The Frontal Cortex

Choice

Americans love alternatives. One of the benefits of modern capitalism, after all, is that we’re free to consume products that perfectly match our preferences – if you want to wear skinny jeans with a Black Sabbath t-shirt, flip flops and a fedora (I saw such a person yesterday – he looked very satisfied with himself) then go right ahead. Gail Collins, while bemoaning the difficulty of reforming the college loan system, summarizes the American obsession with choice:

This is why my corner drugstore offers, by my last count, 103 different kinds of body moisturizers. These are not, of course, to be confused with moisturizers for the face, hand, elbow or foot.

We, the informed shoppers, are supposed to scan the crowded shelves and decide whether our needs will best be met by body oil, body butter or firming emulsion. We will, perhaps, mull the “udder cream” whose big selling point is that it was originally developed for use on dairy cows. Then we select the products that will survive and thrive by voting with our pocketbooks.

Personally, I’m always most amazed by the shelves of floss. Only in America could we find a way to market more than 200 different types of waxed thread. (But would you like minty wax? Or wintergreen scented wax? Maybe you’d like to pay extra to have your thread coated in fluoride?)

Of course, we now know that more choice isn’t a universal good. Because the brain is a bounded machine – it can only process so much information at any given moment – people actually find excessive choice repellent. When we’re given too many options and no way of distinguishing between them – the different varieties of floss all seem equivalent – we experience a tremor of anxiety, the mild panic of supermarket uncertainty.

Sheena Iyengar, a psychologist at Columbia University, has done some incredibly interesting work on this subject. Consider her research on 401(k) plans, which looked at employee participation in plans covered by Vanguard, one of the largest mutual fund companies in the country. Iyengar found that, as the number of 401(k) plans increased, people became less likely to opt in. When there were only four different funds to choose from, nearly 75 percent of employees decided to participate. However, when people had to navigate fifty-nine different 401(k) options, only 60 percent of people decided to save for their retirement. In other words, excessive choice was repellent.

As Iyengar notes, these non-choosers probably intended to enroll in a 401(k). They probably took the hefty brochure home with them and planned on doing the relevant research. But then life got in the way and, before long, they’d forgotten to learn about the difference between a growth fund and a conservative fund.

Iyengar then looked at the slight majority of people who participated in the 401(k) plans even when there were fifty-nine different alternatives. Perhaps they made better decisions? Perhaps they were more satisfied with their choice? Alas, that wasn’t the case. Iyengar found that, for every set of ten additional fund options, 2.87 percent more of the participants avoided stocks completely. (This despite the fact that most of the additional funds included stock investments.) Overall, the 401(k) participants in the large choice condition allocated 3.28 percent less of their contributions to stocks, choosing to invest in bonds and money markets instead.

Why is this an irrational choice? A 401(k) is a long-term investment. Given such an extended time frame, it almost always makes sense to include some stocks or mutual funds, since those investments have historically outperformed bonds and money markets by a large margin.

The lesson here is that, in many circumstances, giving people more options has rapidly diminishing returns. When we can’t figure out the difference between our 401(k) options, or we’re too worried about choosing the wrong floss, we end up choosing to not choose at all. Which brings us back to the current student loan program, which is a classic example of useless choice (not to mention a waste of government money). Here’s Collins:

“We don’t hear students clamoring for choice in lenders. If anything, students and families need simplicity to understand the process and know how to navigate it,” said Edie Irons, communications director for the Project on Student Debt, a nonprofit dedicated to making college more affordable.

Since the government-guaranteed loans are regulated by Congress, they have virtually identical terms. The main variation comes in customer service: who has the best Web site or staff. Most current and former students do not seem to find this as being all that big a deal. What they need to know is exactly how much it will cost to pay back the loan after graduation, information about which they tend to hear less than the Web-site-quality matter. Besides, the loans often come in pieces, cobbled together from an array of different programs. It would be hard for an accountant to figure out what it all meant, and 19-year-olds are not at the point in life that maximizes attention to detail.

Comments

  1. #1 Matt Daniels
    June 4, 2009

    The proliferation of choices has a lot to do with companies like P&G and Unilever. These CPGs chose to tier their brands across multiple sub-brands and vertically (cheap to premium), optimizing sales and segmenting customers.

