MALE SPEAKER: We're very pleased
to have you here for the marketing talk with
Professor Barry Schwartz on the paradox of choice. And Professor Schwartz,
we're also very honored to have you here. Thank you for coming. Barry Schwartz is the Dorwin
Cartwright Professor of Social Theory and Social Action
at Swarthmore College. He is the author of 10 books,
among them The Battle for Human Nature, The Cost of
Living, and The Paradox of Choice: Why Less is More. He is a fellow of both the
American Psychological Association and the American
Psychological Society. His research and teaching focus
on the intersection of psychology and economics, and
more specifically, how the abundance of choice in modern
life both liberates and bedevils those who face it. So please join me in welcoming
Professor Schwartz. BARRY SCHWARTZ: Hi, everybody. I'm really quite honored
to be here. And just two preliminary
remarks. One is that I'm shorter
than I used to be. One is that I thought it was
presumptuous for me to make myself an expert
in what you do. So my talk is mostly not going
to be about what you do. It's going to be about what
I take to be a significant problem in people's lives
more generally. And I trust that you're all
smart enough A, to determine whether what I have to say is
relevant to what you do, and then B, what to do about it. So I haven't tailored my remarks
particularly except for a few things here and
there to the particular concerns that I imagine folks
who work here might have. I don't want to insult
you by doing that. Second is I'm happy to have you
interrupt with questions and comments as I talk. And if it looks like it's
getting out of hand, since I'm a stern teacher, I can just tell
you shut up and save it for the end. So don't hesitate if you want
to raise something now. And as I say, if it looks like
I'm never going to get past my first two slides, then I'll
change the rules. OK? So first, I want to acknowledge
the people I've collaborated with on a
lot of what I'm going to talk to you about. Some of these are students
of mine. Some are colleagues
in various places. Anything you find worthwhile
they had nothing to do with. There is in American society-- not only in American society,
but more here than anywhere else-- what I have come to call
the official syllogism. And this is a set of assumptions
that we have about well-being and about how society
should be organized that runs so deep that I think
we don't realize we make them. And the only time you start to
notice that you make them is when you start to accumulate
evidence that they're wrong. So what is this the official
syllogism? First, we all think that the
more freedom people have, the more welfare they have. How
could you think otherwise? This is a no-brainer. What argument could you even
make to suggest that there's anything wrong with
this assumption? The second thing we think is
that the more choice people have, the more freedom they
have. What does freedom mean if not choice? In fact, for most Americans,
particularly Americans of the educated classes, freedom and
choice are two words for the same thing. To say that people have more
freedom is to say that people have more choice. And so it follows from these two
assumptions that the more choice people have, the more
welfare the have. So as I say, we so deeply believe this to be
true that probably most of us didn't realize that this was
just a set of assumptions, that there are other assumptions
one could make, and that they might even
be empirically false. And I'm going to try to convince
you today that they are empirically false. First, to what extent has modern
life embodied these assumptions and improved
people's lives by giving them choice? This is my supermarket, which is
not an especially big one. The salad dressings, I
should point out-- that doesn't include the 10
extra virgin olive oils and 12 balsamic vinegars that were also
there in case none of the 175 salad dressings
suited you. So those of you know how to do
combinatorial mathematics can compute how many different
homemade salad dressings you can create out of all those
balsamic vinegars. So there's a huge amount of
choices, even choice about how we get our stuff packaged. And I want to give credit
to the cartoon bank-- you're going to see a bunch of
cartoons from The New Yorker so you don't go to sleep. And so I want to acknowledge
The Cartoon Bank, which has generously given me permission
to show some, but not all, of the cartoons that I'm going
to be showing you. So we've always had a choice
in supermarkets. And now we have more choice. How much more? In the United States, there was
a threefold increase in brands on grocery shelves
in the 1990s. The average grocery has upwards
of 30,000 SKUs. And these mega groceries, God
only knows how much they have. So we've always had choice. Now we have more choice. And in the world of consumer
goods, you can tell the same story pretty much everywhere. There was always choice, and
now there's more choice. And one could argue that
this is merely a quantitative change. No big deal. Well, two things about that. One, sometimes quantitative
changes become qualitative if they're big enough. But second, in addition to
having more options than we used to in areas where we always
had options, there are whole new domains of life where
there used to be no options, where now people have
significant options. And I mention this because I
want to give you a sense of what it is that is on
everybody's shoulders as they get up out of bed
every morning. Some of these choices are
inconsequential, and some are extremely consequential. I give you just a
few examples. There are many more. There's probably nobody in this
room except me who's old enough to know that there was
once a time when you could get any kind of phone service you
wanted as long as it was provided by AT&T. There
was a monopoly. There was the phone company. And not only was there the phone
company, but the phone company owned the phone. You rented it. And you know what? It lasted 100 years. It never broke. These days, we get to choose
long-distance service, local service, cell phone service, and
God knows we get to choose a lot of products. These are the cell phones
of the future. The one I like best
is the middle one. It's a phone, an MP3 player, a
nose hair trimmer, and a creme brulee torch. And if you haven't seen this
phone yet, you can be sure that in a week or
two, you will. And what that does is it leads
people to go into their cell phone store and asked
this question. And what's the answer
to this question? Do you have a phone that
doesn't do too much? The answer to this
question is no. The only kind of cell phone I
think you can no longer buy is a cell phone that's
just a phone. I guess this is progress, but
that means that there are a lot of choices we have that
we didn't have before. In the world of health care,
the notion that the doctor told the patient what to do and
the patient did it is a distant memory. Nowadays, the ethic of medical
care in the United States is the doctor and patient
autonomy. And what that means is that
docs give you the options, explain what the cost and
benefits are of the various options, and you choose. Docs propose. Patients dispose. And if you say, but what
do you recommend? A really principled doctor
