Having to choose from a myriad of options can lead to a state called ‘analysis paralysis’, where you end up not being able to make a choice at all. This inertia can lead you to shelving your plans, or you may turn to the most-marketed product without much insight into its benefits. Either way, your choices will impact your financial wellness journey.
This is why it’s important to deal with choice overload using scientifically valid strategies. Here are some strategies that will help you to cut through the noise and make the right choice.
The first strategy is to keep it simple by creating a decision rule. This is a sound method to use when you may have to choose between options with multiple attributes. To give you an example, when choosing between savings accounts with multiple attributes such as fees, interest rates, withdrawals and balances, the decision rule will help you cull from the list of possibilities. For instance, if you prefer only two types of accounts, the list instantly becomes smaller. You can then refine your choice based on other attributes, until you end up with the option that works for you.
But this approach may not work all the time, leaving you with no option but to depend on someone who can help you simplify your choices. On the other hand, it helps to ask an advisor for only the top choices instead of all the available options.
Besides important financial decisions, the decision rule extends to everyday choices, such as budgeting, expense management and more. Such rules make it easier to deal with small financial decisions on a daily basis. Removing the simpler decisions gives you space to evaluate, compare, weigh risks and take better decisions in your financial planning, especially when it comes to investing in complicated products.
Satisficing is a decision-making strategy that aims for a satisfactory or “good enough” solution rather than the optimal one. The term combines “satisfy” and “suffice” and was introduced by economist and psychologist Herbert A. Simon in the mid-20th Century. This approach recognizes that individuals often face limitations such as time, information, or cognitive resources, making it impossible to evaluate every possible option. In situations like this, when a “satisfactory” decision meets your objectives, it’s more prudent to go ahead than wait for the optimal or the best solution.
Scientific studies show that people are ultimately happier with ‘satisficing’ choices as opposed to ‘maximising’ which is complex and you may end up losing opportunities and valuable time.
The financial decisions you make can often have long-term impact. So you must choose wisely. Decisions on large allocation of funds such as mortgages and retirement are prime examples. Such decisions need to be backed by insights, advice and research, and involve some level of expertise for you to make the right choice.
Another strategy to use is ‘set and forget’ where you set up default spending or timed instructions for transfers and reduce the number of decisions you need to take on a regular basis. When you begin your investment journey, you may want to choose this strategy so that you are not tempted revise strategies mid-way, or relook at stocks or other investments, incurring transaction charges. This helps secure your profits over a longer period of time.
Investment strategies and financial decisions are tough considerations and may require research before you embark on this journey. Reviewing numerous options of products add to the stress of finding the right product and may not be desirable. So, before you reach choice overload, you may want to make use of these strategies to reduce complexity and make the best decisions for yourself.