A common assumption in economics is that people are not made worse off by having more choices. Adding a choice gives people another option which they can choose if they like better than the existing options, or reject if they don’t. Thus another option should be (at least weakly) beneficial.

However, Physorg reports on a recent series of experiments which showed that having to make complicated choices can worsen people’s performance in subsequent tasks. For example, in experiments, people who had to make choices among many options performed worse, on average, on subsequent math tests compared to people who made simpler choices prior to the math tests.

If true, it seems that people’s concentration is also a scarce resource. Making a complicated choice uses some of this up, so less is available for subsequent thinking. Obviously at some point the resource is replenished, by resting or sleeping I guess. There are some interesting implications for businesses in terms of product design, e.g. having a smaller product range with less variety may be preferable to broad range with lots of choices.

(HT: Signal vs Noise)

Thanks to everyone who participated in my experiment by clicking the shiny green buttons. After stripping out search engine spiders and people who clicked multiple buttons, I received 154 “tips” over the 11 blog posts that I ran the experiment on. The total amount tipped was $38.21, or $3.47 per post. However, the posts were on the site for varying amounts of time, and older posts obviously tended to receive more tips. The median tips per day per post was 91 cents and the average was $1.08. Total tips per day were around $5. Over a year, that’s some nice beer money, and a lot more than I was making with Adsense.

The median across all tips was 10 cents, and the average was 25 cents (so the distribution is quite skewed). Here’s the distribution of all tips across the five amounts that were allowed:

Clearly more people tend to tip at the smaller amounts. However the spike at 25c is possibly interesting (or maybe just a statistical anomaly, I’m not sure). What is also interesting is that most of the revenues come from the bigger tips — demand seems to be quite price inelastic:

On a per-post basis, like I said above, the varying lengths of time makes comparisons across posts difficult. Comparing revenues per post per day shows a wide range, from 38 cents to $2.20:

Overall, I think it was an interesting experiment. I’ve now added TipJoy to all posts on my blog, so I’ll be seeing how actual tips compare to the data from this experiment. Very unfortunately, TipJoy doesn’t seem to work in RSS yet. So if you want to leave a tip, you’ll have to click back to the original blog post first.

Check out this post from Dan Ariely. He describes an experiment to test the placebo effect of painkillers. Tell someone you’re giving them a painkiller even if it’s just a placebo, and it tends to work. Dan explains how:

When we expect to get pain relief, our brain secretes a substance that is very much like morphine and this substance makes the pain go away.

Dan’s experiment adds an economic twist:

In this study we showed that when people get more expensive painkillers (placebos in our case) they expect a lot and get a lot of pain relief, but when the price of these pills is discounted, the expectations are lowered and so is their efficacy.

So somehow, the thing in the brain that secretes the painkilling substance is linked to your economic logic circuits, which tell you that more expensive things are usually better. I wonder how this works exactly. Is it that we expect the effect to be better, so we interpret the amount of stuff that our brain secretes in a different way? Or does is more painkilling stuff actually secreted?

Like I said before, a big problem with micropayments is transaction costs. It costs too much to transfer money securely, and it’s too much trouble for users. So this got me thinking, what if you could make a micropayment simply by clicking an attractive button like this:

Suppose you could give me 10 cents as tip for this blog post just by clicking that button. No credit card numbers or passwords, just click and it’s done. That’s as close to zero transaction costs as you could get. Would you pay?

I’m interested to know how much people would tip if it were that easy to do. So I decided to run an experiment on my blog. For the next little while, you’ll see a set of buttons underneath each post. After reading the post, I want you to click the button corresponding to how much you’d tip me for that post. If you think it’s not worth tipping, don’t click any button.

I haven’t tried something like this before, so there might be a few bugs. I’ve tested it on the site and it works, but I’m not 100% sure if it will work for those of you reading this in an RSS reader. If you have trouble, let me know and I’ll try to fix it.

Thanks for participating in my experiment! After it’s run for a while, I’ll release the results on this blog.

Here’s your first chance to ‘tip’ me:

Update: The experiment is now finished and the results are here.

Tyler Cowen discusses one of the topics in behavioural economist Dan Ariely’s new book “Predictably Irrational” — an experiment to measure the value of giving something away for free rather than selling it. In the experiment, two types of chocolate were sold, a Lindt Truffle (high quality) and a Hershey’s Kiss (lower quality). Initially the prices were set at 15c for the truffle and 1c for the kiss, and 73% of people bought truffles. Then both prices were reduced by 1c, so 14c for the truffle and the kisses were free. In this case 69% of people chose the kiss.

On his blog, Dan talks about some of the possible explanations that were ruled out in their study, such as transaction costs. In the original paper (PDF), “affect” is cited as the most likely cause. I don’t quite understand the psychology jargon, but I think it means that people experience a psychological boost (extra utility) by getting something for free which they don’t get even if they have to pay a tiny amount such as 1c. Thus giving kisses away for free increased demand by much more than the simple 1c price cut would imply.

This has important implications for business models in the content industry. As I said the other day, you can still make money by giving content away for free if you can charge for complementary, customised or improved goods or services. Once the demand boost of going from a positive price to a zero price is taken into account, these strategies become even more attractive.