Paralysis by Analysis

Conventional wisdom dictates that when making a decision the more options we have, the better.  And I admit immediately that I subscribe to this philosophy.

But I am beginning to question the universality of this idea.

Enter Analysis Paralysis.  The gist is that having too many options actually stifles decision-making. 

But wait.  How can more options be worse?  It does seem to defy logic.  But as we look at some examples, like those included in the Wikipedia article above, it becomes clear.

We see it in the real world all the time.  My old fallback, Gladwell, discusses the example of 401k participation in the workplace.  Everybody wants control over their own retirement investments.  However, as the number of available 401k investment options increases, participation in the program actually decreases.

He also discusses a more everyday example: that of jelly.  Studies were conducted in which free samples of jelly were given to shoppers at a grocery store.  One group was offered 6 types of jelly, the other 24.  The group offered 6 types ended up purchasing statistically more jelly than the 24 group.

So what happens?  We face too many options.  We become paralyzed by the abundance of choices before us and we choose to do nothing. 

Why?

It is not the options themselves that pose a challenge.  It is the fear of choosing the wrong one. 

Think about it: if you have just 1 option, your odds of picking the right one are 100%.  No problem! 

If you have 2 options, now the chances are 50% that you will pick the optimal one.

If you have 24 options (like the jelly), now you only have a 4% chance that you will pick the best one.

This is exactly what causes the paralysis.  It's great to have so many choices, but now you face the problem of how to pick the best one.  As free people we would normally balk at the idea of someone limiting our choices.  But in actuality, a little limiting may be exactly what we need.

Let's go back to our 401k example.  Say you have 100 options for your plan.  Now you have only a 1% chance of choosing the best one.  Paralysis.  So you sit down with your financial planner, and what do you do?  Do you ask him for more options?  Of course not!  You ask him which ones he recommends.  Why?  Because you are trying to get him to limit your options for you.  You want him to pick the best 1 or 2 or 3 to make it easier for you to decide.

Of course, in reality, this is not limiting your options.  You still have the 100.  But you are removing the fear of making the wrong choice by invoking the advice of an expert.  Maybe the expert is wrong.  It doesn't matter.  The fear has been removed, or at least mitigated.

The point?  Fear of making the wrong choice leads to paralysis.  So we need to remove the fear.  As in the above example, this can often be done with information.  But in some cases it may not be possible or practical to accumulate all the needed information about each option.

So, back to our opening statement.  Yes, options are great.  But we have to pare them down to a manageable amount.  How do we do that in the general case?  Where is the balancing point?  These are excellent questions.  And I certainly don't have the answer.

But as I've said before, you can't solve a problem if you don't know what it is.  Now we know what the problem is.  That's a step in the right direction.