Make up your mind

STRATEGY

Make up your mind

Web Exclusive: Everyone seems to like having lots of options before making a decision. It helps you feel like you have done your homework and will enjoy a better outcome. So, do the best decisions come about this way? Simona Botti’s research may surprise you.

Do people understand what is the exact point at which the energy you put into a search for the best deal outweighs its benefits? Everyone knows it pays to compare prices of airline tickets, hotel rates, cars and cell phone service. But, sometimes unbeknown to consumers, these extensive searches may cost more than the benefits they provide.

This possibility is the subject of a research project I recently completed with Professor Christopher K. Hsee of the University of Chicago Booth School of Business. We wondered if university students in four separate studies would correctly discount the emotional, cognitive, and temporal costs associated with having more freedom of choice or if they would always expect better results when provided with more choice.

While it seems counterintuitive, our study confirmed that although more choice freedom is always preferred because it is expected to bring better results, less choice freedom when making a decision may lead to superior outcomes.

The costs of making decisions

It seems that decision makers often experience anxiety when they choose. They feel ‘buyer’s remorse’ and worry that they have made the wrong choice. People tend to forestall this uncomfortable feeling by considering more options and collecting more information, even if the new information is unlikely to sway the outcome. As you can imagine, this additional search may increase, rather than reduce, the emotional discomfort and at the same time generate distracting thoughts. The result is poor and costly decisions.

We hypothesise that people systematically underestimate the costs of choice compared with its benefits. Thus, people steadfastly believe that more choice freedom leads to better decisions even in those cases where the costs of choosing actually outweigh its benefits.

To test this we created experiments that measured the objective quality of the participants’ decisions by scoring cognitive tasks. All the participants were given modest financial compensation to motivate them to do their best. Students were randomly assigned to experimental conditions in which they either had more or less choice freedom and were made to consider the costs of choice.

Bank on it

In the first study, students were offered incentives for choosing the highest-yielding one-year certificate of deposit (CD) from a number of banks, ranging from 3.01 and 4.00 per cent. The participants in the more freedom group could look at as many randomly generated sets of three banks as they wished at a cost of $7 each time. The participants in the less freedom group was offered just one choice from three banks and also charged $7 for the service.

A third group of students, called ‘predictors’, were asked to read descriptions of the two situations and guess: “Which of these two services do you think will ensure a higher return?” They said the more-freedom group would earn more. They were wrong. The more-freedom group underestimated the cost of searching and over-searched, ending up with a lower return than the less freedom group.

Participants were asked why they liked or disliked the choice process they experienced. Most of the participants expressed the belief that by choosing they could get a better outcome (“I feel I have a better chance at selecting the right one”) whereas only a few  recognised the escalating costs of choice (“Too many options required too much to consider.”)

Hold the phone

Our next two studies were, ostensibly, about memorisation. In one, while facing a five-minute deadline, the more-freedom group was asked to select one from a set of 10 randomly generated phone numbers to memorise in ten subsequent trials whereas the no-freedom group was given 10 numbers, one at a time, to memorise. The predictors guessed the more-freedom group would perform better at this memory task. They were wrong again.

Although all participants were told that the time spent choosing the number to memorise would reduce their final score, the majority thought selecting the number of their choice would benefit them because they believed associations would help them remember the number. In doing so, however, more freedom participants discounted the time it took them to select the number and thus earned a lower score than less freedom participants.

Test of wills

In a fourth study, students in the more-freedom group were asked to pick 10 multiple-choice math questions from a possible 50 to answer whereas those in the less-freedom group had to answer 10 questions in the order they were shown. All the questions had a similar level of difficulty. Familiarity was an added option: half of the students were first allowed to review multiple-choice math questions but the other half was not. This test was done to see if familiarity with the task would persuade the more-freedom participants to forgo their option of selecting a question because they would know ahead of time that there was no benefit in looking for better (easier) questions.

Students who were not given the chance to review the material, but were given the freedom to choose, spent too much time searching for an easy question and thus performed worse than those who were not given the freedom to choose. However, the freedom-with-familiarity students did as well as the no-freedom-with familiarity students because they realised that all the questions were of equal difficulty and didn’t waste time comparing questions.

Choose or lose

Decision makers may feel compelled to explore all the options in order to find the best choice, but sometimes the cost of doing so outweighs the benefits provided by this best choice. Going into these studies, Professor Hsee and I entertained the hypothesis that people prefer more freedom to choose because they believe this freedom allows them to make better decisions. However, study participants who had more freedom not only performed worse but also experienced lower positive affect than participants who had less freedom. Although choice is often associated with beneficial outcomes, in some circumstances this association definitely fails.

So consider the wear and tear on your cognitive and affective system the next time you are faced with a decision, and ask yourself if you really need more choice to make a good decision.

 

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