Dr Sheena Iyen­gar, so­cial psy­chol­o­gist and pro­fes­sor at Columbia Busi­ness School, stud­ies how peo­ple make choices. And, as it turns out, the art of mak­ing de­ci­sions can shape ev­ery­thing from what jam we pur­chase to how we make an in­vest­ment or even save f

The Peak (Hong Kong) - - Portfolio • Investments - STORY ANNA CUM­MINS

You en­ter a glitzy casino, feel­ing good about your odds and ready to gam­ble. Be­fore you, there are two gam­ing ta­bles: one has a sin­gle roulette wheel and the other has two. Which ta­ble draws your at­ten­tion? Where do you start lay­ing your bets? Ac­cord­ing to Dr Sheena Iyen­gar, so­cial psy­chol­o­gist at Columbia Busi­ness School and author, the odds are that you’ll choose the ta­ble with two wheels. Why? We are in­nately at­tracted to the no­tion of hav­ing choice, whether it serves our in­ter­ests or not. It’s a les­son that Dr Iyen­gar has learned af­ter a pro­fes­sional ca­reer study­ing the way peo­ple make choices, be it buy­ing a jar of jam or pick­ing a stock.

Choice can be both com­fort­ing and con­fus­ing. The mod­ern con­sumer has more choices avail­able to them than ever be­fore – we’re con­di­tioned to pre­sume that more op­tions are bet­ter than fewer. Yet, on the other hand, we may not even be aware when we’re ac­tu­ally mak­ing de­ci­sions. In one of Iyen­gar’s stud­ies, which asked over 2,000 Amer­i­cans to sel­f­re­port how many de­ci­sions they make in a day, the av­er­age num­ber re­ported was 70. The ac­tual fig­ure is es­ti­mated to be around 35,000.

In her role as the ST Lee pro­fes­sor of busi­ness at New York’s Columbia Busi­ness School and the author of best­selling book The Art of Choos­ing, Iyen­gar has spent two decades un­rav­el­ling the in­tri­ca­cies in­volved in mak­ing (and not mak­ing) de­ci­sions. She gained wide­spread ac­knowl­edge­ment in the mid 90s for her “jam study”, which she un­der­took as a PHD stu­dent at Stan­ford. In the study, she laid out two stalls in a su­per­mar­ket – one with six flavours of jam, and one with 24 flavours. While more peo­ple stopped and showed in­ter­est when there were more op­tions, cus­tomers were six times more likely to ac­tu­ally buy a jar when pre­sented with fewer va­ri­eties. A wider choice, while ap­peal­ing, ul­ti­mately be­came over­whelm­ing. “Some peo­ple have taken this study to ar­gue that we should elim­i­nate choice,” Iyen­gar points out, high­light­ing Amer­i­can psy­chol­o­gist Barry Schwartz, author of The Para­dox of Choice – Why More is Less, as an ex­am­ple. “I re­spect his opin­ion but I don’t agree with it.”

Af­ter her book was pub­lished in 2010, Iyen­gar was in­vited to give a TED talk on “the art of choos­ing”, and an­other the fol­low­ing year on “how to make choos­ing eas­ier”. The two talks have since been viewed on­line over four mil­lion times.


The prin­ci­ples ex­em­pli­fied by the jam ex­per­i­ment ap­ply equally in the some­what less sac­cha­rine world of in­vest­ment and fi­nan­cial plan­ning, in which choice clearly plays an in­te­gral role. One study Iyen­gar con­ducted with Van­guard, for ex­am­ple, looked at the im­pact of choice on up­take of 401(k) re­tire­ment plans in the US. “If you give peo­ple a wide choice [of plans] they are less likely to in­vest in their re­tire­ment. And even if they do, they are more likely to avoid stocks or put all their money

in money mar­kets – and that is not good for long term fi­nan­cial in­vest­ment,” says Iyen­gar, who has worked as an ad­vi­sor for sev­eral fi­nan­cial in­sti­tu­tions. “Other schol­ars such as Richard Thaler and Cass Sun­stein have sug­gested the idea of au­to­matic en­rol­ment – they called it lib­er­tar­ian pa­ter­nal­ism. When [peo­ple are] au­to­mat­i­cally en­rolled [in a plan], par­tic­i­pa­tion goes up to around 95 per cent.”

