The economics of abundance and human behaviour

What information consumes is rather obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention. The only factor becoming scarce in a world of abundance is human attention.

Said the economist Herbert Simon who developed a theory called Attention Economics

Simon noted that many designers of information systems incorrectly represented their design problem as information scarcity rather than attention scarcity, and as a result they built systems that excelled at providing more and more information to people, when what was really needed were systems that excelled at filtering out unimportant or irrelevant information.

This came to mind whilst reading a story in the Guardian entitled Why we buy what we buy

Dan Ariely [is - sic] one of an increasingly influential group of behavioural economists, who analyse how people behave everywhere from supermarkets to stock markets - and they have found a chasm between what traditional economists and regulators presume we do, and what really happens. One of the most exciting areas of research, behavioural economics could overturn many of the assumptions and assertions that shape modern policy-making.

For the past century, economists have viewed the economy as an equilibrium system made up of perfectly rational agents with access to full information, who produce and consume goods and services in economies with optimally efficient markets and institutions

Eric Beinhocker in his book the Origin of Wealth adds to this new area of economics

Beinhocker argues that neoclassical economics is fundamentally flawed, has a poor record of empirical validation, and that the strong assumptions the theory requires serve to make economics of less relevance to real world issues than the field otherwise might be. Beinhocker claims that neoclassical theory is in the process of being supplanted by what he calls complexity economics - the view that the economy is a complex adaptive system made up of realistically rational agents who dynamically interact with each other in an evolutionary system . Complexity economics is in turn built on foundations of a long-standing tradition of heterodox economics that includes areas such as behavioral economics, institutional economics, Austrian economics, and evolutionary economics.

Back to the Guardian story

"Economists know all about choosing jam," he says, ambling down an aisle with 73 varieties. He describes an experiment where academics set up a tasting booth in a store in California. On some days they put out six kinds of jam, on others 24. When the booth had 24 types, it was mobbed - "there was more colour, more excitement". But it was the sales that were truly remarkable: with six jams on show, 30% of customers bought a jar; when 24 were out, only 3% did. "Jams are hardly complex things, but people saw 24 stacked together and thought: 'I have no idea how to deal with this.'"

If that is how choosing between strawberry or plum makes us feel, imagine the toll looking at mortgage options takes on the nerves. What Ariely's jam study suggests is that, contrary to economic belief that more choice is better, confronted with too much complexity, we make bad decisions, or stick with what we have already got.