will say, well, I already told you. These are the pluses and
minuses of surgery. These are the pluses and minuses
of chemotherapy. You have to choose. And if you then say, but
Doc, if you were me, what would you do? The doctor says, but
I'm not you. So an enormous burden is now
on all of our shoulders to make life and death decisions,
typically on the basis of close to no information. And this burden is mostly borne
by women, who take care of themselves, take care of the
kids, and also take care of their husbands. The clearest evidence of how the
world of health care has changed is in the direct
marketing of prescription drugs to people like
you and me. Hundreds of millions of dollars
are spent every year by drug companies selling
products to people who can't buy them. Why would you ever have an ad
for prescription drugs on a network television show? The only explanation is that the
model now is that patients will call the doctor's office
the next morning and insist that they get switched from drug
X to drug Y because they just saw a commercial. And it must also be the
expectation that docs will honor the patients' requests. I don't think companies
just burn money. Physical appearance is a matter
of choice in a way that it didn't used to be. What do I mean by that? What I mean is that there's
essentially no part of your body that can't be altered. And not only is that true, but
it's no longer even something to be ashamed of. People used to have cosmetic
surgery and pretend that they hadn't. And of course, everybody knew
that they had because their faces looked weirdly
constructed. But everyone politely didn't
talk about it. Nowadays, people brag about
their cosmetic surgeries, at least on the two coasts. If you have too much tissue in
one part of your body and not enough in another, you can just
suck it out of the place where you don't want it,
injected it into the place where you do. What's the consequence
of this? The consequence is that how
you look is a matter of choice, which means that if
you're an attractive, it's your fault. Nobody has to play the hand they
were dealt any longer. In the world of work-- I know that this doesn't apply
to the people in this room, but modern technology has made
it possible for each of us to work every minute of every
day, no matter where on earth we are. And what that means is that
whether or not to work is a matter of choice, every
minute of every day. You take your kid to play
soccer, and you're sitting there watching the game, and
you've got your cell phone on one hip and your BlackBerry on
your other hip, and your laptop on your lap. And they're all off. And as you watch this boring
game, you ask yourself, maybe I can return that call, and
answer that email, and draft that letter. And even if you say no to all
of those things, you're thinking about saying yes. You're deliberating about it,
which means that you have a decision to make. And it's a decision that you
have to make basically every 30 seconds. Because the game sure as hell
isn't going to get less boring as you watch it. Just want to go home,
crawl into bed, and do some more work. As I say, I know that this
doesn't apply to anyone in this room. The company pension is
a thing of the past, for a couple of reasons. One is that companies would
much rather that their employees bear the risk
than that they do. But the second is that instead
of having a single financial instrument or a couple of
financial instruments that your pension money goes into,
employers in their benevolence have now offered people
large numbers of options to choose from. You have in many workplaces
a wide array of possible investment vehicles for your
retirement pension. And I'll talk a little
bit later about the consequences of that. Just to show you that
everybody bears some responsibility for this,
institutions like mine have completely abdicated
responsibility for being educational institutions. We have this gigantic list of
courses and basically tell kids, take whatever you want,
often with disastrous consequences. Now, in the world of family, at
least two generations ago, and maybe one and a half
generations ago, nobody ever forced you to get married,
and nobody forced you to have kids. But there was what you might
call it a default assumption that was very powerful
and governed almost everybody's behavior. And the default assumption was
that you get married as soon as you can and you start
having a family as soon as you can. And there was only one
choice to be made. And that was who. The rest was sort of
laid out for you. Those days are certainly gone. Whether or not to marry, whether
to do it soon or do it late, whether or not to have
kids, whether to do that soon or late, none of these things
is taken for granted. There is no default. And what that means is that
young people spend an enormous amount of their time thinking
about things that were non-decisions when
I was their age. There's a lot that's good
about this, but one unfortunate consequence of it is
that they spend a lot less time doing the work
that I give them. And I can't say that
I blame them. These are important things
to figure out. And reading another journal
article is not a life and death thing, whereas making the
wrong decision about your romantic life might be. So they just were willing
not to do all the work and get bad grades. So I just kept assigning
less and less work. Unfortunately, it hasn't helped
them make any wiser romantic decisions. Even your identity has become
a matter of choice in a way that it wasn't years ago in the
sense that, even though you probably inherit an identity
from your family, your community, and so
on, it's changeable. You can reinvent yourself
on a regular basis. One is encouraged to do that. Who I want to be today? There's this company in Seattle
that had a slogan about, Where do You
Want to Go Today? Micro something. This is, who I want
to be today? It's just as applicable. You've got to admit, these
cartoons are good, right? So in every corner of our lives
as Americans, the world we used to live in looked
kind of like this. And the world we now live
in looks like this. And the question is, is this
good news or bad news? And the answer, as I'm sure
you can tell, is yes. Now, I want to be absolutely
clear about this. Though it never helps to say
this, I will say it. Choice and freedom are good. Almost all of the things that
I have just run down for you represent real improvements in
the human possibilities, in the opportunity for people to
be autonomous and in control of their lives. And all of that is good. OK, I said it. Remember that I said it. Everyone knows that. The thing that people have not
been mindful of is that it is also bad, bad in various ways
that I'm about to describe. That is to say, there is a
dark side to all of this freedom of choice, which
has been up until now completely ignored. And all the rest of this talk
is going to be black, black, black, black, all the things
that make everybody miserable. But remember that I know just
as you do that choice is a wonderful thing. Just not as wonderful
as we thought. So there was a survey
done in Europe. And the stem of the sentence
was, "There is currently more choice than I need," and then
they asked people about various different aspects
of consumer goods. And the results they
got were this. With respect to clothing-- this is the percentage of people
