The Benefit of Choice
I watched a couple of interesting Ted Talks on the subject of decision making.
Malcolm Gladwell was promoting his latest book “Blink”, when he recalled an interesting story about how we moved from a limited choice economy to a multi-choice economy.
It all started with a psycho-physicist called Harry Horowitz.
He set up a consulting shop to help Food & Beverage businesses solve problems. Pepsi was his first client. They wanted to know how sweet their Diet Pepsi should be. They knew that the “sweet spot” was somewhere between 8 to 12 percent sweetness.
But after plotting the data to understand consumer preferences, Harry noticed that there wasn’t a smooth bell curve that could give him a straightforward answer. He was puzzled. He thought about this problem for several years.
Moment of Insight
Then one day, while at a diner, Harry realized that instead of trying to look for the perfect Pepsi, he should have been looking for the perfect Pepsis. Trying to find one perfect flavor for everyone was futile – a better idea would be to create flavors that matched a lot of different people’s tastes. He was ridiculed at first but was adamant about pushing his idea further.
He was eventually vindicated when Campbell Soup approached him. Prego, a Campbell Soup brand – competed with Ragu in the spaghetti sauce market. Even though Prego had the superior sauce, they weren’t doing so great in the market.
Barry finally had a chance to test his insight. He created forty-five varieties of tomato sauce and visited several cities to test them out. He asked participants to try up to ten varieties and leave a rating for each. After doing this for several months, he accumulated enough data to help him narrow his focus to three main groups.
The first group preferred the “plain” flavor, the second group preferred “spicy”, while the third group preferred “extra chunky”. Campbell Soup was astonished by the results – they couldn’t believe that a third of Americans were craving a flavor that no one on the market was serving. They quickly went to work, and after releasing their new flavor onto the market and reaped the rewards. Campbell Soup made 600 million dollars that year, all thanks to Howard’s key insight.
According to Gladwell, that changed everything.
The Idea Spreads
F&B companies later jumped on the idea and that led to a wide variety of flavors in mustard and cheese products and thousands of other types of condiments and food.
Why is it important?
Howard changed the way companies would think about making people happy.
The fundamental insight was that people are different. To make them happy, you had to give them what they secretly craved – not as a collective group, but as a multiple groups of individuals.
Companies have relied on focus groups for years to figure out what product line to release next. No one had ever mentioned “extra chunky” tomato sauce. It seems people don’t know what they really want.
By segmenting the market horizontally, Howard inspired companies to “democratize taste”. Instead of assuming that there were superior flavors – he proved that flavors were just different in the same way people were. Anyone who appreciates the diversity of favors they encounter in their local supermarkets can thank Howard Horowitz for setting business executives on the right path.
Campbell Soup (and other companies) assumed that there was a universal taste that should appeal to everyone. By giving customers a culturally authentic product – Italians preferred thin tomato sauce with their spaghetti – companies were creating the best product imaginable. But Gladwell’s point is that this is just an archaic, outdated way of thinking. It’s how economists and physicists used to think. They assumed that we had to be looking for universals (Newton vs Einstein). But similar to economics and physics – there was no universal principle for food or coffee. People are diverse and by embracing that, we can make them happy by offering them as many choices as possible.
The Paradox of Choice
But a psychologist named Barry Schwartz would disagree with Malcolm Gladwell. According to Barry, more choice is not always a blessing.
He starts his talk by criticizing a “dogma” that sounds like a syllogism: The more choice you have, the more freedom you have, and the more freedom you have, the more welfare you have. Therefore, we should increase the number of choices available to each individual, if we care for their well-being. That sounds a lot like what Malcolm Gladwell was saying.
“There are hundreds of salad dressings, stereo systems, and cell phones” laments Schwartz. With all these choices – life isn’t better; it’s more confusing. Choices make our lives worse. The problem isn’t just restricted to food. We have too many choices available in healthcare too. It used to be the case that a doctor, after figuring out what’s wrong with you, would recommend a specific course of action.
