Price-conscious shoppers still buy the smaller thing if it's cheaper per oz (and only if the stores show the price per oz on the shelf), but most people just get the bigger size because that's how much they want to consume, and they can't really tell that the 15% increase in size does not equate to 19% increase in cost.
Many stores would stock the family size separate from the regular size so the shoppers couldnt easily compare price per oz.
Eventually the family size just becomes the regular size, but now at the higher price. Then the shrinking happens again.