TEDSalon NY2011

Sheena Iyengar: How to make choosing easier

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We all want customized experiences and products -- but when faced with 700 options, consumers freeze up. With fascinating new research, Sheena Iyengar demonstrates how businesses (and others) can improve the experience of choosing.

- Psycho-economist
Sheena Iyengar studies how people choose (and what makes us think we're good at it). Full bio

Do you know how many choices you make
00:15
in a typical day?
00:17
Do you know how many choices you make
00:20
in typical week?
00:22
I recently did a survey
00:24
with over 2,000 Americans,
00:26
and the average number of choices
00:28
that the typical American reports making
00:30
is about 70 in a typical day.
00:32
There was also recently a study done with CEOs
00:35
in which they followed CEOs around for a whole week.
00:39
And these scientists simply documented all the various tasks
00:42
that these CEOs engaged in
00:45
and how much time they spent engaging
00:47
in making decisions related to these tasks.
00:49
And they found that the average CEO
00:51
engaged in about 139 tasks in a week.
00:54
Each task was made up of many, many, many sub-choices of course.
00:57
50 percent of their decisions
01:01
were made in nine minutes or less.
01:03
Only about 12 percent of the decisions
01:06
did they make an hour or more of their time.
01:09
Think about your own choices.
01:13
Do you know how many choices
01:15
make it into your nine minute category
01:17
versus your one hour category?
01:19
How well do you think you're doing
01:21
at managing those choices?
01:23
Today I want to talk
01:26
about one of the biggest modern day choosing problems that we have,
01:28
which is the choice overload problem.
01:31
I want to talk about the problem
01:33
and some potential solutions.
01:35
Now as I talk about this problem,
01:37
I'm going to have some questions for you
01:39
and I'm going to want to know your answers.
01:41
So when I ask you a question,
01:44
since I'm blind,
01:46
only raise your hand if you want to burn off some calories.
01:48
(Laughter)
01:51
Otherwise, when I ask you a question,
01:54
and if your answer is yes,
01:56
I'd like you to clap your hands.
01:58
So for my first question for you today:
02:00
Are you guys ready to hear about the choice overload problem?
02:03
(Applause)
02:06
Thank you.
02:08
So when I was a graduate student at Stanford University,
02:11
I used to go to this very, very upscale grocery store;
02:13
at least at that time it was truly upscale.
02:16
It was a store called Draeger's.
02:18
Now this store, it was almost like going to an amusement park.
02:21
They had 250 different kinds of mustards and vinegars
02:24
and over 500 different kinds
02:27
of fruits and vegetables
02:29
and more than two dozen different kinds of bottled water --
02:31
and this was during a time when we actually used to drink tap water.
02:34
I used to love going to this store,
02:38
but on one occasion I asked myself,
02:41
well how come you never buy anything?
02:43
Here's their olive oil aisle.
02:45
They had over 75 different kinds of olive oil,
02:47
including those that were in a locked case
02:49
that came from thousand-year-old olive trees.
02:51
So I one day decided to pay a visit to the manager,
02:55
and I asked the manager,
02:57
"Is this model of offering people all this choice really working?"
02:59
And he pointed to the busloads of tourists
03:02
that would show up everyday,
03:04
with cameras ready usually.
03:06
We decided to do a little experiment,
03:08
and we picked jam for our experiment.
03:11
Here's their jam aisle.
03:13
They had 348 different kinds of jam.
03:15
We set up a little tasting booth
03:17
right near the entrance of the store.
03:19
We there put out six different flavors of jam
03:21
or 24 different flavors of jam,
03:23
and we looked at two things:
03:26
First, in which case
03:28
were people more likely to stop, sample some jam?
03:30
More people stopped when there were 24, about 60 percent,
03:33
than when there were six,
03:36
about 40 percent.
03:38
The next thing we looked at
03:40
is in which case were people more likely
03:42
to buy a jar of jam.
03:44
Now we see the opposite effect.
03:46
Of the people who stopped when there were 24,
03:48
only three percent of them actually bought a jar of jam.
03:50
Of the people who stopped when there were six,
03:53
well now we saw that 30 percent of them
03:56
actually bought a jar of jam.
03:58
Now if you do the math,
04:00
people were at least six times more likely to buy a jar of jam
04:02
if they encountered six
04:05
than if they encountered 24.
