Thursday, September 20, 2007

Why less is more - Choice Quality

I wrote before of the fascinating video I watched a while back on the subject of why “Less is more” delivered by the New York based psychologist Mr Barry Schwartz, and his first argument on how increasing the numbers of choices available to someone can cause a state of “choice paralysis” where they simply choose to make no choice at all.

The second thought provoking point that he puts forward is that increased choice leads to a decrease in the quality of the decision, and should someone mange to first overcome the choice paralysis and make a decision, often an abundance of choice will cause the chosen option to be inferior to that of a decision made with fewer options available.

The first example discussed by Mr Schwartz is that of a college survey undertaken in a New York college. Participants were asked to fill out a fairly lengthy survey and were rewarded with one of two gifts, they could choose either two dollars or a good pen from the college with the crest etc worth in the region of two dollars. 70% of the participants chose the pen, seemingly because two dollars was just cash, but the pen had a certain degree of novelty value to it and meant more to them than a mere $2. A week later the same survey was undertaken on campus, this time the participants were offered a choice of $2, the nice pen, or two cheaper pens. The results showed that with the increase in choices only 40% of people chose either pen option, with 60% going for the money instead. Although people had wanted the pen before, now they were faced with a problem they couldn’t resolve and decided to go for what had been deemed as the inferior option previously.

The second, and significantly more important example put forward by Mr Schwartz was that of company pension fund offerings. Mr Schwartz had previously explained that for every ten options added to the selection available to a workforce, it was observed that participation dropped by 2%, he now stated that the survey had also shown that for every 10 options you added, an extra 7% of participants chose to just put their money in a simple bank savings account, by far the poorest returning option, but given a long list of confusing options the easiest to understand. Therefore the quality of their decision got worse when they were given a greater choice.
He explained that the problem is only worsened due to that fact that most financial advisors if quizzed, would suggest that you give employees the largest choice possible, whereas in practice this actually has a negative effect on the quality of the choices made by the employee and puts their long term financial health at risk.

Makes you really think about our assumptions about what’s good and what’s bad when it comes to choice eh?

No comments: