I came to know the book The Paradox of Choice: Why More Is Less by coincidence when I read an article on New York Times on a plane. I wrote about that article in Opt In or Opt Out: The Power of the Default Option. After a long wait I finally got this book from the public library. I can tell you it’s well worth the wait.
The author Barry Schwartz is a psychology professor at the prestigious Swarthmore College in the suburb of Philadelphia. He wrote about how the abundance of choices actually makes us unhappy and how to deal with choice overload. We live in a world of choices. When the author shopped for jeans, there were 6 different fits. Buying a car? There are perhaps hundreds of different makes, models and trims, plus new versus used. Plethora of choices are supposed to make us happy. Everybody can get what they want. If someone doesn’t care about the additional choices, they can just ignore them. No harm done. Not true. Instead, the choices overwhelm us, forcing us to become experts on everything.
In the personal finance area, we are confronted with all sorts of savings accounts, money market funds with different tax treatment, credit cards with different rewards structures, different types of mortgages, all kinds of stocks, bonds, mutual funds and ETFs, different types of workplace retirement plans, different types of IRAs with different tax rules, different types of educational savings plans, … … You get the picture. There are all kinds of traps everywhere. You read articles about “7 biggest mistakes …” and “Beware …” How does an average person cope with all these? The financial “advisors” come in and say “It’s too complex. You can’t deal with it. Let me handle it for you [for a handsome fee].” Now we have even more traps. We have to figure out whether the “advisors” are screwing us.
What should people do then? The author suggested
1. Choose when to choose. In other words, don’t sweat the small stuff. If you didn’t get in on the 6-month promo rates from FNBO savings account, so what?
2. Learn to accept “good enough.” Don’t feel like you have to find the absolute best for everything. The “best” may be out there somewhere, but “good enough” gets the job done.
3. Don’t worry about what you’re missing. There are tradeoffs to everything. Be happy with with the positive features of your choice.
4. Control expectations. Nothing is perfect. Move on with you’ve got.
I have to admit that I tend to fall on the “maximizer” side on the author’s Maximization Scale. I write a lot about minute details of finance and investment on this blog. Recently, especially after reading this book, I find myself saying “it doesn’t matter” more often. I’m trying to become more of a “satisficer.” Even when I write about the different things, I try to put in a dollar perspective.
Rating: ***** (Excellent). I highly recommend this book.
Mr. Schwartz also wrote a summary of his book in the article The Tyranny of Choice which appeared on the April 2004 issue of Scientific American. If you can’t get hold of the book now, at least read the article and do the Maximization Scale quiz in it. See if you are a maximizer or a satisficer. I scored 4.25, which puts me in the middle 1/3 of the population, slightly over on the maximizer side. What’s your score?
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Ted Valentine says
I was somewhat confused by the instructions. If 1 is disagree and 7 is agree (and the instructions indicate otherwise to me), then I scored 4.2.
I’m a little surprised as I would’ve thought that I’m more of a “eh whatever works” type.
I think I’ll check out that book.