Choice overload paradox and public policy design. The case of Swedish pension system


  • Sławomir Czech University of Economics in Katowice



extensive choice, cognitive limitations, market failure, choice architecture, funded pensions


In this paper we focus on an adverse effect of extensive choice widely known as ?choice overload?. We draw on the case of Swedish funded pensions for illustration and analyze the consequences of the design that allowed for maximizing the choice set. The analysis shows limitations of employing the rational choice approach to the real choice decisions biased with common psychological factors and demonstrates that government?s responsibility for the privatized pension system does not end with the design. We also emphasize the need for a decent default option, which would mitigate socially harmful results of adverse behavior effects like procrastination, status quo bias or abstaining from choice. After all, privatized pension systems still belong to the sphere of public policy.


Download data is not yet available.


Almenberg, J. (2011). Räknefärdighet och finansiell förm?ga. Ekonomisk Debatt 39(5).
Anderson, C. J. (2003). The Psychology of Doing Nothing: Forms of Decision Avoidance Result from Reason and Emotion. Psychological Bulletin, 129(1). DOI:
Anderson, K. M. (2006). Pension Reform in Sweden: Radical reform in a mature pension system. In G. Bonoli & T. Shinkawa (Eds.). Ageing and Pension Reform Around the World. Evidence from Eleven Countries. Cheltenham: Edward Elgar.
Barr, N. (2002). Reforming Pensions: Myths, Truths, and Policy Choices. International Social Security Review, 55(2). DOI:
Barr, N. (2013). The Pension System in Sweden. Report to the Expert Group on Public Economics. Stockholm: Ministry of Finance.
Barr, N. A., & Diamond, P. (2009). Reforming Pensions: Principles, Analytical Errors and Policy Directions. International Social Security Review, 62(2). DOI:
Barr, N. A., & Diamond, P. A. (2010). Pension Reform. A Short Guide. New York: Oxford University Press.
Blomqvist, P. (2004). The Choice Revolution: Privatization of Swedish Welfare Services in the 1990s. Social Policy & Administration, 38(2). DOI:
Botti, S., & Iyengar, S. S. (2006). The Dark Side of Choice: When Choice Impairs Social Welfare. Journal of Public Policy & Marketing, 25(1). DOI:
Dhar, R. (1997). Consumer Preference for a No-Choice Option. Journal of Consumer Research, 24(2).
Ebbinghaus, B. (2011). The Varieties of Pension Governance. Pension Privatization in Europe. Oxford, New York: Oxford University Press.
Fear, J. (2008). Choice Overload. Australians Coping with Financial Decisions. Australia Institute Discussion Paper, no. 99.
Finansdepartementet (2014). Kommittédirektiv 2014:107 Ett reformerat premiepensionssystem.
Gilboa, I. (2010). Rational Choice. Cambridge. Mass: MIT Press.
Greve, B. (2003). When Choice is Possible in Social Security? European Journal of Social Security, 5(4).
Greve, B. (2009). Can Choice in Welfare States Be Equitable? Social Policy & Administration, 43(6). DOI: 00679.x.
Hausman, D. M. (2012). Preference, Value, Choice, and Welfare. Cambridge, New York: Cambridge University Press.
Haynes, G. A. (2009). Testing the Boundaries of the Choice Overload Phenomenon: The Effect of Number of Options and Time Pressure on Decision Difficulty and Satisfaction. Psychology and Marketing, 26(3). DOI: 10.1002/mar.20269.
Inbar, Y., Botti, S., & Hanko, K. (2011). Decision Speed and Choice Regret: When Haste Feels Like Waste. Journal of Experimental Social Psychology, 47(3). DOI:
Inspektionen för socialförsäkringen (2013). Kunskapsmätning 2012. Kartläggning av pensionsspararnas kunskaper om det allmänna pensionssystemet. Arbetsrapport 2013:1.
Iyengar, S. S., Jiang, W., & Huberman, G. (2004). How Much Choice is Too Much? Contributions to 401(k) Retirement Plans. In O. S. Mitchell & S. P. Utkus (Eds.). Pension design and structure. New lessons from behavioral finance. Oxford, New York: Oxford University Press.
Iyengar, S. S., & Kamenica, E. (2010). Choice Proliferation, Simplicity Seeking, and Asset Allocation. Journal of Public Economics, 94(7-8). DOI:
Iyengar, S. S., & Lepper, M. R. (2000). When Choice Is Demotivating: Can One Desire Too Much of a Good Thing? Journal of Personality and Social Psychology, 79(6). DOI:
Jessup, R. K., Veinott, E. S., Todd, P. M., & Busemeyer, J. R. (2009). Leaving the Store Empty-handed: Testing Explanations for the Too-much-choice Effect Using Decision Field Theory. Psychology and Marketing, 26(3). DOI:
LeGrand, J. (2007). The Politics of Choice and Competition in Public Services. Political Quarterly, 78(2). DOI:
Leotti, L. A., Iyengar, S. S., & Ochsner, K. N. (2010). Born to Choose: The Origins and Value of the Need to Control. Trends in Cognitive Sciences, 14(10). DOI:
Loewenstein, G. (1999). Is More Choice Always Better? Social Security Brief. National Academy of Social Insurance Working Paper, 7.
