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  • Do you know how many choices you make

  • in a typical day?

  • Do you know how many choices you make

  • in typical week?

  • I recently did a survey

  • with over 2,000 Americans,

  • and the average number of choices

  • that the typical American reports making

  • is about 70 in a typical day.

  • There was also recently a study done with CEOs

  • in which they followed CEOs around for a whole week.

  • And these scientists simply documented all the various tasks

  • that these CEOs engaged in

  • and how much time they spent engaging

  • in making decisions related to these tasks.

  • And they found that the average CEO

  • engaged in about 139 tasks in a week.

  • Each task was made up of many, many, many sub-choices of course.

  • 50 percent of their decisions

  • were made in nine minutes or less.

  • Only about 12 percent of the decisions

  • did they make an hour or more of their time.

  • Think about your own choices.

  • Do you know how many choices

  • make it into your nine minute category

  • versus your one hour category?

  • How well do you think you're doing

  • at managing those choices?

  • Today I want to talk

  • about one of the biggest modern day choosing problems that we have,

  • which is the choice overload problem.

  • I want to talk about the problem

  • and some potential solutions.

  • Now as I talk about this problem,

  • I'm going to have some questions for you

  • and I'm going to want to know your answers.

  • So when I ask you a question,

  • since I'm blind,

  • only raise your hand if you want to burn off some calories.

  • (Laughter)

  • Otherwise, when I ask you a question,

  • and if your answer is yes,

  • I'd like you to clap your hands.

  • So for my first question for you today:

  • Are you guys ready to hear about the choice overload problem?

  • (Applause)

  • Thank you.

  • So when I was a graduate student at Stanford University,

  • I used to go to this very, very upscale grocery store;

  • at least at that time it was truly upscale.

  • It was a store called Draeger's.

  • Now this store, it was almost like going to an amusement park.

  • They had 250 different kinds of mustards and vinegars

  • and over 500 different kinds

  • of fruits and vegetables

  • and more than two dozen different kinds of bottled water --

  • and this was during a time when we actually used to drink tap water.

  • I used to love going to this store,

  • but on one occasion I asked myself,

  • well how come you never buy anything?

  • Here's their olive oil aisle.

  • They had over 75 different kinds of olive oil,

  • including those that were in a locked case

  • that came from thousand-year-old olive trees.

  • So I one day decided to pay a visit to the manager,

  • and I asked the manager,

  • "Is this model of offering people all this choice really working?"

  • And he pointed to the busloads of tourists

  • that would show up everyday,

  • with cameras ready usually.

  • We decided to do a little experiment,

  • and we picked jam for our experiment.

  • Here's their jam aisle.

  • They had 348 different kinds of jam.

  • We set up a little tasting booth

  • right near the entrance of the store.

  • We there put out six different flavors of jam

  • or 24 different flavors of jam,

  • and we looked at two things:

  • First, in which case

  • were people more likely to stop, sample some jam?

  • More people stopped when there were 24, about 60 percent,

  • than when there were six,

  • about 40 percent.

  • The next thing we looked at

  • is in which case were people more likely

  • to buy a jar of jam.

  • Now we see the opposite effect.

  • Of the people who stopped when there were 24,

  • only three percent of them actually bought a jar of jam.

  • Of the people who stopped when there were six,

  • well now we saw that 30 percent of them

  • actually bought a jar of jam.

  • Now if you do the math,

  • people were at least six times more likely to buy a jar of jam

  • if they encountered six

  • than if they encountered 24.

  • Now choosing not to buy a jar of jam

  • is probably good for us --

  • at least it's good for our waistlines --

  • but it turns out that this choice overload problem affects us

  • even in very consequential decisions.

  • We choose not to choose,

  • even when it goes against our best self-interests.

  • So now for the topic of today: financial savings.

  • Now I'm going to describe to you a study I did

  • with Gur Huberman, Emir Kamenica, Wei Jang

  • where we looked at the retirement savings decisions

  • of nearly a million Americans

  • from about 650 plans

  • all in the U.S.

  • And what we looked at

  • was whether the number of fund offerings

  • available in a retirement savings plan,

  • the 401(k) plan,

  • does that affect people's likelihood

  • to save more for tomorrow.

  • And what we found

  • was that indeed there was a correlation.

  • So in these plans, we had about 657 plans

  • that ranged from offering people

  • anywhere from two to 59 different fund offerings.

  • And what we found was that,

  • the more funds offered,

  • indeed, there was less participation rate.

