More information: Good or bad?

In the rational Economics 101 world, more information is always a good thing.  You can throw it away if you don’t need or want it.  You can even refuse to look at it.

As we go on in economics we learn about things like adverse selection and that insurance markets can’t exist in worlds of perfect information, meaning those who are about to get hit by bad shocks are SOL.  But everybody else lives risk free, so whatevs.

And then we get into behavioral economics… what people actually do.

More information can be a double-edged sword.

You probably noticed that credit card statements have more information on them these days than they did a few years ago.  You know know how long it’ll take to pay back that debt paying down the minimum, for example.

The improved information on the credit card bills is based on work done in an experiment on payday lenders by Marianne Bertrand at UChicago.  They find that people are less likely to take out stupid loans from payday loan companies if how bad those loans are is made more salient.  New evidence from Sumit Agarwal and coauthors shows that the credit card change worked.

On the other hand, there’s work done on calorie postings on drinks– it actually hasn’t shown much of an effect on calories in beverage consumption. People overestimate the number of calories in Starbucks drinks and are pleasantly surprised to find actual calorie counts, leading them to consume more of things they’d been overestimating. There’s also some concern that they don’t understand what the number of calories means in terms of their own diet.  (They do tend to eat lower calorie food items at Starbucks with the postings though.)

Cigarette box warnings don’t work for the same reason that calorie postings don’t work. People already overestimate their chance of getting lung cancer from smoking.  So the warnings don’t add new information.

The money information added to credit cards and check cashing places is different than the food posting information… people really do not know how many years it will take to pay off a balance if they’re only paying the minimum, or how much they will end up paying in interest at the end of that. That does provide new information to consumers.  There’s no pleasant surprise when that information is put in an easy to understand format.

Update:  Here’s another cool article: Paging Inspector Sands: The Costs of Public InformationSacha Kapoor and Arvind Magesan We exploit the introduction of pedestrian countdown signals—timers that indicate when traffic lights will change—to evaluate a policy that improves the information of all market participants. We find that although countdown signals reduce the number of pedestrians struck by automobiles, they increase the number of collisions between automobiles. They also cause more collisions overall, implying that welfare gains can be attained by hiding the information from drivers. Whereas most empirical studies on the role of information in markets suggest that asymmetric information reduces welfare, we conclude that asymmetric information can, in fact, improve it.

So information can help or hurt depending on how addictive the behavior is and whether we’re over- or under-estimating the badness of what we’re addicted to.

Have you ever been in a situation in which you would have been better off without more information?  Has getting more information ever transformed your actions?

13 Responses to “More information: Good or bad?”

  1. Bardiac Says:

    I wonder what percentage of people entering grad programs in academic fields with job shortages have been given information about the market? How many went anyway? And why?

    I wonder if more information would make people less likely to enter grad school? Or would it more change who enters (that is, some people would decide not to go, but the grad programs would still bring in whatever number of students they need for TAing and RAing).

    • nicoleandmaggie Says:

      An excellent empirical question. Would make a fascinating experiment, though general equilibrium effects would be difficult.

      Personally it is why I picked Econ over history or math. But that is something an economist would do. So perhaps fated.

      I imagine some programs would get worse students and others would struggle or get more international students to fill spaces. Possibly the indemand fields would get fewer international students.

    • Leah Says:

      I will definitely tell you that job market woes of my friends led me to the decision to leave academia and my PhD. I chose to get an MS instead (and am now doing another master’s — glutton for punishment), and I went into teaching. Simply put, I said that I loved teaching and liked research, and there were WAY more jobs for a high school teacher than a college one.

      What I’d like to see is more of a spread in who gets to TA. For example, I was able to TA in my program to get my teaching license, which really helped me reduce the number of loans I took. Doing something like that (have every grad student TA, for example, or having pre-service teachers TA in addition to working in local schools) could reduce the number of grad students a school brings in. There were tons of people in my program who had gotten money so they didn’t have to TA, so my MS had to bring in more people to make sure there were enough to teach intro bio.

  2. delagar Says:

    Well — not to be academic — but when I was on the other side of the desk, getting information about professors and about what would happen in the class transformed my behavior all the time. The more I knew about a given professor, the better I could decide when (or if) to take his or her class, for instance.