Lusardi, A., & Mitchell, O. S. (2011). Financial Literacy and Planning: Implications for Retirement Wellbeing. NBER Working Paper Series, No. 17078.
Lynch, J. G., & Zauberman, G. (2006). When Do You Want It? Time, Decisions, and Public Policy. Journal of Public Policy & Marketing, 25(1). DOI:
Madrian, B. C., & Shea, D. F. (2001). The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior. Quarterly Journal of Economics, 116(4). DOI:
Madrian, B. C. (2014). Applying Insights from Behavioral Economics to Policy Design. Annual Review of Economics, 6. DOI: urev-economics-080213-041033.
Madrian, B. C., Beshears, J., Choi, J. J., & Laibson, D. (2006). The Importance of Default Options for Retirement Savings Outcomes. Evidence from the United States. NBER Working Paper Series, No. 12009.
Masatlioglu, Y., & Ok, E. A. (2005). Rational Choice with Status Quo Bias. Journal of Economic Theory, 121(1). DOI: 007.
O'Boyle, E. J. (2007). Requiem for Homo Economicus. Journal of Markets & Morality, 10(2).
Palme, J. (2005). Features of the Swedish Pension Reform. Japanese Journal of Social Security Policy, 4(1).
Palme, M., & Sunden, A. (2004). Premiepensionen i det reformerade pensionssystemet ? är det önskvärt att kunna välja mellan 663 fonder? Ekonomisk Debatt, 32(3).
Palmer, E. (2004). Sweden's New FDC Pension System. Paper presented at seminar Desafios del Sistema Chileno de Pensiones Competencia, Santiago, Chile.
Pensionsmyndigheten (2013). Premiepensionen. Pensionsspararna och pensionärerna 2012.
Pensionsmyndigheten (2014). Premiepensionen. Pensionsspararna och pensionärerna 2013.
Pensionsmyndigheten (2014a). Orange Report. Annual Report of the Swedish Pension System 2013.
Pierson, C. (2006). Beyond the Welfare State? The New Political Economy of Welfare. Cambridge: Polity.
Reed, D. D., DiGennaro Reed, F. D., Chok, J., & Brozyna, G. A. (2011). The "Tyranny of Choice": Choice Overload as a Possible Instance of Effort Discounting. Psychological Record, 61(4).
Reutskaja, E., & Hogarth, R. M. (2009). Satisfaction in Choice as a Function of the Number of Alternatives: When ?Goods Satiate?. Psychology and Marketing, 26(3). DOI:
Sagi, A., & Friedland, N. (2007). The Cost of Richness: the Effect of the Size and Diversity of Decision Sets on Post-decision Regret. Journal of personality and social psychology, 93(4). DOI:
Samuelson, W., & Zeckhauser, R. (1988). Status Quo Bias in Decision Making. Journal of Risk and Uncertainty, 1(1).
Satz, D., & Ferejohn, J. (1994). Rational Choice and Social Theory. The Journal of Philosophy, 91(2).
Scheibehenne, B., Greifeneder, R., & Todd, P. M. (2009). What Moderates the Too-much-choice Effect? Psychology and Marketing, 26(3). DOI:
Scheibehenne, B., Greifeneder, R., & Todd, P. M. (2010). Can There Ever Be Too Many Options? A Meta?Analytic Review of Choice Overload. Journal of Consumer Research, 37(3). DOI:
Schotter, A. (2009). Microeconomics. A modern approach. Mason, OH: South-Western Cengage Learning.
Schwartz, B. (2004). The Paradox of Choice. Why More is Less. New York: Ecco.
Socialdepartementet (2013). Departamentsserien 2013:35 Vägval för premiepensionen.
Solnick, S. J., & Hemenway, D. (1998). Is More Always Better?: A Survey on Positional Concerns. Journal of Economic Behavior & Organization, 37(3). DOI:
Thaler, R. H. (2000). From Homo Economicus to Homo Sapiens. Journal of Economic Perspectives, 14(1). DOI:
Thaler, R. H., & Sunstein, C. R. (2009). Nudge. Improving Decisions About Health, Wealth, and Happiness. New York: Penguin Books.
Timmermans, D. (1993). The Impact of Task Complexity on Information Use in Multi-attribute Decision Making. Journal of Behavioral Decision Making, 6(2). DOI:
Tversky, A., & Shafir, E. (1992). Choice Under Conflict: The Dynamics of Deferred Decision. Psychological Science, 3(6).
Vohs, K. D., Baumeister, R. F., Schmeichel, B. J., Twenge, J. M., Nelson, N. M., & Tice, D. M. (2008). Making Choices Impairs Subsequent Self-control: A Limited-resource Account of Decision Making, Self-regulation, and Active Initiative. Journal of Personality and Social Psychology, 94(5). DOI:
Weaver, R. K. (2004). Design and Implementation Issues in Swedish Individual Pension Accounts. Social Security Bulletin, 65(4).
Wilkinson, N. (2008). An Introduction to Behavioral Economics. New York: Palgrave Macmillan.
Winston, P., Burwick, A., McConnell, S., & Roper, R. (2002). Privatization of Welfare Services: A Review of the Literature. Mathematica Policy Research Report, Princeton.
Yermo, J., & Tapia, W. (2007). Implications of Behavioural Economics for Mandatory Individual Account Pension Systems. OECD Working Papers on Insurance and Private Pensions, 11.




How to Cite

Czech, S. (2016). Choice overload paradox and public policy design. The case of Swedish pension system. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(3), 559–584.



Reforms of European pension systems

Similar Articles

1 2 3 4 5 6 7 8 9 10 > >> 

You may also start an advanced similarity search for this article.