrowly market-based conception of ‘price’ and ‘value’ doesn’t include. A topical example of how stupid this can be is the failure of Rick Snyder to make effective choices about water supply, despite perfectly adequate information about monetary price and value – and a large staff to process that information for him.

      His mistake – like yours – was to rely on, and evangelise for, the myth of the ‘free market’ as inevitably producing optimal outcomes. It doesn’t.

      • henacynflin January 31, 2016 at 10:07 pm #

        My reply was a brief comment rather than an attempt to evangelize. However, you are correct in your assumption that I’d be happier to rely on the market than on central planning and regulations to help me make my purchasing decisions.

        Rick Snyder’s errors are sorry to see but they are as nothing compared to systems which try and tether and constrain the market. Here in Europe we are still clearing up after such systems in the former east and it is salutary to look at the state of Venezuela which despite having the largest oil reserves in the world has left its population poor and hungry – devoid of choice – secondary to their excessive use of regulation.

      • nosuchthingasthemarket February 1, 2016 at 10:18 am #

        Again, most entertaining.

        Your initial claim was that the ‘free market’ is a perfect allocative mechanism – and you were quite specific that this allocation is perfect over time. This is why the consumer I initially referred to did not (according to you) need to perform complex calculations. But now you have introduced the errors of the past to explain the failures of ‘free markets’. Unfortunately, if it’s necessary to factor in history in making consumer choices – of whatever sort – then the ‘free market’ does not actually exist.

        Ever.

        Except insofar as it has been tethered and constrained into existence.

        Your two brief comments thus far seem to confirm this, in that your style of discussion has been classic ‘whataboutery’. Rather than look at the example I initially provided, you made a sweeping – and faulty – theoretical statement. When I pointed out a (very topical) example of error in your reasoning you simply said ‘what about…’ and introduced some other areas where you felt the free market belief system might appear stronger or you might have better grounds for argument.

        But in the case of ‘the former East’ there is a vast literature on the failures of over-hasty institution building that was predicated on free market ‘shock therapy’. An early set of examples can be seen in Stiglitz’s “Globalization and Its Discontents”. The Venezeulan case is interesting for a number of reasons, including a long neo-colonial legacy, the central role of US foreign policy throughout the history of the Americas since the 1823 pronouncement of the Monroe Doctrine, and the commonplace understanding in International Political Economy that massive raw material reserves are often – perhaps usually – as much a curse as a blessing.

        Enough of the whatabouttery though.

        The consumer I initially referred to wasted very valuable time chasing the myth of choice, despite having other talents. It’s not a nice trap to fall into.

  2. henacynflin February 1, 2016 at 12:31 pm #

    Thank you for your reply and comments. I do not recall making any comments on a “perfect allocative” mechanism. You must have found this straw man rather disappointing to push over. My comments were only on the importance of the freedom of choice in the running of a market economy.

    I agree that there is a degree of “whataboutery” in my comment. However, I think this is justified. You gave the example of the Flint water problem as an example of how market forces caused this problem. I pointed out that this kind of problem can occur for other reasons, therefore the association you show is only that – an association – not evidence of any causal relationship. (Indeed there are good reasons for thinking that regulatory systems themselves played a part in this debacle (http://theweek.com/articles/600101/flints-water-crisis-isnt-failure-austerity-failure-government)).

    Regulating the “invisible hand” is always a risky strategy prone to the problems of hindering progress, skewing the market and the effects of unintended consequences. I can concede that there may be rare scenarios where this is worth the risk but they are rare.

    Our freedom is our freedom to choose. Whether this is in what we choose to consume, or in what we chose to believe, or with whom we choose to associate. This paternalistic and patronising reduction of our choices for our own good should only be done sparingly and when absolutely necessary. When I was a socialist I often felt I knew what was good for people, now I trust them to do it for themselves.

  3. nosuchthingasthemarket February 1, 2016 at 8:29 pm #

    Apologies for pushing around a straw man without first demonstrating his existence. Seriously, that was indeed bad manners. The comment I was referring to was this:

    “Because of the free market multiple decisions, made at different times, by different people, in differing places all meld together to give information about price and value.”

    You said this in rejecting my claim that the uber-rational consumer I initially posited actually needed to do any of the work I suggested would be wasting his time. The situation I outlined, incidentally, is actually the one that faces most utility-bill payers in Britain – whether or not they know it. If they don’t research the choices themselves, however, then the ‘information’ you claimed they have been given is not actually information at all.

    The reason I suggested you had labelled it as a ‘perfect allocative’ mechanism is because what those bill-payers are doing is ‘allocating’ things.

    You’ll also note that I actually referred to Rick Snyder’s choices, rather than ‘the market’s choices’, in causing the tragedy in Flint. One of the important elements amongst his choices – a key one – was his embrace of a cost-cutting agenda derived from a mindset dependent upon the myths of the free market.

    Central amongst these myths is the trope of ‘the invisible hand’.

    There is no invisible hand.

    That’s why it’s invisible.

    I’ll look at the week article you reference with interest sometime – time permitting. However, while you consider it patronising to regulate choice in the economic sphere, I find it odd at best to view regulation and environmental protection as ‘patronising’; as if this were the worst sin in the world. Surely it’s better to be patronised than to be poisoned. Further, I’d also suggest that if it’s patronising to restrict economic choice, it is patronising to restrict political choice on the grounds that to do so could be patronising.

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