    This must have worked for much of the 20th century, but to your point, customers seem to be overwhelmed with so much choice and irrationally make poor selections. What’s up with this discrepancy?

  2. #2 David
    June 4, 2009

    Excessive choice is contextual. I’m a fairly typical urban Canadian, and back in 1991 I taught English in Czechoslovakia for a while. I had no problem adjusting to Post-Socialist Eastern Europe – it was and adventure after all. I had many more problems adjusting to life back home. In Czechoslovakia at the time shopping was easy – you chose from the one or two type of toothpaste on the shelf, or the six kinds of soup, and even drinking was easy as the pivaren (beer houses) usually had only two beers – the local brew and the higher-end Czech brew. When I first went shopping after returning to Canada I was almost paralyzed by choices. I remember staring at the literally dozens of types of toothpaste on the shelves, trying to remember what I used to buy and why I bought it over the others. It was a couple of months before I was able to settle back into my normal habits.

  3. #3 David Kerlick
    June 4, 2009

    For products which are identical except for marketing (vodka, butter, and toothpaste come to mind) I shop for low price.
    Simplifies things enormously…

  4. #4 Peter
    June 4, 2009

    I once worked in a mall that had eight shoe stores all owned by the same parent company. Choice is largely an illusion that functions specifically to encourage bad decision making on the part of consumers.

  5. #5 Alan
    June 4, 2009

    In other posts the difference has been discussed between choosing to consume and choosing to save (presumably in order to consume in the future). Granted, floss and retirement plans may be conceptually grouped together as “products.” But buying floss is choosing to consume in the near-term, while selecting retirement investments requires long-term, abstract thinking–and really amounts to saving, not consuming. Congitive overload due to a superfluous choices is what connects the examples, with one outcome being particularly consequential, and the other quite less so.

    What the majority (all?) of us probably do is to project our understanding of the past onto our imagination of what may happen in the future. But the future is not path dependent, no matter how much we act as if it were so. The stock market has been shown to resemble a random walk that trends upward over stretches of time. That’s not, however, tantamount to suggesting that stocks are categorically superior investments for all people at all times–not that anyone would make such a claim.

    In nominal terms, long term stock charts look compelling. But there may be some money illusion in play, because to get a meaningful measure of market performance, inflation needs to be taken into account. The current S&P 500, for example, looks to be about where it was in the early to mid-1990s. In real terms, then, there is a significant loss in purchasing power. (And that’s a lot of dental floss!)

  6. #6 Elizabeth
    June 4, 2009

    Choice is sometimes not about choice. People do not want to make choices. Few want to pick a mechanic, broker, doctor, or even restaurant. In health care plans, people want to be able to CHANGE their doctor if they are not satisfied, but as far as initial choice, random assignment is probably accepted by most, although few would admit it.

  7. #7 James
    June 4, 2009

    refference to this subject “The paradox of choice” Book and lecture by the author on you tube tedtalks channel. Enjoy

  8. #8 Ted
    June 4, 2009

    It’s not clear how Sheena Iyengar came to her conclusions -there is no mention of company size (did some smaller companies have larger choice, larger companies more choice?), was there a time range of the study (perhaps fewer options offered in 1980s, more options in 1990s – could investing style have changed), and so on and so on …

    All in all, this article appears jumps to conclusions based on a cursory read of Iyengar – perhaps her conclusions are true, maybe they’re out to lunch, but given the information you presented and what’s on her website, it’s not clear at all. Look like you needed to fill your blog obligations.

  9. #9 Arj
    June 4, 2009

    Alvin Toffler introduced the notion of “overchoice” (and its detrimental consequences) in his classic 1970 work “Future Shock” — at the time I thought it was a misplaced notion (the more choices the better I thought; if you have to focus more so-be-it) — but boy, was he prescient!

  10. #10 llewelly
    June 4, 2009

    And back on topic… I hate buying shampoo or toothpaste because there are usually a few dozen sorts available at any given store. To make matters worse – there is little variation in the ingredients listed – so many of the varieties appear to differ only on the design of the container, and whatever disgusting scent the manufacturer has selected.

