The Trap of Too Many Choices

The Trap of Too Many Choices

By CARL RICHARDSJAN. 21, 2014

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I recently got a new smartphone. In the setup process, I was presented with all sorts of options. Selecting a language was pretty easy, but I had to think harder about some of the other ones. Did I want the phone to use my location? Did I want to share data anonymously? Did I want to log in with an existing account or did I need to set up a new one?All these options, all these decisions, and all I wanted to do was make a phone call.

Turns out, I’m not alone. Only half of all cellphone users download apps, and a much smaller group (5 percent) do things like “show codes for movie admission or to show an airline boarding pass.”

More options don’t equal better choices. Barry Schwartz captured this conflict perfectly in his book “The Paradox of Choice”:

“When people have no choice, life is almost unbearable … But as the number of choices keeps growing, negative aspects of having a multitude of options begin to appear … the negatives escalate until we become overloaded. At this point, choice no longer liberates, but debilitates. It might even be said to tyrannize.”

The worst part of that tyranny shows up when we decide to do nothing in the face of overwhelming options. Instead of being O.K. with good enough, we take a look at our options and then convince ourselves that if we keep looking, we’ll find something even better. However, looking for the best often comes at the expense of making any progress at all.

Investing comes with so many choices today. At the beginning of 2013, there were more than 7,000 mutual funds to choose from. The number of exchange-traded funds crossed 1,500 in 2013. When you add all the share classes, these funds are available with close to 25,000 options, and that’s just a start.

Realistically, you could spend your entire life looking for the perfect investment, or you could use a broadly diversified, low-cost index fund like one of the Vanguard LifeStrategy Funds and call it good. Sure, there might be a better way to invest, but doing nothing isn’t one of them. So what’s wrong with just calling it good enough and moving on?

Then there’s the process of buying a house. We could spend months weighing the pros and cons of different houses and different mortgages. But what if we focused on the house that cost the least and still met all of our needs? Then, what if we didn’t debate different types of mortgages but opted for the shortest-term mortgage we could afford? Will we miss out on something? Maybe. On the other hand, if we don’t let all the options distract us, we may actually move in before we turn 80.

Life insurance is another money decision that keeps people awake at night. Do we really need insurance? If so, how much? Should we go with term, variable or whole life? The decision becomes a lot easier when we cut through the clutter and get a quote for $1 million on a 20-year term policy. Long term, we might need something else, but $1 million will help us sleep easier at night, and it’s often good enough.

We could spend the rest of our lives researching an ever-increasing number of choices and searching for perfect, but to what end? We have better things to do. So grab an index card, write down, “It’s good enough,” and put it in your pocket. Then, the next time you’re tempted to research yet another option, pull out the card and remind yourself that doing good enough will usually beat searching for, but never finding, perfection.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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