who agreed that there is currently more choice
than they need. Washing machines. Savings accounts. Utilities. Cars. Cleaning products. And cell phones. There were no items on the
list where less than a majority of people agreed that
there was more choice than they needed. So with respect to everything,
people thought there was more choice than they needed. They just differed from one item
to another on how much they agreed there was more
choice than they needed. So there seems to be a coming
together, a consensus, that people have more decisions to
make than it's worth their time and trouble to be making. And I think there are three
different effects that too much choice has. And I'm going to talk
about each of them. One effect of having
too much choice is that it produces paralysis. There are so many options to
consider that you end up choosing none. The first demonstration of this
was at this fancy food store in Palo Alto, the name
of which I've forgotten. Whenever they get a new product,
they'll put it on a table so that people
can sample it. So the experimenters got them
to cooperate in this store. And they put out 24 different
flavors of an imported jam. and anyone who stopped by could
sample as many different flavors as they wanted. And if they did, they got a
coupon that would give them $1 off on any jam they bought. A few days later, they set up
the table with six different flavors of the same jam. And if you stop and tasted,
you'd get a coupon that would get you $1 off. And what the experimenters found
is that more people came to the table when there
were 24 jams than when there were six. It was more inviting. It was more exciting. It was more interesting. One tenth as many people
bought jam. One tenth as many people
bought jam. OK, now, they found the same
thing with writing extra credit essays. Because of the connection
between this company and Stanford, I just thought
I should mention this. In a social psych course, if you
wrote an essay, you could get extra credit toward
your grade. And what was nice about this
is that the credit was independent of the quality of
what you wrote, which could only happen at Stanford. So one class, the kids got 30
different essay topics to choose from. In another class,
they got six. And the investigators looked
to see how many people actually wrote essays. Fewer people wrote essays when
they had 30 topics to choose from than when they had six
topics to choose from. And I think it's the same
as with the jam. Which flavor jam should I buy? They're all attractive. This is novel. This is distinctive. This I know I like. Ah, I'll buy peanut butter. Same thing happens
with the essays. All these interesting topics. I don't know which
one to choose. So I end up doing calculus
homework instead. Speed dating. You know what speed dating is? Of course you do. If not here, where? So they set up two speed
dating evenings. And in one evening, people
had 12 dates. And in another one,
they had six. And the question was, how
many matches get made? And the answer is, more matches
are made when you have six dates that when
you have 12. See more people, have more
choices, make fewer selections. And finally, to raise the
stakes quite a lot, the researchers got access, thanks
to the cooperation of Vanguard and about 1,500 employers, to
the investment records of a million employees working,
as I say, at 1,500 different companies. And what they were interested
in was this. How does the number of mutual
funds that the employer makes available affect the rate at
which employees participate? So one company offers three
funds, one 10, one 30, one 100, one 300. Does that matter? The answer is yes. How does it matter? For every 10 funds the employer
makes available, participation goes down 2%. The more funds you offer,
the lower the rate of participation. Understand that in most
of these cases-- not all, but most-- not participating meant passing
up a significant amount of money from the
employer, matching money. It was like you were taking a
match and lighting it to a $5,000 bill because you didn't
know which fund to put your retirement money into. Now, this is an extremely
consequential finding, since Americans save nothing and
everybody's going to be eating dog food in 30 years, when
they retire with no money in the bank. And what makes it especially
significant is that if you were a benevolent employer and
you were concerned that your employees weren't putting enough
money away for their retirement, and you went to
an investment adviser, any investment adviser, and said,
listen, what can I do to get my employees to save more? Every single one of them would
have told you the same thing. Give them more choice. Then everyone will find just the
right fund with the right amount of risk and safety and
so on to satisfy their particular needs and tastes. Give them more choice, the
worst possible advice. So this is the first effect
of too much choice. It produces paralysis. There's a little bit of research
in real life on reducing assortment
in groceries. For some reason, all the
research that's been done in real life settings has been
done with supermarkets. What happens when you reduce the
amount of selection in a grocery is that the strong
brands gain market share, the higher priced brands gain market
share, store brands lose market share. And by and large shoppers are
not influenced by how many different kinds of things
are on the shelves. They're just influenced by how
much stuff is on the shelves. So as long as you keep the
amount of stuff on the shelves bountiful, there will be no
perception on the part of shoppers that you have
reduced choice. However, they will buy more and
they'll be more satisfied. They won't feel like you've take
anything away from them. They will buy more, and they'll
be happier with the experience. Overall sales go up, though
only marginally, when you reduce variety. AUDIENCE: But store brands
lose [UNINTELLIGIBLE]? BARRY SCHWARTZ: Store
brands lose-- well, statistically
reliable, yeah. I suppose this is probably
a compliment to higher priced brands. Higher priced brands gain. AUDIENCE: But it seems
to imply that this isn't going to change. It seems to imply this is not
going to change because it's not in the store's interest. BARRY SCHWARTZ: It's not in
the store's interest to change, because it wants you to
buy its brand, because it's got a better markup. That may be true. But but also, there are only
a handful of studies. And we don't know whether
this is inevitable. This is what's been found, but
if you engineered things, you might be able to get the
benefits of reduced selection without paying that
particular price. For example, Trader Joe's
is the fastest growing supermarket chain the
United States. And everything there is store
brand, pretty much. So it's not inevitable. There are two caveats to this
choice paralysis thing that are worth mentioning. One is what's known as
preference articulation. If you know exactly what you're
looking for, more choice is better. Because the more options there
are, the more likely it is that you'll be able to find
exactly what you want. So he calls this preference
articulation. And the model here is before you
look at anything, you sit down and you say, what
do I want in a car? And you list all the things
