Choice Overload in Online Platforms

35 Pages Posted: 2 Oct 2017 Last revised: 8 Feb 2019

See all articles by Diego Aparicio

Diego Aparicio

Massachusetts Institute of Technology (MIT), Department of Economics

Drazen Prelec

Massachusetts Institute of Technology (MIT) - Sloan School of Management; MIT Department of Economics; MIT Brain and Cognitive Sciences

Date Written: December 2018

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. The effect has received much attention, but empirical evidence has been mixed so far. This paper is the first study to test for choice overload in a large scale online experiment, involving thousands of households making major purchases. The 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 is found to be a choice overload moderator. This evidence suggests that retailers can benefit from choice set customization.

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

JEL Classification: C9, D12, M31

Suggested Citation

Aparicio, Diego and Prelec, Drazen, Choice Overload in Online Platforms (December 2018). Available at SSRN: https://ssrn.com/abstract=3044096 or http://dx.doi.org/10.2139/ssrn.3044096

Diego Aparicio (Contact Author)

Massachusetts Institute of Technology (MIT), Department of Economics ( email )

Cambridge, MA
United States

Drazen Prelec

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E40-161
MIT
Cambridge, MA 02142
United States
617-253-2833 (Phone)

MIT Department of Economics ( email )

Department of Economics
E52-371
Cambridge, MA 02142
United States

MIT Brain and Cognitive Sciences ( email )

43 Vassar Street
Cambridge, MA 02139
United States

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