04:07
Now choosing not to buy a jar of jam
04:09
is probably good for us --
04:11
at least it's good for our waistlines --
04:13
but it turns out that this choice overload problem affects us
04:15
even in very consequential decisions.
04:18
We choose not to choose,
04:21
even when it goes against our best self-interests.
04:23
So now for the topic of today: financial savings.
04:26
Now I'm going to describe to you a study I did
04:29
with Gur Huberman, Emir Kamenica, Wei Jang
04:33
where we looked at the retirement savings decisions
04:36
of nearly a million Americans
04:40
from about 650 plans
04:43
all in the U.S.
04:46
And what we looked at
04:48
was whether the number of fund offerings
04:50
available in a retirement savings plan,
04:52
the 401(k) plan,
04:54
does that affect people's likelihood
04:56
to save more for tomorrow.
04:58
And what we found
05:00
was that indeed there was a correlation.
05:02
So in these plans, we had about 657 plans
05:05
that ranged from offering people
05:08
anywhere from two to 59 different fund offerings.
05:10
And what we found was that,
05:13
the more funds offered,
05:15
indeed, there was less participation rate.
05:17
So if you look at the extremes,
05:20
those plans that offered you two funds,
05:22
participation rates were around in the mid-70s --
05:24
still not as high as we want it to be.
05:27
In those plans that offered nearly 60 funds,
05:29
participation rates have now dropped
05:32
to about the 60th percentile.
05:35
Now it turns out
05:38
that even if you do choose to participate
05:40
when there are more choices present,
05:43
even then, it has negative consequences.
05:45
So for those people who did choose to participate,
05:48
the more choices available,
05:51
the more likely people were
05:53
to completely avoid stocks or equity funds.
05:55
The more choices available,
05:58
the more likely they were
06:00
to put all their money in pure money market accounts.
06:02
Now neither of these extreme decisions
06:04
are the kinds of decisions
06:06
that any of us would recommend for people
06:08
when you're considering their future financial well-being.
06:10
Well, over the past decade,
06:13
we have observed three main negative consequences
06:15
to offering people more and more choices.
06:18
They're more likely to delay choosing --
06:21
procrastinate even when it goes against their best self-interest.
06:23
They're more likely to make worse choices --
06:26
worse financial choices, medical choices.
06:28
They're more likely to choose things that make them less satisfied,
06:31
even when they do objectively better.
06:34
The main reason for this
06:37
is because, we might enjoy gazing at those giant walls
06:39
of mayonnaises, mustards, vinegars, jams,
06:43
but we can't actually do the math of comparing and contrasting
06:45
and actually picking from that stunning display.
06:48
So what I want to propose to you today
06:52
are four simple techniques --
06:54
techniques that we have tested in one way or another
06:57
in different research venues --
07:00
that you can easily apply
07:02
in your businesses.
07:04
The first: Cut.
07:06
You've heard it said before,
07:08
but it's never been more true than today,
07:10
that less is more.
07:12
People are always upset when I say, "Cut."
07:14
They're always worried they're going to lose shelf space.
07:17
But in fact, what we're seeing more and more
07:19
is that if you are willing to cut,
07:22
get rid of those extraneous redundant options,
07:24
well there's an increase in sales,
07:26
there's a lowering of costs,
07:28
there is an improvement of the choosing experience.
07:30
When Proctor & Gamble
07:34
went from 26 different kinds of Head & Shoulders to 15,
07:36
they saw an increase in sales by 10 percent.
07:38
When the Golden Cat Corporation
07:41
got rid of their 10 worst-selling cat litter products,
07:43
they saw an increase in profits
07:45
by 87 percent --
07:47
a function of both increase in sales
07:49
and lowering of costs.
07:51
You know, the average grocery store today
07:53
offers you 45,000 products.
07:55
The typical Walmart today offers you 100,000 products.
07:57
But the ninth largest retailer,
08:00
the ninth biggest retailer in the world today
08:05
is Aldi,
08:07
and it offers you only 1,400 products --
08:09
one kind of canned tomato sauce.
08:12
Now in the financial savings world,
08:15
I think one of the best examples that has recently come out
08:17
on how to best manage the choice offerings
08:20
has actually been something that David Laibson was heavily involved in designing,
08:23
which was the program that they have at Harvard.
08:26
Every single Harvard employee
