Today, many of us are fortunate enough to be able to choose from a greater number of options in more and more areas of our lives. Clothing, cars, TV’s, sound systems, investments, holiday destinations – the list goes on and on. The opportunity to choose enriches our lives, and logic tells us that if some choice is good, more must surely be better. But is this really the case? Recent research suggests just the opposite – while some choice is definitely better than none, more is not always better than less.
Large-scale social trends support the view that increased choice and increased affluence have not been accompanied by higher levels of well-being in many of the world’s major economies. Although GDP has more than doubled in America in the past 30 years, the proportion of people describing themselves as ‘very happy’ has declined by about 5 percent, or roughly 14 million people. In addition, more Americans than ever are clinically depressed. While no single factor explains decreased well-being, a number of findings suggest that the proliferation of choice plays an important role.
US psychology professor Barry Schwartz has conducted extensive research in the area of personal choice, all aimed at understanding why so many people end up unhappy rather than pleased when their options expand. He found that people can be divided into two camps when it comes to choosing – ‘maximizers’ (who always aim to make the best possible choice), and ‘satisficers’ (who aim for ‘good enough’, even though there might be better alternatives out there).
Schwartz and his colleagues drew up a Maximization Scale – a set of statements people could use to assess their tendency to maximize. They then got several thousand people to rate themselves from 1 to 7 (from ‘completely agree to ‘completely disagree’) on such statements as ‘I never settle for second-best’. Schwartz and his fellow-psychologists also evaluated the respondents’ sense of satisfaction with their decisions.
People with an average score above 4 (the scale’s midpoint) were regarded as maximizers, while those with a score below 4 were classed as satisficers. Schwartz found that those who scored highest on the test – the greatest maximizers – engaged in more product comparisons than the lowest scorers, both before and after they made buying decisions, and also took longer when deciding what to buy. Unlike satisficers, who stop looking once they have found an item that satisfies them, maximizers go to considerable lengths to read labels, check consumer magazines and try out new products. They also spend more time comparing their purchasing decisions with those of others.
No-one can check out every option, but maximizers certainly give it their best shot. As a result, making a decision becomes increasingly stressful as the number of choices rise. To make matters worse, after making a selection they are haunted by the alternatives they have not had time to investigate. In the end, maximizers make better objective choices than satisficers, but get far less satisfaction from those choices. When maximizers eventually have to end their search and make a choice, apprehension about what they might be missing takes over.
Curiously, the greatest maximizers get little joy from the fruits of their labours. They take small comfort from the discovery that they have made better choices than others, and considerable dissatisfaction from finding out that they have fared worse. Maximizers are more likely to experience regret after a purchase, and if they do so their sense of well-being takes longer to recover. They also tend to brood or ruminate more than satisficers.
It might not come as a surprise to learn that Schwartz found that people with high maximization scores experienced less satisfaction with life in general, and were less happy, less optimistic and more depressed than people with low maximization scores. In fact, those with extreme maximization ratings had depression scores that placed them on the borderline of clinical depression.
A recipe for unhappiness
Schwartz believes there are a number of reasons why more choice is not always better than less, especially for maximizers. One of the most significant of these relates to ‘opportunity costs’ – the fact that one of the ‘costs’ of making a choice relates to the reality that by doing so you lose out on any number of attractive alternatives.
For a Jo’burger, for instance, the opportunity cost of lying on the beach at Umhlanga may involve missing out on the Cape’s mountains and winelands. So, if opportunity costs reduce the overall desirability of the most preferred choice, the greater the number of choices, the lower the satisfaction derived from the final choice.
Lyle Brenner of the University of Florida was able to demonstrate, via social experiments, the effect of opportunity costs on choices. One of these involved asking certain people to put a dollar value on a flight from San Francisco to a desirable holiday destination. Other people were also asked to put a dollar value on the same flight and holiday destination, but as part of a group which included three other alternative holiday destinations.
Without exception, people placed a higher value on the flight and holiday when it was considered on its own. When it was evaluated as one of a group of four, the opportunity costs of giving up the other three alternatives invariably reduced the price that people were prepared to pay for the designated flight and holiday.
Psychologists Kahneman and Tversky have previously shown that losses make us feel worse than gains make us feel good, and Schwartz used this finding to explain why the problem of opportunity costs will be worse for a maximizer than for a satisficer. Because a satisficer adopts a ‘good enough’ philosophy, he or she is not too bothered by opportunity costs. Satisficers also indulge in a lot less searching and inspection of alternatives than does the maximizer, who constantly chases after ‘best’. By constantly considering a greater number of alternatives, the maximizer will always have more opportunity costs to deduct.
