Rational preference for smaller menus
Subtitle: variability in menu-setting ability and 401(k) plans
By: David Goldreich, Hanna Hałaburda
Contributors: Halaburda, Hanna; Harvard Business School
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: 30
Description: The economic literature on choice focuses on individuals' decisions when faced with a given menu. However, the menu itself is often the result of pre-selection by a menu setter. We develop a model to study the relation between the ability of the menu setter and the size and quality of the menu. We show that when the cost of increasing the size of the menu is sufficiently small, low-ability menu setters optimally offer more items in the menu than high-ability menu setters. Nevertheless, the menu optimally offered by high-ability menu setters remains superior to the menu optimally offered by low-ability menu setters. This results in a negative relation between menu size and menu quality, i.e., a smaller menu is better than a larger menu. We illustrate this result empirically in the context of 401(k) plans, where we show a negative relation between the number of the investment choices in the 401(k) plan and the quality of optimal portfolio achievable given those investment choices.
Notes: "February 2011"--Publisher's website.

Includes bibliographical references.