The Paradox of Choice Page 7

  The endowment effect helps explain why companies can afford to offer money-back guarantees on their products. Once people own them, the products are worth more to their owners than the mere cash value, because giving up the products would entail a loss. Most interestingly, people seem to be utterly unaware that the endowment effect is operating, even as it distorts their judgment. In one study, participants were given a mug to examine and asked to write down the price they would demand for selling it if they owned it. A few minutes later, they were actually given the mug, along with the opportunity to sell it. When they owned the mug, they demanded 30 percent more to sell it than they had said they would only a few minutes earlier!

  One study compared the way in which the endowment effect influences people to make car-buying decisions under two conditions. In one condition, they were offered the car loaded with options, and their task was to eliminate the options they didn’t want. In the second condition, they were offered the car devoid of options, and their task was to add the ones they wanted. People in the first condition ended up with many more options than people in the second. This is because when options are already attached to the car being considered, they become part of the endowment and passing them up entails a feeling of loss. When the options are not already attached, they are not part of the endowment and choosing them is perceived as a gain. But because losses hurt more than gains satisfy, people judging, say, a $400 stereo upgrade that is part of the car’s endowment may decide that giving it up (a loss) will hurt worse than its $400 price. In contrast, when the upgrade is not part of the car’s endowment, they may decide that choosing it (a gain) won’t produce $400 worth of good feeling. So the endowment effect is operating even before people actually close the deal on their new car.

  Aversion to losses also leads people to be sensitive to what are called “sunk costs.” Imagine having a $50 ticket to a basketball game being played an hour’s drive away. Just before the game there’s a big snowstorm—do you still want to go? Economists would tell us that the way to assess a situation like this is to think about the future, not the past. The $50 is already spent; it’s “sunk” and can’t be recovered. What matters is whether you’ll feel better safe and warm at home, watching the game on TV, or slogging through the snow on treacherous roads to see the game in person. That’s all that should matter. But it isn’t all that matters. To stay home is to incur a loss of $50, and people hate losses, so they drag themselves out to the game.

  Economist Richard Thaler provides another example of sunk costs that I suspect many people can identify with. You buy a pair of shoes that turn out to be really uncomfortable. What will you do about them? Thaler suggests:

  The more expensive they were, the more often you’ll try to wear them.

  Eventually, you’ll stop wearing them, but you won’t get rid of them. And the more you paid for them, the longer they’ll sit in the back of your closet.

  At some point, after the shoes have been fully “depreciated” psychologically, you will finally throw them away.

  Is there anyone who does not have some item of clothing sitting unused (and never to be used) in a drawer or on a shelf?

  Information Gathering in a World with Too Many Options

  IN THIS CHAPTER WE’VE SEEN SOME OF THE MISTAKES PEOPLE CAN make predicting what they want, gathering information about alternatives, and evaluating that information. The evidence clearly demonstrates that people are susceptible to error even when choosing among a handful of alternatives to which they can devote their full attention. Susceptibility to error can only get worse as the number and complexity of decisions increase, which in general describe the conditions of daily life. Nobody has the time or cognitive resources to be completely thorough and accurate with every decision, and as more decisions are required and more options are available, the challenge of doing the decision making correctly becomes ever more difficult to meet.

  With many decisions, the consequences of error may be trivial—a small price to pay for the wealth of choices available to us. But with some, the consequences of error may be quite severe. We may make bad investments because we are not well informed enough about the tax consequences of investing in the various possibilities. We may choose the wrong health plan because we don’t have time to read all the fine print. We may go to the wrong school, choose the wrong courses, embark on the wrong career, all because of the way in which the options were presented to us. As we find more and more important decisions on our plates, we may be forced to make many of those decisions with inadequate reflection. And in these cases, the stakes can be high.

  Even with relatively unimportant decisions, mistakes can take a toll. When you put a lot of time and effort into choosing a restaurant or a place to go on vacation or a new item of clothing, you want that effort to be rewarded with a satisfying result. As options increase, the effort involved in making decisions increases, so mistakes hurt even more. Thus the growth of options and opportunities for choice has three, related, unfortunate effects.

  It means that decisions require more effort.

  It makes mistakes more likely.

  It makes the psychological consequences of mistakes more severe.

