A Look at Choice Overload in Chocolate and Investing

Written by Bonny Reichert

Four million tonnes! That's how much cocoa is produced each year, according to the International Cocoa Organization. Switzerland has the highest chocolate consumption per person, but Canadians eat their fair share – a little more than six kilograms per person each year, a KPMG report shows. Just how much is that? Around 140 regular-sized chocolate bars per year, per person. Not bad.

I have a secret chocolate spot in my kitchen. It's an unsuspecting "junk" drawer, meant to throw my family off the scent of what lies beneath. The sweet collection varies a bit from time to time, but there are certain staples I am never without. Seventy per cent cacao dark chocolate is a must. Milk chocolate with sea salt? Oh yes. Chocolate-covered orange peel? Check.

After all, at the end of the day, if I have to eat what amounts to 140 chocolate bars each year to keep up with my fellow Canadians (challenge accepted!), I think it's much more fun to mix it up and try a variety of chocolate.

Choices, Choices

But where to start? Staring at the tiers of chocolate at the local convenience or grocery store, or the mouthwatering chocolate on display in those sweet neighbourhood chocolatiers, can sometimes leave me feeling a bit overwhelmed. What am I in the mood for? What should I try? What will I like? Aaargh…too many choices!

This also applies to the investing sphere, where it's sometimes referred to as choice overload. It's the idea that when faced with too many choices, decision-making becomes more difficult and less satisfying. Psychologist Barry Schwartz calls it choice paralysis, which with investments means we can sometimes become paralyzed when choosing from a continually expanding array of options. Overwhelmed, we can fall back to the comfortable basics that may or may not fit with our investing goals. Comparing that scenario to chocolate, we end up with the standard dark or milk chocolate options that we know so well but might not always meet the requirements of what we're really looking for.

There's an oft-cited study from 2000 that addresses the idea that more choice can result in less action. In it, psychologists from Columbia University and Stanford University set up a tasting booth of jams in a California grocery store. The researchers sometimes offered 24 varieties of jams at their display booth, and other times only six. In short, more people stopped by the booth when there was a wider selection of jams on offer, but more sales happened when there were fewer choices.

"The offer of overly extensive choices in relatively trivial choice-making contexts can have significant demotivating effects," the researchers wrote in their findings. They went on to note that this phenomenon of choice overload may be heightened when it comes to things like investment choices.

What Can be Done?

So what can be done if choice overload appears to be at play? Sheena Iyengar, one of the researchers who initiated the jam study, shed some light on this at a New York appearance a few years back. She touched on a few techniques to consider:

• Narrow the choices. When extra options are removed, the choosing experience improves, she points out. Here's where research can come into play. Set criteria for what you're looking for, such as a certain industry, market capitalization, price/earnings ratio, dividend yield, etc., and then find out more. Stock Screeners can help narrow your search using criteria you choose. Knowing what an investment might offer you within a set of criteria may help you determine if it's right for you.
• Categorize. Iyengar has found that people tend to be happier with their choices if their options fall into categories. Here, having already identified your investor profile can help. This can provide the basis for the asset mix needed to meet your goals and allow you to dig deeper, such as into specific sectors, types of companies, etc. You might find it helpful to review investments by industry type and to research performance in Sectors & Industries.

When I dig into my chocolate stockpile, I ask myself what I'm trying to accomplish with that day's indulgence. From there, I can categorize based on what I want: Quality? Value? Health? These questions help me keep analysis paralysis at bay as I confidently choose my next treat.