To find out, Iyengar and her collaborator, Mark Lepper, set up a jam-tasting booth near the entrance of the store. Every few hours, the booth switched between offering an assortment of 24 jams and offering an assortment of six. The researchers wanted to know which assortment would attract more people and which one would lead to higher sales. They observed the shoppers as they moved from the booth to the jam aisle, which boasted 348 varieties.
As might be expected, 60 percent of the incoming shoppers stopped when 24 jams were displayed, but only 40 percent stopped when six jams were displayed. Clearly, people found the larger assortment more attractive. However, when these same shoppers went to the jam aisle to pick up a jar, the shoppers who had seen only six jams had a much easier time deciding what to purchase.
By observing the shoppers and eavesdropping on their conversations, the researchers discovered that the small assortment helped narrow down choices, whereas the large assortment left people confused and unsure of their own preferences. Of those who stopped by the large assortment, only 3 percent ended up buying a jar of jam — far fewer than the 30 percent who bought jam after stopping by the small assortment. Taking into account the fact that the larger display was more popular, Iyengar and Lepper calculated that people were more than six times as likely to buy jam if they saw the smaller display.
These observations may seem to contradict what you already know about consumers. People like the idea of choice. It’s exciting to hear a list of exotic flavors and to see a wide wall of colorful jars, any of which can be yours. Having a larger number of choices makes people feel that they can exercise more control over what they buy. And consumers like the promise of choice: the greater the number of options, the greater the likelihood of finding something that’s perfect for them. In short, they believe that having more choice gives them more power and satisfaction.
But they overestimate their own capacity for managing these choices. Psychological studies have consistently shown that it’s very difficult to compare and contrast the attributes of more than about seven different things. When faced with the cognitive demands of choosing, people often become overwhelmed and frustrated. As a result, they may forgo the choice altogether, reach for the most familiar option, or make a decision that ultimately leaves them far less satisfied than they had expected to be.
We see this frustrated response to “choice overload” even when the decision has serious consequences. For example, in 2001, at the request of Steve Utkus, the director of the Center for Retirement Research at the Vanguard Group, Iyengar and her collaborators, Wei Jiang and Gur Huberman, tried to determine why so few of the 900,000 employees covered by Vanguard were participating in their defined-contribution retirement savings plans — also known as 401(k) plans. Analysis of the data revealed that participation fell significantly as the average number of funds in a plan rose. By controlling for individual-level variables such as age and income, as well as plan-level variables such as the size of the company and the extent of employer matching contributions, Iyengar and her collaborators showed that the decline in average participation rates was due to an increase in choice. When plans offered only two funds, 75 percent of the relevant employees participated; when plans offered 59 funds, the percentage of participants fell to 61 percent.
These findings are particularly significant when you consider the benefits of defined-contribution plans: compound interest, tax-exempt contributions, and employer matching in many cases. Even randomly picking funds is still a better financial move than not participating at all. At the time of the study, a 25-year-old median salary earner who chose to postpone participating in his or her 401(k) plan for just one year would have ended up with US$18,540 less in his or her retirement savings account at age 60 than an identical peer who chose to participate immediately and save 5 percent of his or her income (assuming a 9 percent total annual return on a mix of stocks and bonds). And yet many of the employees, overcome by too much choice, kept putting off the decision or just skipped it.