you care about in a car. And then you go out in the world
to do a pattern match and find and find it. How often do people make
choices like this? My estimate is never. At least for anything more complicated than, say, raisins. Instead, what happens is you
kind of get a rough idea of what you care about in a car. It's got to be safe. It's got to be fuel efficient. And after that, you let the
market help you figure out what else you care about. So you go shopping trying
to answer two questions. One, what do I care in a car? Two, which one of these things
has what I care about? And under those conditions,
choice paralysis is a likely result. However, it's useful advice to
you personally to sit down and figure out exactly why you're
buying whatever it is you're buying before you look at
any of the alternatives. I know that no one
will do that. It's way to hard. Second, if the different options
are alignable, meaning that can all be scaled on the
same dimension, then again, more options are better
than fewer. So if you're going to Kentucky
Fried Chicken-- I bet nobody eats that crap. If you're going to buy Kentucky
Fried Chicken or some equivalent and it turns out that
they now offer you a one box, a two box, a three box, a
four box, a five box, an eight box, any size portion you want,
the more different sized portions they offer, the
happier you are. Everyone will be able to
get exactly the number of pieces they want. And that's the only respect in
which these different options differ is the size of the box. So if you're talking about
choices that are like this, more is better. More options are better
than fewer. Again, how often are
these the kind of choices people are making? I would say close to never. It's almost always involves
multiple dimensions. It involves making tradeoffs. And under those conditions,
you can boggle the mind by giving people too much choice. Second, if you overcome
paralysis and choose, the second effect that too much
choice has is it induces you to make worse decisions. In the dating case,
the speed dating case, here's what happens. You ask people in advance, what
do you care about in a romantic partner? And they tell you all
of the right things. I want somebody who's smart,
interesting, makes me laugh, kind, understanding, thoughtful,
sensitive, empathic, and really hot. OK. now comes the dating
experience. Now evaluating how smart, how
kind, how empathic, how funny, how all of those things 12
different people are is hard. So what do people do? They use a simplifying
strategy. And they end up choosing
entirely on the basis of how hot. Then they wake up the next
morning and they go, what was I thinking? So they adopt a strategy that
makes the decision makeable, a simplifying strategy. But the problem is that the
criteria that are simple aren't the ones that
really matter. So they will consistently make
bad decisions just because the world has forced them to adopt a
strategy that simplifies the information assessment task. In the case of the 401(k),
people who knew that it was stupid beyond words not
to participate-- I have to participate. My employer is giving
me $5,000. I have to do something. What do they do? For every 10 mutual funds you
offer, the number of people who put their money into
a money market account goes up 7%. So they make the worst
possible investment. Because they know they have to
do something, but they don't know which thing. So they say, ah, I'll just put
it in the bank and tomorrow I'll figure out what mutual
fund to invest in. They get 3/4 of a percent, 1/2
percent interest. You could take a dart and throw it at
the set of mutual fund opportunities, and any of
them would be better than what they choose. It's a nice simplifying
strategy, but it's clearly not the right decision. OK. But mostly I want to focus on
the third effect that too much choice has. If you manage to overcome
paralysis, and if you manage to make a good decision, what
happens to the satisfaction you get out of making
good decisions? And I want to focus on this
because this is I think in some ways the most surprising
aspect of the problem and perhaps the most significant. People may do better objectively
when they have a lot of options to choose from
as opposed to a few. However, they will feel worse. Doing better and feeling worse
is the song I'm going to be singing to you for the
next long time. So-- they don't quite say this, but
this is what they're thinking. If you can't see the captions,
"They never should have allowed us to be free range." OK. Now, why does this happen? I didn't know exactly where
to fit this in, so I put it in here. It doesn't quite fit, but it
ought to be relevant to you. A study was recently done. What it shows us is that people
don't know their own minds very well. This will come as a shock
to you, I'm sure. This was a study where
people got to rate digital CD players. So it was all software. And people got-- one CD player had 7 features,
one had 14, and one had 21. And people got to-- first they
were asked which of them they would prefer. And the majority of people said
they would prefer the CD player that had 21 features. That is to say, they're
interested in choosing something that has enormous
capability. Now, you let them construct
their own CD player by giving them a list of the 21 different
features that are available, and you see how
many of them they pick. They pick only 19 of the 21. I want my CD player to
have these particular 19 customized features. Now, in the third experiment,
you actually let people use the CD player with 21 features
for a while. Give them a manual. Let them play with it. And now you have them choose
between that and a CD player that has seven features. And now they choose
the simpler one. So there's a tradeoff between
capability and usability. As far as I know, no one has
figured out how to achieve maximum capability and maximum
usability in the same device. There's a tradeoff. In prospect, capability
seems way more important than usability. In practice, the reverse
is true. What's weird about this, though,
is that it's not like the people in the study haven't
already learned this. They probably have closets
full of devices that they never use because they couldn't
figure out how to get it to do the simple things
because it was able to do all these complicated things. They have taught themselves
again, and again, and again that usability is more important
than capability. Nonetheless, when the next
device it appears, it seems that they're driven by capability rather than usability. So people are not likely to get
this right on their own. And I mention this because it
seems to me that you are in perhaps a unique position in
knowing this to help to protect people from themselves,
which is what I'm going to recommend to
you at the end. So why is it that all this
choice makes people miserable? There are four different
things, four different reasons. The first is regret. You choose something,
and it's good. Is it perfect? Nothing's perfect. But it's good. Yeah? AUDIENCE: [INAUDIBLE] slide, capability versus
usability. I was just thinking, isn't
capability aspirational? So you choose something that
has many more features than you're capable of using now
because you think, I could get to be that proficient. Whereas usability is marked by
