Choosing Out of a Paradox

The ‘paradox of value’ and the ‘paradox of choice’ came about decades apart in economic and sociological history. While the paradox of value derives from an observation made by Adam Smith in his book The Wealth of Nations in 1776, the paradox of choice comes from Barry Schwartz’s book by the same name – The Paradox of Choice: Why More Is Less – in 2004.

The paradox of choice means that freedom to choose can sometimes lead to frustration and anxiety among those who face the task of making a decision. Be it those high school graduates choosing the college they want to go to, given the choices in front of them, or someone standing in an ice-cream parlor deciding which flavor to choose and how many scoops to get, everyone has to make some tough decisions all the time. 

Are choices better or worse? Does the choice paralysis caused by a set of options in front of us empower us or take away our time and effort, leaving us dissatisfied and miserable? Intuitively, anyone would like a bunch of choices to make an informed decision, and the case of choosing the right college is an apt example to this end. But, go back to the standing in the ice-cream parlor. Does choosing chocolate chip over double chocolate, assuming you equally like both of them, give you more satisfaction or leaves you in dismay about not getting the other one? 

The answer to this could be subjective. If it took you no time to choose, then it should not be a problem. If it required some thinking over, then maybe. Multiply this choice dilemma by manifold, and you face the wrath of the paradox of choice. 

Another paradox that uses a different logic of decision-making is that of value. Some might recognize it by the Diamond-Water Paradox. The paradox of value is a phenomenon that appears in the beginning lectures of most introductory microeconomics courses. To put this concept forward, the professor presents a hypothetical situation. A simplified version goes like this – assume you are in a desert, alone, with no sign of water around. You walk your way, in thirst and exhaustion, to a place where you receive a one-time offer. You have to choose between a glass of water and a dazzling diamond, found to be rare. Huh! Which one of these options would you choose

Opting for the diamond might seem like a once-in-a-lifetime opportunity for you. And why not? It is the most precious jewel you could get your hands on, and that too this easily, just conditioned upon being constantly dehydrated. But then you are surrounded by an endless desert, with no way out and with no water available except that last glass. This choice, as you sit in your conditioned rooms, might seem uncertain.

But it is more or less evident for that person stranded there. They will, unquestionably, pick the glass of water.

Two typical economic concepts arise here. One is called the opportunity cost, which is the cost of the alternative forgone. The cost of the diamond, in this case, and only if you choose the glass of water, is your opportunity cost. The second is called utility, which is the use-value of any commodity to the consumer. Here, the marginal utility – utility derived from an additional unit of a good – of that glass of water is more than that of the diamond. 

But if we turn the tables, and now you stood in a luxurious house with an abundant supply of water, are your preferences likely to change? The short answer is yes. Choosing the diamond appears to be what economists call a rational decision here. The reasoning behind this apparent puzzlement is the notion of rationality, which adapts our decisions to fit a particular scenario.

This rationality, which undermines the paradox of value, arises from the distinction between the ‘exchange’ value and ‘use’ value of the object. As uncovered by sophisticated concepts of opportunity cost and marginal utility, the choice depends on the surroundings. 

The paradox of value is not about choosing from a set of alternatives, unlike the paradox of choice. It is not even much of a choice if one thinks about it. But due to a high monetary opportunity cost, the decision to choose the glass full of water, which holds little exchange value, might seem a dissatisfactory proposition after consuming that glass of water. This effect is quite similar to that of the paradox of choice, where, in most cases, the decision-maker remains dissatisfied than liberated. 

The rise in consumerism culture, evident in the choosing an ice cream to eat example, has made this paradox of choice much more prevalent. When it comes to the paradox of value, we do not face such pressing situations daily or ever. Seldom we find ourselves in a desert in such a dilemma, and even if we do, thanks to technology, we can, if we can reach the internet somehow, order a glass of water, perhaps, a bottle, or a carton of water bottles in a matter of few clicks.