08:28
is now automatically enrolled
08:30
in a lifecycle fund.
08:32
For those people who actually want to choose,
08:34
they're given 20 funds,
08:36
not 300 or more funds.
08:38
You know, often, people say,
08:40
"I don't know how to cut.
08:42
They're all important choices."
08:44
And the first thing I do is I ask the employees,
08:46
"Tell me how these choices are different from one another.
08:49
And if your employees can't tell them apart,
08:51
neither can your consumers."
08:53
Now before we started our session this afternoon,
08:56
I had a chat with Gary.
08:59
And Gary said that he would be willing
09:01
to offer people in this audience
09:04
an all-expenses-paid free vacation
09:06
to the most beautiful road in the world.
09:09
Here's a description of the road.
09:13
And I'd like you to read it.
09:16
And now I'll give you a few seconds to read it
09:18
and then I want you to clap your hands
09:20
if you're ready to take Gary up on his offer.
09:22
(Light clapping)
09:24
Okay. Anybody who's ready to take him up on his offer.
09:26
Is that all?
09:29
All right, let me show you some more about this.
09:31
(Laughter)
09:34
You guys knew there was a trick, didn't you.
09:37
(Honk)
09:44
Now who's ready to go on this trip.
09:46
(Applause)
09:49
(Laughter)
09:51
I think I might have actually heard more hands.
09:53
All right.
09:56
Now in fact,
09:58
you had objectively more information
10:00
the first time around than the second time around,
10:02
but I would venture to guess
10:04
that you felt that it was more real the second time around.
10:06
Because the pictures made it feel
10:10
more real to you.
10:12
Which brings me to the second technique
10:14
for handling the choice overload problem,
10:16
which is concretization.
10:18
That in order for people to understand
10:20
the differences between the choices,
10:22
they have to be able to understand
10:24
the consequences associated with each choice,
10:26
and that the consequences need to be felt
10:29
in a vivid sort of way, in a very concrete way.
10:32
Why do people spend an average of 15 to 30 percent more
10:36
when they use an ATM card or a credit card
10:39
as opposed to cash?
10:41
Because it doesn't feel like real money.
10:43
And it turns out
10:45
that making it feel more concrete
10:47
can actually be a very positive tool
10:49
to use in getting people to save more.
10:51
So a study that I did with Shlomo Benartzi
10:53
and Alessandro Previtero,
10:55
we did a study with people at ING --
10:57
employees that are all working at ING --
11:01
and now these people were all in a session
11:04
where they're doing enrollment for their 401(k) plan.
11:06
And during that session,
11:09
we kept the session exactly the way it used to be,
11:11
but we added one little thing.
11:13
The one little thing we added
11:16
was we asked people
11:19
to just think about all the positive things that would happen in your life
11:21
if you saved more.
11:24
By doing that simple thing,
11:26
there was an increase in enrollment by 20 percent
11:29
and there was an increase in the amount of people willing to save
11:32
or the amount that they were willing to put down into their savings account
11:35
by four percent.
11:38
The third technique: Categorization.
11:40
We can handle more categories
11:43
than we can handle choices.
11:46
So for example,
11:48
here's a study we did in a magazine aisle.
11:50
It turns out that in Wegmans grocery stores
11:52
up and down the northeast corridor,
11:54
the magazine aisles range anywhere
11:56
from 331 different kinds of magazines
11:58
all the way up to 664.
12:00
But you know what?
12:03
If I show you 600 magazines
12:05
and I divide them up into 10 categories,
12:07
versus I show you 400 magazines
12:10
and divide them up into 20 categories,
12:12
you believe that I have given you
12:15
more choice and a better choosing experience
12:17
if I gave you the 400
12:19
than if I gave you the 600.
12:21
Because the categories tell me how to tell them apart.
12:23
Here are two different jewelry displays.
12:28
One is called "Jazz" and the other one is called "Swing."
12:31
If you think the display on the left is Swing
12:34
and the display on the right is Jazz,
12:37
clap your hands.
12:40
(Light Clapping)
12:42
Okay, there's some.
12:44
If you think the one on the left is Jazz and the one on the right is Swing,
12:46
clap your hands.
12:48
Okay, a bit more.
12:50
Now it turns out you're right.
12:52
The one on the left is Jazz and the one on the right is Swing,
12:54
but you know what?
12:56
This is a highly useless categorization scheme.
12:58
(Laughter)
13:01
The categories need to say something