  Finally, the very wealth of options before us may turn us from choosers into pickers. A chooser is someone who thinks actively about the possibilities before making a decision. A chooser reflects on what’s important to him or her in life, what’s important about this particular decision, and what the short-and long-range consequences of the decision may be. A chooser makes decisions in a way that reflects awareness of what a given choice means about him or her as a person. Finally, a chooser is thoughtful enough to conclude that perhaps none of the available alternatives are satisfactory, and that if he or she wants the right alternative, he or she may have to create it.

  A picker does none of these things. With a world of choices rushing by like a music video, all a picker can do is grab this or that and hope for the best. Obviously, this is not such a big deal when what’s being picked is breakfast cereals. But decisions don’t always come at us with signs indicating their relative importance prominently attached. Unfortunately, the proliferation of choice in our lives robs us of the opportunity to decide for ourselves just how important any given decision is.

  In the next chapter we will look more closely at how we make our decisions, and at the varying prices we pay for them.

  CHAPTER FOUR

  When Only the Best Will Do

  CHOOSING WISELY BEGINS WITH DEVELOPING A CLEAR UNDERSTANDING of your goals. And the first choice you must make is between the goal of choosing the absolute best and the goal of choosing something that is good enough.

  If you seek and accept only the best, you are a maximizer.

  Imagine going shopping for a sweater. You go to a couple of department stores or boutiques, and after an hour or so, you find a sweater that you like. The color is striking, the fit is flattering, and the wool feels soft against your skin. The sweater costs $89. You’re all set to take it to the salesperson when you think about the store down the street that has a reputation for low prices. You take the sweater back to its display table, hide it under a pile of other sweaters of a different size (so that no one will buy it out from under you), and leave to check out the other store.

  Maximizers need to be assured that every purchase or decision was the best that could be made. Yet how can anyone truly know that any given option is absolutely the best possible? The only way to know is to check out all the alternatives. A maximizer can’t be certain that she has found the best sweater unless she’s looked at all the sweaters. She can’t know that she is getting the best price unless she’s checked out all the prices. As a decision strategy, maximizing creates a daunting task, which becomes all the more daunting as the number of options increases.

  The alternative to maximizing is to be a satisficer. To satisfice is to settle for something that is good enough and not worry about the possibility that there might be something better
. A satisficer has criteria and standards. She searches until she finds an item that meets those standards, and at that point, she stops. As soon as she finds a sweater that meets her standard of fit, quality, and price in the very first store she enters, she buys it—end of story. She is not concerned about better sweaters or better bargains just around the corner.

  Of course no one is an absolute maximizer. Truly checking out all the sweaters in all the stores would mean that buying a single sweater could take a lifetime. The key point is that maximizers aspire to achieve that goal. Thus, they spend a great deal of time and effort on the search, reading labels, checking out consumer magazines, and trying new products. Worse, after making a selection, they are nagged by the options they haven’t had time to investigate. In the end, they are likely to get less satisfaction out of the exquisite choices they make than will satisficers. When reality requires maximizers to compromise—to end a search and decide on something—apprehension about what might have been takes over.

  To a maximizer, satisficers appear to be willing to settle for mediocrity, but that is not the case. A satisficer may be just as discriminating as a maximizer. The difference between the two types is that the satisficer is content with the merely excellent as opposed to the absolute best.

  I believe that the goal of maximizing is a source of great dissatisfaction, that it can make people miserable—especially in a world that insists on providing an overwhelming number of choices, both trivial and not so trivial.

  When Nobel Prize–winning economist and psychologist Herbert Simon initially introduced the idea of “satisficing” in the 1950s, he suggested that when all the costs (in time, money, and anguish) involved in getting information about all the options are factored in, satisficing is, in fact, the maximizing strategy. In other words, the best people can do, all things considered, is to satisfice. The perceptiveness of Simon’s observation is at the heart of many of the strategies I will offer for fighting back against the tyranny of overwhelming choices.

  Distinguishing Maximizers from Satisficers

  WE ALL KNOW PEOPLE WHO DO THEIR CHOOSING QUICKLY AND decisively and people for whom almost every decision is a major project. A few years ago, several colleagues and I attempted to develop a set of questions that would diagnose people’s propensity to maximize or satisfice. We came up with a thirteen-item survey.

  We asked those taking the survey whether they agreed with each item. The more they agreed, the more they were maximizers. Try it for yourself. Write a number from 1 (completely disagree) to 7 (completely agree) next to each question. Now add up these thirteen numbers. Your score can range from a low of thirteen to a high of 91. If your total is 65 or higher, you are clearly on the maximizing end of the scale. If your score is 40 or lower, you are on the satisficing end of the scale.

