The Problem with Choice

Jonah Lehrer points to some research by Sheena S. Iyengar (who has a book coming out next year called How We Choose: The Subtext of Life) on the effect of the number of choices on people’s final decision (it’s been well documented that more is not always better).

Consider her research on 401(k) plans, which looked at employee participation in plans covered by Vanguard, one of the largest mutual fund companies in the country. Iyengar found that, as the number of 401(k) plans increased, people became less likely to opt in. When there were only four different funds to choose from, nearly 75 percent of employees decided to participate. However, when people had to navigate fifty-nine different 401(k) options, only 60 percent of people decided to save for their retirement. In other words, excessive choice was repellent.

This kind of research is endlessly fascinating to me. I really need to read more behavioral economics stuff (speaking of which, the Nudge guys have a blog).

June 4, 2009