Transcript Paradox of Choice - ECEN 490 Business Processes

The Paradox of Choice
By
Barry Schwartz
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The Hypothesis-Decisions are generally improved when we consider
multiple alternatives. We assume that more choice
means better options and greater satisfaction.
However, most everyday decisions have become
increasingly complex due to the overwhelming
abundance of choice with which we are presented.
“Beware of excessive choice: choice overload can
make you question the decisions you make before you
even make them, it can set you up for unrealistically
high expectations…it can lead to decision-making
paralysis, anxiety, and perpetual stress.”
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Law of diminishing returns
Satisfaction
Stay in the
sweet spot
Choices
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A day at the supermarket (2002)
 85 varieties of crackers
 285 varieties of cookies
 21 choices for chocolate chip alone.
 95 types of snack chips
 61 varieties of sun tan lotion
 230 soup offerings
 Etc. etc
 30,000 different items in a typical store
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What has this got to do with engineering?
 Engineers are trained to make educated
decisions, based on facts and experimental
observations.
 The scientific method relies on multiple
tests to validate assumptions.
 We assume that the more facts we have,
the better our decisions will be.
 Watch out!!, for the human brain is not
always a logical computing device!!
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How do we choose?
1. Decide on the goal(s).
2. Evaluate the importance of each goal,
based on existing data and facts.
3. Examine key assumptions.
4. Generate alternatives.
5. Pick the best alternative.
6. Implement the decision and evaluate the
effectiveness of our choice from the
results of the decision.
Sometime the process is explicit, but more
likely implicit.
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Dealing with our surroundings
What is more common in the English language,
Words that begin with the letter “t”, or
Words that have the letter “t” as the
third letter?
What is your answer???
Words that have the letter “t” as
the third letter!
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Where do we go wrong?
 What information did you use to base your
decision?
 Is it easier to think of words beginning
with “t”.
 We tend to rely on rules of thumb when
evaluating information that seems readily
available.
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Availability Heuristic
 A heuristic is a rule of thumb, and the
“availability heuristic” says that we assume
that the more available some piece of
information is to our memory, the more
frequently we must have encountered it in
the past. This is the basis of advertizing.
 Just because it is easier to call to memory
words with the letter “t” as the first
letter rather than the third, does not
make it true.
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Common myths
 Who invented the light bulb?
 Thomas Edison?
 In fact, Thomas Edison not only did not invent the
lightbulb, he did not invent many of the things
attributed to him. Prior to Edison’s patent for the
electric lightbulb in 1880, electric lights had
already been invented. In 1840, British
Astronomer and Chemist, Warren de la Rue,
enclosed a platinum coil in a vacuum tube and
passed an electric current through it, thus
creating the world’s first light bulb - a full 40
years before Edison.
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Framing –establishing a reference point for
alternatives.
 Imagine that you are a physician working in
an Asian village, and 600 people have come
down with a life-threatening disease. Two
possible treatments exist. If you choose
treatment A, you will save exactly 200
people. If you choose treatment B, there
is a 1/3 chance that you will save all 600,
and a 2/3 chance that you will save no one.
Which treatment do you choose?
 The vast majority of respondents choose A
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Framing (2)
 You are a physician working in an Asian
village, and 600 people have come down
with a life-threatening disease. Two
possible treatments exist. If you choose
treatment C, exactly 400 people will die.
If you choose treatment D, there is a 1/3
chance that no one will die, and a 2/3
chance that everyone will die. Which
treatment do you choose?
 Now the overwhelming majority choose D.
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Framing (3)
 Which would you choose?
1
A sure $100, or a coin flip for $200 or
nothing?
2
Now, which would you choose, a sure loss
of $100 or a coin flip for a loss of $200
or $0.
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Framing (4)
 Imagine that you have decided to see a
concert where admission of $20 per ticket.
As you are in line to buy a ticket you discover
that you have lost a $20 bill. Would you still
pay $20 to see the concert?
 Over 90% of respondents say yes. They
don’t associate the loss of the $20 as part
of the cost of the entertainment.
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Framing (5)
 Imagine that you have decided to see a
concert and have already bought a $20
ticket. As you enter the concert hall you
discover that you have lost the ticket. The
seat was not marked and the ticket cannot
be recovered. Would you pay another $20
for another ticket?
 Less than half of the respondents say that
they would buy another ticket. It doubles
the cost in their entertainment “account”.
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Prospect Theory
+ feel good
Objective state
- loose
+ Win
The prospect (fear) of losing has a
much more pronounce effect than
the prospect (satisfaction) of
winning
Subjective state
- feel bad
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Endowment effect
 Once you “own” something, it becomes
yours, and has a “sunk” cost, and giving it
up entail a loss.
 Examples,
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Money back guarantees
Delete options, vs. Add options
Purchased tickets
Expensive shoes that don’t fit. What do you
do with them?
You leave them in the closet forever.
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We see that our brains can fool us
 So what can we do about it?
 We have to make conscious decisions about
how we view information, and how we
respond to information.
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Maximizers vs Satisficers.
 Maximizers are individuals who aspire to find and
accept only the absolute “best”. They will attempt to
analyze every known option before making a decision.
 Satisficers are individuals who settle for something
that is “good enough”. A satisficer sets standards
and criteria and searches until they find a solution
that meets those criteria.
 In general Maximizers really hate to loose!!
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Maximizers and Satisficers
 Take the test—score from 1-7