    Anyway – most of us can only compare two choices at any given time. Now an old math proof (which I leave as an exercise for the reader) shows that comparison-based sorting requires a number of comparisons proportional to the square of the number of things to sort. So – from a purely computational perspective, choosing among 8 options should be twice as difficult as choosing among 4 options. Choosing among 59 (!) different alternatives should be about 218 times as hard as choosing between 4 alternatives.

  11. #11 Corey
    June 7, 2009

    So, it’s not like there is an alternative, right?

    Giving people a lot of choices isn’t “bad” just because people get freaked out by it sometimes.

    We have been talking about consumerism, mostly, but imagine something like our elections. Would having too many candidates fluster the constituents into not voting?

    It doesn’t seem like anyone here is about to limit peoples choices, or even tell other people that they can’t offer choices because it there are already too many out there. I think most of us would have serious moral problems with that.

    What is going to happen (and probably all that can happen) is that companies, but most importantly distributors are going to get privy to all this research and limit their products to styles or types of things that match a consumer’s particular lifestyle, demographic, w/e.

    So, there will be data with your demographic and past purchases and Amazon, let’s say, will limit the results to certain queries based on that. Granted, probably only if there is data to suggest that such actions would make people buy more (from 60 to 75%, for instance).

  12. #12 ThirtyFiveUp
    June 7, 2009

    Some day a friend or relative is going to be having a lot of troubles and making decisions will become increasingly difficult. Maybe this will be you.

    Suggestion: write the choices on bits of paper and draw from a hat. If they (you) hate the choice, it will clarify the true desire.

    Sorry, choosing lotion or bread should not be done this way. This is for knee replacement, divorce, moving to a retirement home, etc.

  13. #13 Samantha Vimes
    June 8, 2009

    I get being intimidated by 59 retirement plans; I’d hate slogging through the information on those!
    But toothpaste? Floss? I don’t get it– you either stick with a brand you know, or you try something different because it’s on sale, you want variety, or whatever. How does someone DITHER over floss?

  14. #14 sohbet siteleri
    June 8, 2009

    thanks

  15. #15 adina
    June 8, 2009

    I agree that there are circumstances for which overwhelming choice provides little benefit. However, I prefer to choose the circumstances for which I’m required to make a choice.
    I almost always buy the amazon product with the highest customer review, that fits into my price range, and do virtually no other research on the product, as it would just waste my time. I need movers tomorrow. While maybe 5 years ago, I would have sorted through every ad on craigslist, I just looked at 2 of them, ensured that the general prices were similar, and picked one. My new strategy is that if it’s good enough, then just go with it. Some things, I just let other people pick for me, altogether. My friends chose the movie this weekend, and that was fine with me, because it was pretty funny (The Hangover).
    However, there are some things that I would rather not let others choose for me. And those things may not be the same for me as they are for other people (some people are happy to have arranged marriages!). The problem with some people’s suggestions for dealing with the problem of too much choice is that their solutions occasionally involve coercion, in the sense that I am not even entitled to make a choice, even if it were a circumstance in which it mattered to me or for which I felt I had some expertise. This is troubling to me, especially because people can often adjust to the “paradox of choice,” by simply voluntarily expunging unnecessary decisions out of their lives.

  16. #16 Bayram Otelleri
    June 12, 2009

    expensive wine is to understand that I have not retained in the stomach 1 hour for pleasure, I pity this much money

  17. #17 Gezi Rehberi
    October 25, 2009

    discover the turkey and all over the world

  18. #18 Gezi rehberi
    July 11, 2010

    We don’t hear students clamoring for choice in lenders. If anything, students and families need simplicity to understand the process and know how to navigate it,” said Edie Irons, communications director for the Project on Student Debt, a nonprofit dedicated to making college more affordable. i agree.

  19. #19 Credit Repair
    February 24, 2011

    “We don’t hear students clamoring for choice in lenders. If anything, students and families need simplicity to understand the process and know how to navigate it,” said Edie Irons, communications director for the Project on Student Debt, a nonprofit dedicated to making college more affordable.

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