The Size of the Choice Set and Consumer Behaviour

Although, we would like to have opportunities for choice, too extended choice set could lead to negative consequences. A lot of empirical studies reveal that some people refuse to choose, if the choice set is very big — so-called choice overload effect appears. In this paper we show that the typical assumptions about the rational agents could not explain the choice overload effect. We present the behavioural model of the boundedly rational agent. Her utility depends not only on the utility from the chosen item and on the costs of search, but also on the regret component. The feelings of regret appear if the expectations about the choice differ from the actually chosen option. We show that this model could explain the choice overload effect. Furthermore, our findings are consistent with the empirical evidence: both the utility of the choice process, as well as the share of agents who have bought an option from the choice set, follow inverted U-shaped functions of the choice set size.