  • So if you look at the extremes,

  • those plans that offered you two funds,

  • participation rates were around in the mid-70s --

  • still not as high as we want it to be.

  • In those plans that offered nearly 60 funds,

  • participation rates have now dropped

  • to about the 60th percentile.

  • Now it turns out

  • that even if you do choose to participate

  • when there are more choices present,

  • even then, it has negative consequences.

  • So for those people who did choose to participate,

  • the more choices available,

  • the more likely people were

  • to completely avoid stocks or equity funds.

  • The more choices available,

  • the more likely they were

  • to put all their money in pure money market accounts.

  • Now neither of these extreme decisions

  • are the kinds of decisions

  • that any of us would recommend for people

  • when you're considering their future financial well-being.

  • Well, over the past decade,

  • we have observed three main negative consequences

  • to offering people more and more choices.

  • They're more likely to delay choosing --

  • procrastinate even when it goes against their best self-interest.

  • They're more likely to make worse choices --

  • worse financial choices, medical choices.

  • They're more likely to choose things that make them less satisfied,

  • even when they do objectively better.

  • The main reason for this

  • is because, we might enjoy gazing at those giant walls

  • of mayonnaises, mustards, vinegars, jams,

  • but we can't actually do the math of comparing and contrasting

  • and actually picking from that stunning display.

  • So what I want to propose to you today

  • are four simple techniques --

  • techniques that we have tested in one way or another

  • in different research venues --

  • that you can easily apply

  • in your businesses.

  • The first: Cut.

  • You've heard it said before,

  • but it's never been more true than today,

  • that less is more.

  • People are always upset when I say, "Cut."

  • They're always worried they're going to lose shelf space.

  • But in fact, what we're seeing more and more

  • is that if you are willing to cut,

  • get rid of those extraneous redundant options,

  • well there's an increase in sales,

  • there's a lowering of costs,

  • there is an improvement of the choosing experience.

  • When Proctor & Gamble

  • went from 26 different kinds of Head & Shoulders to 15,

  • they saw an increase in sales by 10 percent.

  • When the Golden Cat Corporation

  • got rid of their 10 worst-selling cat litter products,

  • they saw an increase in profits

  • by 87 percent --

  • a function of both increase in sales

  • and lowering of costs.

  • You know, the average grocery store today

  • offers you 45,000 products.

  • The typical Walmart today offers you 100,000 products.

  • But the ninth largest retailer,

  • the ninth biggest retailer in the world today

  • is Aldi,

  • and it offers you only 1,400 products --

  • one kind of canned tomato sauce.

  • Now in the financial savings world,

  • I think one of the best examples that has recently come out

  • on how to best manage the choice offerings

  • has actually been something that David Laibson was heavily involved in designing,

  • which was the program that they have at Harvard.

  • Every single Harvard employee

  • is now automatically enrolled

  • in a lifecycle fund.

  • For those people who actually want to choose,

  • they're given 20 funds,

  • not 300 or more funds.

  • You know, often, people say,

  • "I don't know how to cut.

  • They're all important choices."

  • And the first thing I do is I ask the employees,

  • "Tell me how these choices are different from one another.

  • And if your employees can't tell them apart,

  • neither can your consumers."

  • Now before we started our session this afternoon,

  • I had a chat with Gary.

  • And Gary said that he would be willing

  • to offer people in this audience

  • an all-expenses-paid free vacation

  • to the most beautiful road in the world.

  • Here's a description of the road.

  • And I'd like you to read it.

  • And now I'll give you a few seconds to read it

  • and then I want you to clap your hands

  • if you're ready to take Gary up on his offer.

  • (Light clapping)

  • Okay. Anybody who's ready to take him up on his offer.

  • Is that all?

  • All right, let me show you some more about this.

  • (Laughter)

  • You guys knew there was a trick, didn't you.

  • (Honk)

  • Now who's ready to go on this trip.

  • (Applause)

  • (Laughter)

  • I think I might have actually heard more hands.

  • All right.

  • Now in fact,

  • you had objectively more information

  • the first time around than the second time around,

  • but I would venture to guess

  • that you felt that it was more real the second time around.

  • Because the pictures made it feel

  • more real to you.

  • Which brings me to the second technique

  • for handling the choice overload problem,

  • which is concretization.

  • That in order for people to understand

  • the differences between the choices,

  • they have to be able to understand

  • the consequences associated with each choice,

  • and that the consequences need to be felt

  • in a vivid sort of way, in a very concrete way.