what's available to me now. But tomorrow is a new day. BARRY SCHWARTZ: It's true. You're absolutely right. Capability is both a prediction
about what you'll want the device to do and a
prediction about what you'll be able to get the
device to do. But experience teaches most
people-- not all people-- that they will never, either
for reasons of talent, or temperament, or time-- they will never be able to get
the device to do all the wonderful things it can do. And that doesn't seem to stop
them from choosing exactly that kind of device the
next time around. And it's not like these
choices are free. Because when you choose a device
that's got a lot of capability, invariably the easy
things are harder to do. So, plug and play? Right. So the result is that you end
up getting even less out of the highly capable device than
you would out of a less capable device where it was
transparent how to get to do the things you cared about. So, yes. It may be aspirational. But the question is, why don't
people learn from their failed aspirational efforts in the past
to adopt a different set of standards about what they
should be looking for? And people are endlessly
optimistic. Tomorrow is the first day
of the rest of my life. Could be that. So regret. Any choice it's not perfect,
it's easy to imagine alternative would have
been better. And the more alternatives there
are, the easier it is to imagine that an alternative
would have been better. If there are only two different
kinds of cereal to choose from, how much can you
regret the one you chose? If there are 200, well now, only
an idiot could think that you've actually stumbled
onto the best cereal. So what regret is going to do
is it's going to reduce the satisfaction you get out
of good choices. What anticipated regret does is
it prevents you from making choices at all. You're so sure you're going to
regret the decision that you don't make it. This I'm sure is a lot of why
people don't put money into their 401(k)s. Some other fund will outperform
the one they choose and they'll spend the rest
of their lives kicking themselves. The specter of regret, I think,
makes even unimportant decisions loom large. And lastly, for all eternity,
French, blue cheese, or ranch? For one salad, it really doesn't
matter what dressing you have. But if I tell you
you're going to pick the salad dressing that you're going to
have from now until the end of time, you really want
to get that right. And I think that the specter
that people will regret their decisions is really what's
driving the agony that people have making even inconsequential
choices. Second, related to regret,
what economists call opportunity costs. And that is, once again,
you make a choice. But the thing you choose is not
the best in all respects. You get great gas mileage and
real safety and reliability, but the ride isn't as smooth
as you might like. Or you get a really smooth ride,
and everybody stops and looks at your car
as you drive by. But the mileage sucks and the
thing's in the shop every three days. So life is tradeoffs. The more options you look at,
the more options there are, the more options you look at,
the more you will identify attractive features and options
that you reject. And so you might well choose the
thing that is the best for you but still be unhappy about
all these attractive features of other options that
you had to pass up. And all these opportunity
costs add. And what they do cumulatively
is subtract from the satisfaction you get out of the
decision you made, even if you make the right decision. So there's a lot to say about
opportunity costs. Parents aren't told enough
about this when they are prospective parents. We found we really missed
going to the theater and eating at nice restaurants,
so we gave our kids away. Then there's this one. People don't need to have this
explained, even though they don't come from New York. But the thing to think about--
here's are these people living in a midtown apartment house. And they have a place
in the Hamptons. And there they are sitting on
the beach, have the beach themselves, it's gorgeous,
it's August. What could be better? Life is perfect. And all this guy is thinking is
that it's August. Everyone in our neighborhood is
away on vacation. I could be parking right
in front of my house. And every day he sits on the
beach, and instead of being thankful for the beautiful
weather and the beautiful setting, all he is is pissed off
about the parking spaces he's blowing. And that's going to make his
vacation a lot less enjoyable than it would have been if he
hadn't had to pass up great parking spaces. One last example. There is no caption
on this one. I think a caption is
quite unnecessary. Just to show that this is not
just a fiction of New Yorker cartoonists' imagination,
here's a study. People participate
in an experiment. And then when they're done, you
offer them $2 as a token of appreciation for their
participating. Or you say, we have these nice
pens with the school logo that are available the bookstore
for about $2.50. And if you'd rather,
you can have a pen. And under these conditions, 75%
of people choose the pen over the $2. In another condition, you offer
them $2, or that same good pen, or two less
expensive pens. Now the question is what
percentage of people in this condition will choose either
of the pen options. And the answer, as should
be obvious to you, has to be at least 75%. Right? 75% of people prefer
the good pen to $2. How can fewer than 75%
of people prefer either pen to $2? But then you're saying to
yourself, why would he be talking to you about
this trivial study? And the answer is that 45%
choose either pen. And this really captures
in a nutshell what opportunity costs do. You're looking at
the good pen. And it's a good pen. It's nice to have a good pen. But you're giving up the
opportunity to have two pens. And that makes a good
pen feel less good. So you look at the two pens. And that'll take care of all the
writing have to do for the whole semester. But once in your life,
it would be nice to write with a good pen. And that makes the two
pens less good. So the thing you're passing up
with the alternative subtracts from the satisfaction
you'd get from whichever one you choose. And suddenly, neither of the
pens is as good as $2. So you take the $2. This in a nutshell is what life
is like when people are choosing from among a large
set of attractive alternatives. The thing you end up choosing is
never going to feel as good as it would have if the choice
set were smaller. Another way of saying this is
that everything suffers from comparison. There's a nice little study-- I don't have time to get--
there's a theoretical rationale for this that derives
from a theory that Daniel Kahneman and Amos Tversky
developed known as prospect theory. Some of you may have sort
of encountered it in one place or another. Tversky was a psychologist at
Stanford who sadly died about a decade ago of a brain tumor. And Kahneman just recently won
the Nobel Prize for this work. Anyway, there's a theoretical
rationale for this. But the result is simply this. You ask one set of people in
the San Francisco area, how much would you pay for
a plane ticket for a weekend in Las Vegas? How much would you be willing
to pay to fly for a long weekend in Las Vegas? And people give you a number. Other group of people, you say,