Today, to give patients more autonomy, the burden of responsibility has shifted. A doctor will now give a patient a choice between A or B and tell you about the benefits and costs of each choice. But what’s really going on here is that an expert (doctor) is asking a layperson (patient) to make a big decision that they don’t have the knowledge to make.
Marriage
Identity is also self-determined. It used to be the case that getting married wasn’t even up for debate. People got married the first chance they could. But now – with both genders focusing on career first and having the freedom to take their time in figuring out if and when they want to get married, things are a lot more complicated.
Work
Technology allows us to work from anywhere on the planet as long as we have a laptop and an internet connection. But the trade-off is that we no longer live in the moment. We are plagued by too many options. Having a conversation with a close friend or watching your kid’s soccer game is no longer the sacred experience it once was. With a supercomputer in your pocket – you can choose to do a number of things at will.
Problem 1: Paralysis
Before technology changed our lives, we had fewer options but we were happier. Today, we have more options but are less happy. When people have too many choices – they become paralyzed and often end up doing nothing.
A study was done about voluntary retirement plans with Vanguard’s (a mutual fund company) investment records. The results showed that for every ten mutual funds the employers offered, the rate of participation went down by two percent. When they offered fifty different funds, ten percent fewer employees participated than when they offered only five options.
Employees were overwhelmed by the fifty different choices and instead of making a decision, they would put it off indefinitely. Because of their indecisiveness, they were worse off. They lost 5000 dollars a year – money they could have made had they just made a decision.
Problem 2: Opportunity Cost
Even if people managed to overcome decision paralysis and chose one of the many options offered to them, they would end up less satisfied than if they were given fewer choices.
When so many alternatives exist, it’s easy to imagine that they could have made a better choice. The more options we have, the easier it is to regret our decisions – economists call these alternative choices “opportunity costs”.
Barry described his experience when buying a new pair of jeans. There was a time when jeans weren’t so great – they didn’t fit so well but after a while, you got used to them (or they got used to you). But that’s not the case anymore. He was given an endless number of options to choose from when picking out his pair of jeans. He spent an hour trying different types and eventually – he got the best pair of jeans he had ever bought. But he wasn’t happy. He ended up feeling worse despite the superior quality of his purchase. Because there so many different types to choose form, his expectations were too high. It was easy to imagine a better pair of jeans out there that he missed out on.
With so many alternatives available, the best you could hope for is that reality somehow meets your lofty expectations. Pleasant surprises have become a thing of the past. Barry’s secret to happiness? lower your expectations.
No One to Blame
What happens when you buy a bad pair of jeans when there’s no other choice? You blame the world. But what happens when you buy a bad pair with so many options available? You have only yourself to blame. People are more disappointed with their experiences – even if they’re objectively doing fine. That might be a significant contributor to higher rates of clinical depression in affluent, western societies.
Who’s right? Gladwell or Schwartz?
From an economic perspective – it’s better to have more choices. People tend to spend more and, as a result, more businesses and entrepreneurs will cater to different niches. But are individuals happier? That depends on the individual.
Some people like variety – they tend to be higher in openness. But others are more disconcerted with a hundred new flavors of salad dressings.
The latter group is more conservative. Age can have something to do with it as well. a 60-year-old, when confronted with a hundred different choices, might be significantly more overwhelmed than a sixteen-year-old faced with the same number of choices.
And some people are better at managing an overload of information than others. If you’re someone who can easily block out distractions such as social media and manage to ignore the thousands of options you encounter when you go shopping – thanks to the habits that you’ve developed, you’re likely to benefit from a world that offers you more choices. But if you have less impulse control – a simpler time with worse products but fewer options is something you will always long for.
The future will probably bring us more options than we can imagine, and perhaps it’s best to accept this, and figure out how to deal with it individually – as painful as it is for people like Barry Schwartz. Perhaps Schwartz sees some comfort in that.