Choice Overload in Online Platforms

Abstract

The choice overload effect refers to the experimental finding that a larger choice set may in fact yield fewer overall purchases than would be observed with a smaller set. This paper studies choice overload in a large scale online experiment, involving thousands of households making major purchases. The field experiment was conducted by a leading online travel and price aggregator company, which offered some users a limited set of hotels while others had access to the full list. Overall, results are in the direction opposite to choice overload, i.e. purchase rates and click-through rates decreased with fewer choices. However, there are heterogeneous effects across users: while local users exhibit lower purchase rates, foreign users exhibit higher purchase rates when offered fewer choices. Therefore, familiarity with the choice set is found to be an overchoice moderator. This evidence suggests that, while there are gains from variety, online retailers can profit from choice set customization.

Keywords: Choice Overload, E-Commerce, Online Controlled Experiments, Retail, Search

JEL Classification: C9, D12, M31