HUEI-CHUNG LU, MINGSHEN CHEN and JUIN-JEN CHANG ARE MORE ALTERNATIVES BETTER FOR DECISION-MAKERS? A NOTE ON THE ROLE OF DECISION COST

While the traditional economic wisdom believes that an individual will become better off by being given a larger opportunity set to choose from, in this paper we question this belief and build a formal theoretical model that introduces decision costs into the rational decision process. We show, under some reasonable conditions, that a larger feasible set may actually lower an individual’s level of satisfaction. This provides a solid economic underpinning for the Simon prediction.