In the US, since th­ese find­ings were re­leased, more reg­u­la­tions have been put in place and around 50 per cent of com­pa­nies now have au­to­matic en­rol­ment, with most com­pa­nies of­fer­ing a much sim­pler se­lec­tion of tar­get date funds. This has pro­moted a dra­matic shift in up­take. “It went from hav­ing com­pa­nies’ plans of­fer­ing hun­dreds of op­tions, down to 15 or so sim­ple op­tions,” says Iyen­gar. “That has ac­tu­ally shaken up the in­dus­try quite a bit be­cause the re­duc­tion means an aw­ful lot of funds got killed, and so lot of com­pa­nies had to re­fig­ure out how they were go­ing to make money.”

But, de­spite the States’ shift to pa­ter­nal­ism, there are still swathes of peo­ple left out of the sys­tem. “You have 30 to 40 per cent of adult Amer­i­cans who don’t save any­thing, and that is in­cred­i­ble,” Iyen­gar says. “We don’t re­ally have safety nets the way Europe does.”


When it comes to mak­ing good in­vest­ment de­ci­sions, Iyen­gar’s first piece of ad­vice is to be bru­tal. Cut­ting swathes of ex­tra­ne­ous op­tions will en­sure you’ve got the most time to spend think­ing about the op­tions that mat­ter the most. If you’re find­ing it hard to know which op­tions are the im­por­tant ones, sim­ply ask your­self ex­actly how sev­eral stock op­tions ac­tu­ally dif­fer from each other. If you can’t put your fin­ger on it, that tells you all you need to know.

Iyen­gar’s re­search has also in­di­cated that peo­ple are best placed to han­dle large data sets when the in­for­ma­tion is cat­e­gorised into dis­tinct groups – even if the cat­e­gories are largely ar­bi­trary. So start­ing out with a set of wellor­gan­ised op­tions will help you to avoid be­ing over­whelmed, with­out the need for in­creased ex­per­tise. An­other such trick is to ar­range your de­ci­sions in or­der, from sim­ple to more dif­fi­cult. Iyen­gar’s re­search has shown that, when buy­ing a car, peo­ple tire and give up much faster when asked to make choices from a high to low num­ber of per­mu­ta­tions (specif­i­cally: choos­ing from 56 car colours, down to choos­ing one of four gear shifts). Peo­ple do much bet­ter mak­ing the same set of de­ci­sions in the re­verse or­der. Do the easy leg­work first, and your brain will re­spond more suc­cess­fully when things get tougher.

Con­creti­sa­tion – vi­su­al­is­ing the real-life con­se­quences of a de­ci­sion – is an­other im­por­tant skill to per­fect when plan­ning where to place your money. It’s the rea­son peo­ple spend far more on plas­tic than when us­ing cash; the re­sult is less tan­gi­ble, less con­crete, when us­ing virtual money or credit cards. Iyen­gar con­ducted a study of ING em­ploy­ees, and found that sim­ply ask­ing them to think about the pos­i­tive im­pacts of hav­ing more sav­ings re­sulted in a re­mark­able 20 per cent in­crease in en­rol­ment of re­tire­ment plans, and a four per cent in­crease in how much went into peo­ple’s sav­ings ac­counts. Ap­ply­ing this knowl­edge could make it eas­ier for you to de­cide whether to wa­ger on that high stakes, volatile stock or a sen­si­ble, low stakes op­tion; de­pend­ing on what your cir­cum­stances and de­sired out­comes are.

ABOVE AND OP­PO­SITE Asian Univer­sity for Women, based in Bangladesh, aims to give women ac­cess to ed­u­ca­tion, Iyen­gar is on the board of the in­sti­tu­tion.

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