you know, you're thinking about going away to Seattle,
to LA, and to Las Vegas. How much would you pay for a
plane ticket to Las Vegas? So you're asking them
the same question. But in one case, you are forcing
them explicitly to think about the value of going
to Las Vegas in comparison with the alternatives. And people are willing to pay
significantly less money in the latter case than
in the former. And this is true whether it's
Las Vegas or LA or Seattle. Doesn't matter which one
you're asking about. People will pay less for a
ticket anyplace when they're evaluating it in a larger set
than when they're evaluating it by itself. OK. One other thing about
opportunity cost that might surprise you. Is there anyone in this room
who's pressed for time? No? Oh, you are treated really,
really well. So why do you think people feel
so much time pressure? Mostly people assume-- I assume-- that it's the pressure to get
the things done that you have to get done. We all have a very long to-do
list. We never get to the bottom of it. And that's why we feel
rushed for time. So people did a study in which
some people were asked to list all the things they had to do. And other people were asked to
list all the things they'd like to do. And then they were asked a bunch
of questions having to do with time pressure. And guess which group felt
more time pressure? Not the group with
a list of chores. The group with the list of
desirable activities. What really seems to create a
sense that there's not enough time is all of the things we
want to do and like to do that we don't have time to do and
that we're going to have to make choices among that create
the sense that there's not enough time in life for me to be
the person I want to be and do the things I want to do. OK, third. I don't want to talk
about that. The third reason why we do well
and feel crappy is that when there are a lot of options,
it's inevitable that our expectations about
how good the chosen option will be go up. The story I use to make this
point is when I went to replace my jeans at The Gap. And for years and years
I'd buy jeans. And they came in one style,
and I bought them. And they fit however
they fit, which was usually not very well. And you'd sort of break them
in and wear them forever because it was so unpleasant
to break them in. So I go to replace my jeans. And I give them the size. And I get asked, you want slim
fit, easy fit, relaxed buttons fly, zipper fly, stone washed,
acid wash, boot cut? On and on it goes. So I tried on every damn
kind of jeans they had. And I walked out with the best
fitting jeans I had ever had, honest, and I felt worse. I did better, and
I felt worse. And the question was why. And the answer was, when they
only came in one style or two, I had no expectations about
how well they would fit. When they came in 20 styles,
I expected perfection. And what I got was good, but
it wasn't perfection. We evaluate our experiences in
large part by comparing them to what we expect them to be. And if our expectations are
high, even good experiences will end up feeling like
we have failed. And there's no way I can imagine
that adding options in people's lives will do anything
other than raise people's expectations. Plus the world does
this to us. Travel agents. Contractors. Would be possible for you to
totally exaggerate how much it will cost and how long it will
take so we'll be pleasantly surprised in the end? Everything was better back when
everything was worse. The truth in this is that when
everything was worse, people's expectations were lower so
that it was possible occasionally to have an
experience that exceeded expectations. In modern American society, at
least among the affluent, I don't think it's possible for
anything to happen that's better than we expect
it to be. Because we expect everything
to be perfect. And that's a recipe for at least
disappointment, if not abject misery. And all this choice
is one reason why. This is an exaggeration,
but it's funny. We tend to romanticize
poverty. Just to let you know, in case
you care, that this is false. People are not happy
in stinking hell holes of abject poverty. What is true is that once you
cross subsistence, whatever subsistence is in your society,
additional increases in wealth have virtually no
effect on well-being. There's a huge, steep curve
going from zero to subsistence, but once you cross
that line, the curve flattens out. It's worth knowing in case you
have a choice between X and making more money. Almost certainly X is what
you should choose. Self-blame. The last thing that does us in
is that you make a choice. And it's a good choice, but it's
not as good as you think it will be, or hope it will
be, or expect it to be. And the question is why. What went wrong? Whose fault is it? And when you're choosing jeans
from two different styles, the answer to the question what
went wrong is obvious. It's the world's fault. They only make them in a
couple of varieties. What could I do? Did the best I could. But if you're choosing from 200
styles, and the result is unsatisfactory, and you
ask the question, whose fault is it? It seems to me now the answer
is again obvious. It's just different. Now the answer is
it's my fault. With 200 options, there's no
excuse for anything less than perfection. So not only do people have
ridiculously high expectations which are almost never met, but
then when they aren't met, they attribute the
responsibility for that failure to themselves. And self-blame I think is a
critical component of why we are experiencing an epidemic of
clinical depression in the United States. At a time when we've never
been richer or had more freedom of choice,
people seem to be getting sadder and sadder. There's one modifier I
want to add, because I think it's important. And that is that the problem of
having too much choice is enormously exacerbated, made
worse, if you're the kind of person who thinks that the aim
in a decision is to get the best, what we call maximizing. The best job, the best cell
phone, the best car, the best vacation, the best restaurant,
the best dish in the restaurant. You're out to find the best. The alternative is
to be out to find something that's good enough. And good enough can
be very good. You can have high standards. Why does this make
a difference? Well, in a world with unlimited
choice, how do you know you've got the best? You have to examine all
the possibilities. Well, you can't examine
all the possibilities. There are too many of them. So you examine a bunch,
and then you choose. And if it's in any way
disappointing relative to expectations, you'll just be
convinced that looking a little longer or in a little
different place you'd have done better. If you're out to get a good
enough alternative, satisfice, then you don't need to examine
all the possibilities. You just examine them
one at a time. And when you find one that
meets your standards, you choose it, and you
don't look back. So the difference between these
two decision-making styles is probably significant
in general. But it becomes especially
significant in a world where there are essentially
unlimited options. This is an example
of a maximizer. And here is a satisficer. And I studied, whether this
matters, with a bunch of college seniors who
were looking for jobs a few years ago. We started tracking them in
