Cutting Down On Choice Is The Best Way To Make Better Decisions


Photo: Paul Israel via flickr

Americans make 70 different choices a day on average, so it’s easy to see why some people can be indecisive.Columbia Business School Professor Sheena Iyengar gave a TED talk about how to make choosing easier. 

The choices you make affect your purchases, your work, your business, and your saving and financial habits.

With so many decisions taking time out of consumers’ and business owners’ already busy schedules, a larger problem emerges: choice overload. 

Here are the reasons why having too many choices is a bad thing.

Here's a classic example: People buy more jam when they have six options rather than 24.

Two stands were set up in Draeger's, a store known for its immense variety. One stand had six jams and the second had 24 for customers to stop by and sample before choosing to buy. The test was set up to see how many people would buy jam when they were presented with six choices versus 24.

The results: While more people stopped at the stand with 24 jams, more people actually bought the jam from the stand with six options, and were six times more likely to do so.

Source: TED Talk, Sheena Iyengar

Having too many options actually leads us to stall and avoid choosing.

'We choose not to choose even when it goes against our best self interests,' Dr. Iyengar says.

Source: TED Talk, Sheena Iyengar

That even extends to important financial choices, like picking a retirement fund.

Iyengar explains a study about the retirement decisions of nearly one million Americans from about 650 retirement plans. The study looked at whether the fund offerings in each plan affected the individual's likelihood to save more for the future.

Source: TED Talk, Sheena Iyengar

The more funds that were offered in a plan, the fewer people participated.

When a plan offered two funds, participation was in the mid 70s percentile. And for the plans with 50 funds, participation rates drop to the 60th percentile.

Source: TED Talk, Sheena Iyengar

And the people who managed to choose among many funds made worse financial decisions.

The individuals who did choose to participate in picking a 401K plan were more likely to avoid stocks and equity funds.

The more choices available, the more likely people were to put all their money in pure money market accounts, Iyengar explains. She says that either of these choices are detrimental to successful financial futures.

Overall, choice overload reduces engagement, decision quality, and satisfaction.

Source: TED Talk, Sheena Iyengar

We 'choose not to choose' because we can't do the maths.

An overwhelming amount of choices stops us in our tracks because our brains simply can't categorize and choose as well with so many options in front of us.

Iyengar explains there is just too much comparing and contrasting that needs to be executed in order for us to make a decision we're happy with.

Source: TED Talk, Sheena Iyengar

We end up walking away, or decide not to choose because it's too hard to figure out what's best.

We give up.

Source: TED Talk, Sheena Iyengar

Another key: make decisions real, immediate, and concrete.

This helps people gain a better understanding of what they are choosing.

Even if you have the proper information required to make a decision, you must recognise that the consequences of that decision are real, or you won't choose wisely.

Source: TED Talk, Sheena Iyengar

For example, cold hard cash always feels more concrete than your debit card.

Think about how often people use their credit cards for certain purchases.

'People spend an average of 15 to 30 per cent more when they use an ATM card as oppose to cash,' Iyengar says, 'Because it doesn't feel real.'

Source: TED Talk, Sheena Iyengar

Focus on a specific, positive outcome to make choosing easier.

Iyengar explains that during a session for enrollment in a 401K program, there was an increase in enrollment by 20 per cent and a 4 per cent increase in the amount people were willing to put down simply because they were thinking about positive things in their lives while they were choosing.

Thinking about a concrete aspect of your life and how your current choice may affect its existence will help you choose better and save more towards what you care about.

Source: TED Talk, Sheena Iyengar

It's easier to make complex decisions when you gradually increase the complexity.

So conditioning for complexity means that if the first decision you have to make has fewer categories and options than the following ones, you will be more likely to participate in ongoing decisions rather than disengage.

Source: TED Talk, Sheena Iyengar

Iyengar uses the example of customising a car online.

There are 60 different decisions that need to be made before the car is completed, but each choice varies in how many options are offered. There are 56 choices for car colour but for gears and engines there are only four.

If you have a consumer choose the colour before they choose the gears and engine, they will be more likely to disengage in the choice. If you give them an easier choice with four options first, they will keep going.

Source: TED Talk, Sheena Iyengar

Eliminate choices to make decision-making easier in your business.

Cut down the number of products and options your company offers first and foremost.

Look at what the best sellers are and keep those. Take the lowest-selling products and get rid of them.

Source: TED Talk, Sheena Iyengar

'When Procter and Gamble went from 20 different kinds of Head and Shoulders to 15, they saw an increase in sales by 10 per cent,' Iyengar says.

Simply, less is more. If you are willing to slim down, sales increase and costs go down.

Source: TED Talk, Sheena Iyengar

The best way to test if you offer too many choices is to talk to your employees.

Iyengar says if you ask your employees the difference between each of the choices your company offers, especially when it comes to financial savings, their answers will be the best way to test if a customer will be able to make a decision.

If employees don't know the difference between the offered products at your company, consumers won't either.

Source: TED Talk, Sheena Iyengar

Wegmans grocery store has up to 664 kinds of magazines and leaves customers boggled to choose one.

Iyengar says that if the store splits up the magazines into categories, consumers react differently.

Source: TED Talk, Sheena Iyengar

More categories, even if that means fewer options, are more appealing to a decision-maker.

When there are 600 magazines split into 4 categories, people have a better choosing experience than if they were to choose between 400 magazines in 20 categories.

Source: TED Talk, Sheena Iyengar

If we are more aware of our choices, how much time we are spending on them, how we are categorising them and why they should mean something to us, our decisions will improve and we will be more successful in the choices we make.

Just remember the four techniques:

1. Cut

2. Concretize

3. Categorize

4. Condition for Complexity

Source: TED Talk, Sheena Iyengar

Now learn more about how to use simplicity to succeed.

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