  We gave this survey to several thousand people. The high score was 75, the low 25, and the average about 50. Perhaps surprisingly, there were no differences between men and women.

  Let’s go through the items on the scale, imagining what a maximizer would say to himself as he answered the questions.

  * * *

  MAXIMIZATION SCALE

  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.

  No matter how satisfied I am with my job, it’s only right for me to be on the lookout for better opportunities.

  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’m listening to.

  When I watch TV, I channel surf, often scanning through the available options even while attempting to watch one program.

  I treat relationships like clothing: I expect to try a lot on before finding the perfect fit.

  I often find it difficult to shop for a gift for a friend.

  Renting videos is really difficult. I’m always struggling to pick the best one.

  When shopping, I have a hard time finding clothing that I really love.

  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.).

  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.

  No matter what I do, I have the highest standards for myself.

  I never settle for second best.

  I often fantasize about living in ways that are quite different from my actual life.

  (Courtesy of American Psychological Association)

  * * *

  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. The maximizer would agree. How can you tell you have the “best” without considering all the alternatives? What about the sweaters that might be available in other stores?

  2. No matter how satisfied I am with my job, it’s only right for me to be on the lookout for better opportunities. A “good” job is probably not the “best” job. A maximizer is always concerned that there is something better out there and acts accordingly.

  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’m listening to. Yes, the maximizer likes this song, but the idea is to get to listen to the best song, not to settle for one that is good enough.

  4. When I watch TV, I channel surf, often scanning through the available options even while attempting to watch one program. Again, a maximizer seeks not just a good TV show, but the best one. With all these stations available, there might be a better show on somewhere.

  5. I treat relationships like clothing: I expect to try a lot on before finding the perfect fit. For a maximer, somewhere out there is the perfect lover, the perfect friend. Even though there is nothing wrong with your current relationship, who knows what’s possible if you keep your eyes open.

  6. I often find it difficult to shop for a gift for a friend. Maximizers find it difficult because somewhere out there is the “perfect” gift.

  7. Renting videos is really difficult. I’m always struggling to pick the best one. There are thousands of possibilities in the video store. There must be one that’s just right for my current mood and the people I’ll be watching with. I’ll just pick out the best of the current releases and then scour the rest of the store to see if there’s a classic that would be even better.

  8. When shopping, I have a hard time finding clothing that I really love. The only way a maximizer can “really love” a clothing item is by knowing that there isn’t a better alternative out there somewhere.

  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.). People concerned with finding the best will be much more interested in ranking things than people happy with “good enough.” (If you read the novel or saw the movie High Fidelity, you’ve seen how this tendency can get wildly out of hand.)

  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. Maximizers can edit themselves into writer’s block.

  11. No matter what I do, I have the highest standards for myself. Maximizers want everything they do to be just right, which can lead to unhealthy self-criticism.

  12. I never settle for second best. Here, self-editing and self-criticism can lead to inertia.

  13. I often fantasize about living in ways that are quite different from my actual life. Maximizers spend more time than satisficers thinking about “roads not traveled.” Whole shelves of psychological self-help books testify to the dangers of this “shoulda, woulda, coulda” thinking.

  In another study, we asked respondents several questions that would reveal their maximizing tendencies
in action. Not surprisingly, we found that

  Maximizers engage in more product comparisons than satisficers, both before and after they make purchasing decisions.

  Maximizers take longer than satisficers to decide on a purchase.

  Maximizers spend more time than satisficers comparing their purchasing decisions to the decisions of others.

  Maximizers are more likely to experience regret after a purchase.

  Maximizers are more likely to spend time thinking about hypothetical alternatives to the purchases they’ve made.

  Maximizers generally feel less positive about their purchasing decisions.

  And when the questioning was broadened to include other experiences, we found something much more compelling

  Maximizers savor positive events less than satisficers and do not cope as well (by their own admission) with negative events.

  After something bad happens to them, maximizers’ sense of well-being takes longer to recover.

  Maximizers tend to brood or ruminate more than satisficers.

  The Price of Maximizing

  THE PROBLEMS CREATED BY BEING AWASH WITH CHOICE SHOULD BE much worse for maximizers than they are for satisficers. If you’re a satisficer, the number of available options need not have a significant impact on your decision making. When you examine an object and it’s good enough to meet your standards, you look no further; thus, the countless other available choices become irrelevant. But if you’re a maximizer, every option has the potential to snare you into endless tangles of anxiety, regret, and second-guessing.