October of their senior year. And we stayed with
them until June. And we were interested in how
hard they found the decision, how many options they wanted,
how well they did, and how they felt about how
well they did. And what we found in
a nutshell is this. If you are a maximizer, if you
are out to get the best, you get a job with a starting salary
that is 25% higher than if you are satisfied
with good enough. Maximizers get better jobs. $7,500 difference,
25% difference. That's a lot for a starting
salary right out of college. But they are also more
pessimistic, anxious, stressed, worried, tired,
overwhelmed, depressed, regretful, and disappointed. And they are less content,
optimistic, elated, excited, and happy. In other words, they do better
and they feel worse. Now, we don't know how they feel
when they're actually on the job, because the study
stopped before they had actually started working. But I have no reason to think
it would be true of their experience on the job as it is
of their experience of a starting salary. So how can it be that choice
is good and bad? Because remember, I said
choice is good. Here's how. These people, Coombs and Avrunin
wrote an article 30 years ago in which they argued
not about choice, about something else, that good
feelings, good things satiate and bad feelings escalate. So you're eating a meal. And you're starving
when you start. And the first few bites
are spectacular. You keep eating. It's still delicious, but with
each succeeding bite, it gets a little bit less delicious
and a little bit less delicious, until you're no are
getting much of a hedonic kick out of your meal. Meanwhile, something
else is happening. And that is you're starting
to get full. First it's just mild,
hardly noticeable. By the time you get to your
third course, you're really kind of sagging. But your grandmother told you
that people are starving in Africa, so you have to finish
everything on your plate. So you just keep eating,
and eating, and eating. The pleasure is gone. The discomfort is getting worse,
and worse, and worse. So this is exactly the way
I envision choice. When you go from having no
choice, like being really starving, to having some
choice, it's all good. And a curve going up is the way
I imagine what the dynamic is of the good characteristics
of choices. So along the X-axis is
number of choices. Along the Y-axis is
subjective state. The line in the middle
is neutral. So having no choice, you
feel infinitely bad. As I give you choice, there's
a huge improvement in your well-being. But eventually that curve
levels off and there are diminishing marginal returns
to additional options. And eventually there are no
returns to additional options. It's flat. Meanwhile, all the stuff that
I've been describing to you-- opportunity cost, regret,
raised expectations, self-blame-- all of that gets bigger, and
bigger, and bigger as the number of choices increases. And all of that is negative. And that's what this curve
is that starts out at zero and goes down. And so how do you feel about
your life with any given number of choices is simply
the algebraic sum of those two processes. With me? And that's what it looks. Why does it look like this? Because I drew it. So I can make it look
any damn way I want. But this conceptually captures
what I think is going on. A point is reached where there
are no longer benefits to additional options and there
are very significant costs, very significant subjective
psychological costs, and the costs can more than outweigh
the benefits. So you end up feeling
worse than neutral. Not simply worse than you
would if you had fewer options, but actually
worse than neutral. And that's the state I think
many, many people in American society are in. There's a deep point in that
curve which all almost all of social science ignores. And that is what we call the
monotonicity assumption. So people do research assume
that the function relating X and Y goes in one direction. Doesn't have to be a straight
line, but it doesn't change direction. So you have one group that has
no choice, and one group has a choice between two options. That group is happier than the
group that has no choice. You don't need to study
three options. Because we know what that's
going to look like. Just keep on extrapolating
the curve out. Now, I say this only because
there were 50 years worth of studies comparing no options to
two options, and it never occurred to anyone to look
at five or ten options. Because we knew what
it would look like. And we just knew the
wrong thing. Because the relation
between choice and satisfaction is not monotonic. It changes direction
at some point. Second principle that's worth
paying attention to is what I call the leakage principle,
a very elegant name, you'll agree. And that is the context in which
you make the decision will continue to exert its
influence after the decision is made and you're actually
experiencing the thing you've chosen. So the anguish you go through
in choosing a car, or a job, or a spouse, or a restaurant
doesn't stop when the choice is over. It's not like, OK, I've now
got this car, and I'm just going to evaluate it on
its own terms. No. The the comparisons that you
were making while making the decision will continue to
influence you as you experience the car. And the result is that
you will like it less than you should. You will underappreciate it if
you have tortured yourself in making the selection. This raises an interesting point
that I think is directly relevant to the work
you people do. And this is what economists
refer to as the principal-agent distinction. Principals are the people
who are going to experience the good. Agents are the people
who get it for them. So we have financial advisers to
tell us what stocks to buy, insurance agents to tell us what
insurance to get, real estate agents to tells what
house to buy, and so on. We are hiring their expertise. And that's why we think
we're doing it. We're also hiring
something else. And that is, if you have an
agent choosing your house, your car, and your insurance,
you don't have to make the comparisons. And what that means is that you
won't suffer all of the effects of all of
these choices. Because you only get
to see the result. Your agent says, buy
a Honda Civic, so you buy a Honda Civic. Your agent says, buy this $6.3
million house up on the hill. It's a steal. For all I know in this
neighborhood, that would be a steal. So the agent is the one who
suffering making all of these comparisons, except it's not
really suffering because the agent isn't going to experience whatever gets chosen. You are separating the choice
from the experience. And as a result, you're making
the person who was having the experience more satisfied than
he or she would otherwise be. And the thing I want to
emphasize is that this is true even if your agent doesn't know
one bit more about the thing than you do. The doesn't need to be an expert
in order for you to benefit from the advice that
the agent gives you. All the agent needs to do is
not be a complete moron and actually be interested in
making you better off. And you will be better off
because you don't torture yourself over the decision. All that's done by
somebody else. One view of what search engines
can do or might do for people is that they act as