    And once in the class, I really liked having information about what we’d read when, and what sort of papers I had to write, not to mention when and if we’d be having exams. That information shaped how I planned my work for the semester.

    Calorie labels: I do find myself not buying / eating certain foods based on how much & what sort of ingredients they have in them. Too much sugar, for instance, and I’ll put something back on the shelf. Corn syrup, obviously, gets something put back. (My kid has a corn syrup allergy.)

    And movie reviews! These *often* lead me to skip movies, if it’s a reviewer I trust.

    Weather reports, too. I’ve cancelled trips based on weather reports. More than once.

    And more than once I’ve change my point of view on issues based on new data. Sometimes this leads to changes in action. For instance, when I was younger (those who know me are surprised by this) I was a kind of Randian Anarchist, who thought we should never help anyone, because Evolution in Action, fap fap fap. But I read a lot of books and studied a lot of history, and learned a lot about politics and social theory, and I have become a far-left socialist who gives more money than I should to charity and volunteers in the community.

    So yeah. New information can change behavior, I think.

  3. Rented life Says:

    I haven’t bought a computer or camera because of information. I keep looking for more to make a good choice–I hate buying something I find to be pricey and it ends up sucking, like my current computer. The end result is I over research and never buy anything.

  4. Leah Says:

    In the “less is more” chronicles, I used satisficing (sp?) with great success when wedding planning. We met with a person, and if we liked them & could afford, we went with them. This worked well for cake, flowers, venue, and a few others (and we also knew some people, which made for a default on minister, chapel, etc). The only time I met with more than one was with a photographer. And, really, I ended up flying out a friend. More $$, but I wasn’t satisfied with anyone else I met, and it was great to bring in my friend who couldn’t afford to come and did professional photos for weddings already.

    Trying to use satisficing with kid stuff, but that’s a bit more complicated. Too many possible fear factors there. I have satisficied diapers, furniture, etc, but the daycare decision is killer. Hey, can you write a post on that? How do you pick a daycare when there’s not a clear “best option” (ie no TV, nurturing, good food, and all attendees vaccinated).

    • bogart Says:

      Two dimensions I didn’t realize the value of, on childcare, until I was using it were proximity to home (or work, but if two parents work different locations, I’d emphasize home), and flexibliby in dropoff/pickup times. In case those help break a tie.

    • nicoleandmaggie Says:

      I’m not sure if we’ve written a post on this or not. There’s a lot of personal decisions involved, of course (for example, we were willing to forgo flexibility and proximity in some cases, but our jobs are flexible).

      For us the main thing is spending a lot of time watching the daycare and watching the kids. Do they play together (or near each other) nicely? How are conflicts resolved (are they resolved)? Do they seem engaged? Do the teachers spend most of their time cleaning? Obviously no TV, good food, vaccinations etc. are important things too. And in many states you can see the state violations and if they’re important (leaving infants alone) or unimportant (letting two mats touch each other during nap time).

      We do have a “how to choose a mother’s helper” post if you find you can’t get into a daycare right away.

      • bogart Says:

        It’s precisely the flexibility of my job that left me valuing flexibility and proximity — the former meaning that if I was e.g. going to work late, I could drop the kid off late too, if the facility allowed it but not otherwise; and the latter tying in because it meant I could drop the kid off and THEN grocery shop and shower before heading in late, a much-preferred sequence to me than alternatives. But, right, there are lots of factors to consider and those are just 2 that may or may not matter.

  5. chacha1 Says:

    I can’t think of a time I wished I had *less* information about anything. I would much rather get as much information as I can in a reasonable timeframe, and then choose which bits of it to ignore. The timeframe is important though.

    Really big, important decisions – in my experience – have had very few variables, so dicking around not deciding would have been just plain dumb. Just make the decision already. 99% of the time it can be reversed or amended if later information discloses an error in the decisionmaking process.

    Regarding “satisficing” – I do this a lot. My time is worth more than money. I know people (usually men) who will spend infinite amounts of time researching all the “best” options, then (often) buy the most expensive, and then (invariably) be dissatisfied when the Next Big Thing comes along.

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