Why More Choices Make You Worse at Deciding

Johnny HopkinsDecision-Making StrategiesLeave a Comment

During their recent episode, Taylor, Carlisle, and Jim O’Shaughnessy discussed Why More Choices Make You Worse at Deciding. Here’s an excerpt from the episode:

Jim: [laughs] But also, there is that science. We learned this early on with my first company, O’Shaughnessy Capital Management, that we used to have brochures, and each one of our portfolio strategies had its own fact sheet. And what we started doing was– We had like ten different strategies from very conservative to very aggressive. And so, what we started thinking was, “We’re going to show all the cool strategies we’ve got,” and no one bought. And then, I started doing the research on it, and what I found was that’s the worst way to try to get anyone to make a decision. The best way is to offer them at most three choices, but two is really optimal. And it’s kind of like, here’s this one or that one. Your conversion rate soars. So, maybe if we want to make up mythology here, that fact was in the back of my mind, Toby, when I decided to make it the Two Thoughts. But honestly, it’s because those were the two I had highlighted. Sorry to disappoint.

Tobias: I heard a story about a shoe salesman who was very successful the other day, and the story went–

Jake: Al Bundy?

Tobias: Someone asked him how he was so successful selling shoes, and he said, “I used to bring out two pairs of shoes, and then—” It was a lady shoe store, and she would try on two pairs of shoes, and she’d say, ‘I’d like to try on a third pair of shoes.’ And he’d say, ‘Which one would you like me to take back?’ And so, then she’d have to say, ‘Oh, I don’t like this one.’” So, there’d only ever be two choices. So even though he’d show them the third pair of shoes, and evidently that made people more likely to make a decision.

Jim: Yeah, and I’m familiar with that. I read that too. And it’s really interesting because it is not intuitive. Intuitive, I think, is you sort of show them how much we can help them, show how many different strategies we have. And then, you’ve got to remind yourself that you and only you are going to be so psyched by the fact that you come up with 12 different strategies. But wait, there’s more. And actually, that isn’t what people are interested in at all. They’re interested in you listening to them closely, understanding their particular problem, and then offering them a solution.

That’s why I love Canvas so much. I love it because that’s what it does. If you really, really feel passionately about some form of social investing, what we– I don’t know if they’re still doing it this way because I’m no longer associated, we sold the company. But we would try to show, “Okay, if you want to take oil and gas out or cigarettes out, your performance is going to decline by this number of basis points over any rolling 10-year period. “But if they really still felt strongly about it, we were able to flexibly address things that you just couldn’t do in any other kind of structured format. And yet, what was the killer app notion here? The killer app was something that we probably, had we spent even a few minutes just kind of thinking about it simply.

Jake: Yeah.

Jim: Tax management.

Jake: Yeah, it’s the cup holders in the car. [laughs]

Jim: Exactly, the cup holders in the car. I love that, I love that metaphor.

Tobias: What are you–

Jake: I have to give you quite a bit of credit because I, self-delusionally fancy myself as a reasonably wide reader and I also am a collector of quotes because I agree, there’s just something amazing about a pithy quote that conveys a lifetime of learning in ten words. But I have to say, probably 75% of the quotes I’d never seen or read before, which is quite the delight.

Jim: That’s great. I’m delighted. I’m happy to hear that.

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