13:03
to the chooser, not the choice-maker.
13:06
And you often see that problem
13:09
when it comes down to those long lists of all these funds.
13:11
Who are they actually supposed to be informing?
13:14
My fourth technique: Condition for complexity.
13:18
It turns out we can actually
13:21
handle a lot more information than we think we can,
13:23
we've just got to take it a little easier.
13:25
We have to gradually increase the complexity.
13:27
I'm going to show you one example of what I'm talking about.
13:30
Let's take a very, very complicated decision:
13:33
buying a car.
13:35
Here's a German car manufacturer
13:37
that gives you the opportunity to completely custom make your car.
13:39
You've got to make 60 different decisions,
13:42
completely make up your car.
13:44
Now these decisions vary
13:46
in the number of choices that they offer per decision.
13:48
Car colors, exterior car colors --
13:51
I've got 56 choices.
13:53
Engines, gearshift -- four choices.
13:55
So now what I'm going to do
13:58
is I'm going to vary the order in which these decisions appear.
14:00
So half of the customers
14:03
are going to go from high choice, 56 car colors,
14:05
to low choice, four gearshifts.
14:07
The other half of the customers
14:10
are going to go from low choice, four gearshifts,
14:12
to 56 car colors, high choice.
14:14
What am I going to look at?
14:17
How engaged you are.
14:19
If you keep hitting the default button per decision,
14:21
that means you're getting overwhelmed,
14:24
that means I'm losing you.
14:26
What you find
14:28
is the people who go from high choice to low choice,
14:30
they're hitting that default button over and over and over again.
14:32
We're losing them.
14:35
They go from low choice to high choice,
14:37
they're hanging in there.
14:39
It's the same information. It's the same number of choices.
14:41
The only thing that I have done
14:44
is I have varied the order
14:46
in which that information is presented.
14:48
If I start you off easy,
14:50
I learn how to choose.
14:52
Even though choosing gearshift
14:54
doesn't tell me anything about my preferences for interior decor,
14:57
it still prepares me for how to choose.
15:00
It also gets me excited about this big product that I'm putting together,
15:03
so I'm more willing to be motivated
15:06
to be engaged.
15:08
So let me recap.
15:10
I have talked about four techniques
15:12
for mitigating the problem of choice overload --
15:15
cut -- get rid of the extraneous alternatives;
15:18
concretize -- make it real;
15:21
categorize -- we can handle more categories, less choices;
15:24
condition for complexity.
15:28
All of these techniques that I'm describing to you today
15:31
are designed to help you manage your choices --
15:34
better for you, you can use them on yourself,
15:37
better for the people that you are serving.
15:40
Because I believe that the key
15:42
to getting the most from choice
15:44
is to be choosy about choosing.
15:46
And the more we're able to be choosy about choosing
15:49
the better we will be able
15:51
to practice the art of choosing.
15:53
Thank you very much.
15:55
(Applause)
15:57

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About the Speaker:

Sheena Iyengar - Psycho-economist
Sheena Iyengar studies how people choose (and what makes us think we're good at it).

Why you should listen

We all think we're good at making choices; many of us even enjoy making them. Sheena Iyengar looks deeply at choosing and has discovered many surprising things about it. For instance, her famous "jam study," done while she was a grad student, quantified a counterintuitive truth about decisionmaking -- that when we're presented with too many choices, like 24 varieties of jam, we tend not to choose anything at all. (This and subsequent, equally ingenious experiments have provided rich material for Malcolm Gladwell and other pop chroniclers of business and the human psyche.)

Iyengar's research has been informing business and consumer-goods marketing since the 1990s. But she and her team at the Columbia Business School throw a much broader net. Her analysis touches, for example, on the medical decisionmaking that might lead up to choosing physician-assisted suicide, on the drawbacks of providing too many choices and options in social-welfare programs, and on the cultural and geographical underpinning of choice. Her book The Art of Choosing shares her research in an accessible and charming story that draws examples from her own life.

Watch a Facebook-exclusive short video from Sheena Iyengar: "Ballet Slippers" >>

More profile about the speaker
Sheena Iyengar | Speaker | TED.com