agents, presenting results, hiding all of the tortured
comparisons that must be made in order to prioritize
results so you only get to see the winner. And the result is that you
appreciate the winner much more than you would if
you had to do all those comparisons yourself. Almost done. This is just to show
you that there are companies that know this. They have limited selection,
and they do very well. Costco-- do they have
Costcos out here? It started in Seattle, right? Costco is the store that people
leave with the biggest smiles on their faces. That's the store people like
to shop in most. Limited selection, good prices. And the little surprise things
that they have for sale, these little affordable luxuries
that they don't normally carry. Greek diners in New York City. So Greek diners-- it's not like they
have Greek food. They're just owned
by Greek people. And their menus are
about 1,000 pages. There is no dish that anyone has
ever eaten that isn't in somewhere on those menus. And tucked in the front cover of
the menu is a little piece of paper clipped to the front
of the menu with today's specials, four or five items. Two things to know about
today's specials. One, they are the highest margin
items. Two, they're the same every day. Inadvertently, you create an
insoluble problem by giving people 10,000 things
to choose from. And then you solve it
for them by giving them today's specials. And people are driven to choose,
take your advice, take your recommendation, and choose
today's specials. So they make a lot more money
than they otherwise would. And they solve your choice
problem, which of course they've created. OK, last substantive slide. And then I'll say just a word
or two about how this might relate to you guys. The more choices are available
for people, the more likely it is that people will choose
nothing, that they will be paralyzed. What do you do in the face
of that paralysis? Paralysis can be extremely
costly. Sometimes you really
should act. Richard Thaler, an economist,
and Cass Sunstein, a professor of law at the University of
Chicago, have actually offered a guide for public policy which
they call libertarian paternalism. And the title of their paper is
"Libertarian Paternalism is Not an Oxymoron," although
it would seem to be. And here's their argument. I'll give it to you
with examples. Let's choose this one. In the United States, when you
renew your driver's license, you get asked, would you like
to be an organ donor? 28% of American licensed drivers
are organ donors. 85% five percent of Americans
think organ donation is a good thing. 28% of licensed drivers
are organ donors. Several different European
countries, they do the same thing. When you renew your driver's
license, you get the opportunity to be
an organ donor. And in these countries,
90% of licensed drivers are organ donors. 28% in the US, 90% in these
European countries. What's the difference? Europeans are nicer
than Americans? I don't think so. Opt-in versus opt-out. In Europe, you're an organ
donor unless you say no. In the United States, you're
not an organ donor unless you say yes. Now, understand that either
way, all you have to do is check a box and sign a form. This is not exactly
rocket science. Nonetheless, with the high
likelihood that people will do nothing, Thaler and Sunstein
argue, organize options so that if people do nothing,
they get what is almost certainly in their interests. That's the paternalistic part. The libertarian part is
you do give them the opportunity to say no. With respect to 401(k)
participation, same story. Almost every workplace the
United States, you have to sign a form that says, withhold
5% of my pay and put it into something. And if you don't, nothing
is withheld. Suppose you reverse that and
the form says, don't deduct 5% of my pay. I want everybody bloody
penny of it. You dramatically increase
the rate of participation in 401(k)s. And we have good reason
to believe that this paternalistic manipulation
of what the default is is actually doing what
people want. Because, as I say,
85% of Americans support organ donation. And virtually everybody ends up participating in the 401(k). So all you're doing is inducing
them to do it a little bit sooner. So in a world in which people
are more and more likely, because of the overwhelming
number of choices they face and the complexity of life, to
do nothing, the most useful thing that policy can do is
organize the space so that when they do nothing,
good things happen. [INAUDIBLE] It will have as big an effect on
the character of a variety of American social institutions,
bigger effect anything else I can think of. And it's free. Essentially free. So it is worth thinking long
and hard about what the defaults should be so that
people are mostly satisfied with what happens to them if
they don't do anything. SPEAKER 1: Let's have
you keep going and-- [INTERPOSING VOICES] BARRY SCHWARTZ: I already
said this. I think the capability/usability
problem is relevant to you. But you know better than I
how you face it and how you would solve it. I must say I like a lot
that you give people-- what do you call it? Packets? Pack? AUDIENCE: Pack. BARRY SCHWARTZ: Instead of
letting people choose one from column A and two from column
B, you to say-- If I were you, I'd say
it a lot harder-- I'd say, listen. This is what we think you
should have. Click and you've got it. Instead of just saying,
you can have it all if you want it. Urge people to want it. We know more than you do. This is what you should have. Structure our options
hierarchically. A way of reducing the choice
paralysis is to give people a choice among four
or five options. And then once they've-- create trees. Great trees intelligently so
that people never have to go back up the tree, realizing
that they've gone down the wrong branch. I know this isn't easy. But this is going to be a lot
more satisfying and usable for people than presenting 125
options all at once. And is worth paying a lot of
attention to how people use your products to know just
how these trees should be structured so that you never
feel like you're choosing among a very large
set of options. I get the feeling that there's
nothing I can say that you haven't really thought about
in this connection. But what the hell. I'll say it anyway. I believe that for the most
part, you people are part of the solution rather than part
of the problem, to pull a slogan from the '60s out
of my back pocket. And that's something that you
should be very pleased about. And I'm certainly thrilled to
death that you exist. Because you're certainly part of the
solution and not part of the problem in my world. Although there is one thing I'd
like you to fix that we can talk about later. But I don't think
there's anything inevitable about this. I think that you remain part
of the solution rather than becoming part of the problem
only if you are deliberately and self-consciously trying to
be part of the solution. There's enormous pressure to
move in other directions, where you will confuse, muddle,
and frustrate people rather than serving them. And with your eye clearly on
the prize and on how much people need to be guided by the
kind of information you offer, you can resist the
pressure that you may experience some day in the
future to be something different than what
you set out to be. So thank you very much.