Responses to Decline in Marketized Public Services: An Experimental Evaluation of Choice Overload

Abstract

The choice-overload hypothesis states that increasing the number of alternatives reduces people's motivation to choose. Possible adverse effects of choice overload in liberalized public service markets have been discussed repeatedly, however, an empirical evaluation of whether this holds true is missing. In this study, we extend and test the theory of choice overload. By means of a randomized survey experiment, we investigate whether or not increasing the number of providers of public services in the US electricity sector has detrimental effects on peoples' motivation to switch their provider after a service failure. We randomly varied the number of service providers in a hypothetical service failure scenario. Results show that increasing provider choice reduces people's likelihood of stating that they would switch away from a poor performing provider by 10% points. These findings also hold when replicating the experiment with an independent online sample. Thus our results indicate that increasing provider choice in public service markets reduces peoples' motivation to switch away from poor performing public services. In turn, this may lead to a situation where citizens become locked-in to a suboptimal provider simply due to an overload of choices. The theoretical and practical implications of our findings are discussed.