When smaller menus are better
Subtitle: variability in menu-setting ability
By: David Goldreich, Hanna Halaburda
Contributors: Halaburda, Hanna; Harvard Business School
Edition: 3rd rev.
Series: Working paper / Harvard Business School -- 11-086; Working paper (Harvard Business School) -- 11-086.
Publisher: Harvard Business School
Published: 2011
Place of publication: [Boston]
Language: eng
Number of pages: 32
Description: Are large menus better than small menus? Recent literature argues that individuals' apparent preference for smaller menus can be explained by choosers' behavioral biases or informational limitations. These explanations imply that absent behavioral or informational effects, larger menus would be objectively better. However, in an important economic context ― 401(k) pension plans ― we find that larger menus are objectively worse than smaller menus, as measured by the maximum Sharpe ratio achievable. We propose a model in which menu setters differ in their ability to pre-select the menu. We show that when the cost of increasing the menu size is sufficiently small, a lower-ability menu setter optimally offers more items in the menu than a higher-ability menu setter. Nevertheless, the menu optimally offered by a higher-ability menu setter remains superior. This results in a negative relation between menu size and menu quality: smaller menus are better than larger menus.
Notes: "February 2011, revised April 2011, August 2011, December 2011" -- Publisher's website.

Includes bibliographical references.