Regret adds to opportunity costs
As much as people feel sorrow at the opportunities they have missed, they may also suffer regret over the choices they make. Schwartz and his fellow researchers found that people with a high sensitivity to regret are less happy, less satisfied with life, less optimistic and more depressed than those with low sensitivity.
Perhaps not surprisingly, Schwartz also found that people with high regret sensitivity tend to be maximizers. In fact, he believes that worry over future regret is a major reason why individuals become maximizers. The only way to avoid regret is by making the best possible choice. Unfortunately, the more choices you have and the more opportunity costs you incur, the more likely you are to experience regret.
The effect on investment decisions
If you tend towards the higher end of Schwartz’s Maximization Scale, this could have a decidedly negative effect on your investing behaviour. With hundreds of individual JSE shares to choose from, and as many if not more unit trust funds, all of the dysfunctional aspects of maximizer behaviour could kick in.
You would undoubtedly spend hours and hours researching a variety of individual shares or unit trusts, intent on picking only those that would provide the highest returns. As a result you might miss legitimate opportunities while you agonised over your choices, wracked by fears of the opportunity costs you might be incurring. You are also likely to suffer regret should your shares not perform as well as expected, and you might be inclined as a result to sell and buy shares more frequently than is good for you.
What can be done?
Given his research findings, Schwartz observes that society would be well served to rethink its worship of choice. He is right of course, but experience suggests that manufacturers and marketers will not be cutting back on their range of offerings any time soon. Schwartz acknowledges this, and provides some practical advice when it comes to making choices:
1. Choose when to choose. We can decide to restrict our options when the decision is not crucial. For example, make a rule to visit no more than two retailers when shopping for clothing.
2. Learn to accept ‘good enough’. Settle for a choice that meets your basic requirements rather than searching for the elusive ‘best’. Then, having made your choice, stop thinking about it.
3. Don’t worry about what you’re missing. Consciously limit how much you fret and fuss over the seemingly attractive features of options that you reject. Teach yourself to focus on the positive parts of the selection you do make.
4. Control your expectations. ‘Don’t expect too much and you won’t be disappointed’ is a cliché, but the advice is sensible if you want to be more satisfied with life.
Advice for investors
Revered investment gurus such as Benjamin Graham and Burton Malkiel have noted time and again that the greater majority of fund managers cannot beat the overall market return in the long run. By investing steadily in a broad-based unit trust or index fund, you are likely to produce better results over time than most of the highly qualified, well-paid professionals who select shares for a living.
This advice would fall into Schwartz’s ‘learn to accept good enough’ category, and would no doubt make the hairs on a maximizer’s head stand on end! If this is how you feel, you could consider putting 80% to 90% of your investment funds into a safe fund, and allowing yourself the balance as a ‘mad money’ account. You could then indulge all of your maximizer tendencies by way of this account, secure in the knowledge that you are doing the sensible thing with the bulk of your investments.
To check how bad your tendency to maximize is, Schwartz’s 13 statements are reproduced below. This is a simplified version of the full test, but should give you an indication of where you tend to exhibit maximizer behaviour. And if you agree with more than six of the statements, chances are you’re a maximizer rather than a satisficer. You are then advised to read this article again, and consider changing your ways!
Schwartz’s Maximization Scale
1. Whenever I’m faced with a choice, I try to imagine what all the other possibilities are, even ones that aren’t present at the moment.
2. No matter how satisfied I am with my job, it’s only right for me to be on the lookout for better opportunities!
3. When I am in the car listening to the radio, I often check other stations to see if something better is playing, even if I am relatively satisfied with what I am listening to.
4. When I watch TV, I channel surf, often scanning through the available options even while attempting to watch one program.
5. I treat relationships like clothing: I expect to try a lot on before finding the perfect fit.
6. I often find it difficult to shop for a gift for a friend.
7. Renting videos is really difficult; I’m always struggling to pick the best one.
8. When shopping, I have a hard time finding clothing that I really love.
9. I’m a big fan of lists that attempt to rank things (the best movies, the best singers, the best athletes, the best novels etc.).
10. I find that writing is very difficult, even if it’s just writing a letter to a friend, because it’s so hard to word things just right. I often do several drafts of even simple things.
11. No matter what I do, I have the highest standards for myself.
12. I never settle for second best.
13. I often fantasise about living in ways that are quite different from my actual life.
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References:
The Paradox of Choice: Why More Is Less. Barry Schwartz. Ecco/HarperCollins Publishers, 2004.
Maximizing versus Satisficing: Happiness Is a Matter of Choice. Schwartz et al, Journal of Personality and Social Psychology, Vol. 83, No. 5, pages 1178 – 1197; 2002.