The Tyranny of Small Decisions

Decisions that are small in size, time perspective, and in relation to their cumulative effect may lead to suboptimal resource allocation.

Suppose, 75 years ago, some being from outer space had made us this proposition: "I know how to make a vehicle that could in effect put 200 horses at the disposal of each of you. It would permit you to travel about, alone or in small groups, at 60 to 80 miles an hour. But the costs of this gadget are: 40,000 lives per year, global warming, decay of the inner city, endless commuting, and suburban sprawl." What would we have chosen collectively?

If there is a chance that we might have refused this offer had such a 'big' decision been presented to us, then our having reached the same result gradually by a series of individual purchases is a product of the tyranny of small decisions. In a consumer-sovereign, market economy, big changes occur as an accretion of steps, each small in their individual size, time perspective, and in relation to their cumulative effect. Because change takes place in this fashion, it sometimes unwittingly produces results that conflict with the very values the market economy is supposed to serve.

The tyranny of small decisions may be a result of consumers' failing to take into account external costs and external benefits (i.e., market failure), or the market's failure to offer sufficient information and product choices (i.e., market imperfection) to consumers. But, more importantly, it is a situation in which a series of apparently free, individually welfare-maximizing purchase decisions can so change consumer tastes and the context of subsequent choices that desirable alternatives are cumulatively and irreversibly destroyed.

For example, the rise of the automobile and the airplane gradually made passenger railroads unprofitable, leading to increasingly deteriorating rail services as new capital and competent management became more difficult to attract. This in turn made it more rational to drive and fly. Even if the car and the airplane began to generate mounting congestion and time costs, people might still prefer the car as long as rail service deteriorated faster than the disutility of alternative transportation.

If some fraction of the total resources devoted to autos, highways and air travel could have been equally available to invest in improving the railroads or some other mass transit, consumers might individually have chosen the latter enough to produce a different mix of transportation means. Thus, only if consumers are given the full range of economically feasible and socially desirable alternatives in a big discrete bundle, will misallocation of resources due to the tyranny of small market-determined decisions be broken.