1=completely disagree, 7= completely agree.
Whenever I’m faced with a choice, I try to imagine
what all the other possibilities are, even ones that
aren’t present at the moment.
2. No matter how satisfied I am with my job, it’s only
right for me to be on the lookout for a better
opportunity.
3. When I am in the car listening to the radio, I often
check other stations to see if something better is
playing, even if I am relatively satisfied with what
I am listening to.
4. When I watch TV, I channel surf, often scanning
through the available options even while attempting
to watch one program.
1.
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Maximizers and Satisficers (2)
5.
6.
7.
8.
9.
10.
I treat relationships like clothing: I expect to try
a lot on before finding a perfect fit.
I often find it difficult to shop for a gift for a
friend.
Renting videos is really difficult. I’m always
struggling to pick the best one.
When shopping, I have a hard time finding clothing
that I really love.
I’m a big fan of lists that attempt to rank things,
(the best movies, best singers, best novels, etc.)
I find that writing is very difficult, even if it’s just
a letter to a friend, because it’s so hard to word
things right. I often do several drafts.
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Maximizers and Satisficers (3)
No matter what I do, I have the highest standards
for myself.
12. I never settle for second best.
13. I often fantasize about living in ways that are
quite different from my actual life.
(courtesy of American Psychological Association)
11.
Now add up your score. A score of 65 or higher
indicates you are clearly a maximizer. A score of
40 or lower indicates that you tend to be a
satisficer.
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Differences between Maximizers and Satisficers.
1.
2.
3.
4.
5.
6.
Maximizers engage in more product comparisons than
satisficers, both before and after they make
decisions.
Maximizers take longer than satisficers to make a
decision.
Maximizers spend more time than satisficers
comparing their decisions to the decisions of others.
Maximizers are more likely to experience regret
after a decision.
Maximizers are more likely to spend time thinking
about hypothetical alternatives to their decisions.
Maximizers generally feel less positive about their
decisions.
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Example of a Maximizer
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What is wrong about being a maximizer?
 Maximizing takes a lot of time, and time is
the ultimate scarce resource.
 Maximizers are less satisfied with their
decisions, because they are never sure
they analyzed all the alternatives.
 Maximizers tend to compare themselves
with others to assess whether they really
made the best decision.
 Maximizers can become depressed because
they can’t meet their own expectations.
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Maximizing and Regret
 Regret Scale
1.
2.
3.
4.
5.
(1=completely disagree; 7= completely agree)
Once I make a decision, I don’t look back.
Whenever I make a choice, I’m curious about what would have
happened if I had chosen differently.
If I make a choice and it turns out well, I still feel like
something of a failure if I find out that another choice would
have turned out better.
Whenever I make a choice, I try to get information about how
the other alternatives turned out.
When I think about how I’m doing in life, I often assess
opportunities I have passed up.
(courtesy of American Psychological Association)

To score, subtract 8 from each of your answers before totaling the
numbers. The higher the absolute value of your score, the more
susceptible you are to regret.
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What can we do?
 Choose when to choose. Maximizing is ok on a limited
basis. Develop some rules of thumb about how many
alternatives to evaluate.
 Satisfice more often. Develop criteria for important
decisions as to what is “good enough”. Control your
expectations to be more realistic.
 Evaluate the “opportunity costs” of opportunity costs.
You should think about the costs of making a less
than optimum decision, but also contemplate the
potential that you will generate unrealistic
expectations for what is “good enough”.
 Make more decisions nonreversible. Once a “good
enough” decision is made, don’t spend much time
looking back. Put you energy into making the decision
work.
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What can we do? (continued)
 Look for the best in your decisions.
Every experience
can have both delightful and disappointing aspects. If
you look for the positive in your choices you will be
much more satisfied with the results.
 Anticipate Adaptation. Adaptation is the effect that
no matter how excited and pleased we are with our
initial decision, over time we will become less satisfied.
Even the best ice cream loses its effect after the
third bowl.
 Avoid social comparison. We tend to evaluate the
quality of our experiences by comparing ourselves to
others. Social comparisons are among the most
subjective.
 Learn to love constraints. Freedom of choice
eventually becomes the tyranny of choice.
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4-Square Analysis
Best I can
Expect
Worst I
can Expect
Do It
Don’t
do it
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4-Square Analysis Example
Low on Gas
See a station but
the price seems
a little high—
Should I stop?
Best I can
Expect
Worst I
can Expect
Do It
I will make it home
and the price may be
competitive with
other stations I pass
I will pay significantly
more for the gas than
other stations I see
on the way home
Don’t
do it
I will have enough gas I will not find another
to make it to the next station close by and I
station and the price will run out of gas.
will be lower.
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Summary
 As an engineer and a leader in industry you will be
faced with many decisions. The quality of your
decisions will directly impact the quality of your life.
Our society is awash in alternatives, and you can quickly
develop a case of analysis paralysis which can
significantly decrease your productivity and
effectiveness.
 There are no perfect solutions. Engineering is the
practical application of science to the needs of society.
A timely decision is far superior to a perfect solution
that is late.
 Develop an individualized process for dealing with
complexity and apply it generally to everything that you
do.
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What’s left??
 No more Lectures!! But I do want to meet with
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your team in an informal meeting, in two weeks.
We will look over your team management sites
during the informal team meetings.
You have an upcoming 2nd Project Review, starting
Thurs and then Tues and Thurs next week.
You have a formal final presentation, end of
semester.
You have to submit a final, comprehensive report.
Individual team members will need to submit a
teamwork survey for ABET.
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