Choice Anxiety

Consumer researchers have done studies in supermarkets, and learned that the more choices are available for certain products, the fewer purchases consumers make. That seems counterintuitive. I would expect that more choices would equal more purchases, but it actually works the opposite way. As consumers, we say that we want more choices, but when it is time to spend our money, we don’t behave that way. —–

This phenomenon is called “Choice Anxiety”. It happens in the supermarket, and it also happens in investing. Studies show that 401k investors who have only a few choices participate more than investors who have dozens of investment choices. Why does this happen? When we are faced with dozens of choices, we have to make decisions. Making decisions takes a lot of energy, and some of us don’t have the psychic energy to make those choices. It is easier to do nothing than to decide. I notice this when I go to a restaurant. If a restaurant has a menu with 100 choices, I take longer to decide than if the menu has 10 choices. I also stress out more if I have to decide from 100 choices. In fact, if I return to that restaurant, I will probably order the same meal again, as long as I liked it the first time. —–

The late Steve Jobs (Apple) and Mark Zuckerberg (FaceBook) are/were known to wear the same outfit every day. The reason for this is that they wanted to reduce the number of decisions that they had to make every day, and reserve their decisions for the really important matters that they faced every day. I wear a buttondown shirt and chinos every day to work. I thought I was clueless with fashion. Maybe I am cutting edge!


%d bloggers like this: