How making quick decisions can save you money (and make you happier)
According to psychologist Barry Schwartz, author of the book The Paradox of Choice, there are two types of decision-makers. Some individuals are wired to analyze and re-analyze their decisions in the hopes that they will find the perfect option. These individuals, whom Schwartz calls “maximizers,” are unable to enjoy a choice because they are worried that they may have missed a better one. These are the individuals who research a new car purchase for months and months, and then continue researching even after they have driven their new car off the lot because they are not certain they have made a perfect choice.
On the other side of this coin are the individuals Schwartz calls “satisficers.” Satisficers are only looking for a “good enough” choice. They may have a couple of requirements for their new car, and once they find a car that meets those requirements, they purchase it and don’t look back.
While it can be difficult to fight your maximizer tendencies, it is possible to retrain yourself to be more like a satisficer. Not only will decision making be less exhausting if you are a satisficer, but it can also save you money. Here’s how:
1. Less decision fatigue
Have you ever wondered why grocery stores carry candy in checkout lanes? It’s because marketers are savvy enough to take advantage of decision fatigue. This is the state wherein you are so depleted from making choices that you are no longer able to rationally and effectively make decisions. After a long shopping trip wherein you have had to make decisions on every purchase, it’s much more difficult for you to maintain your willpower in the face of a King Size Snickers.
While every shopping trip will require a certain number of trade-off decisions regarding price, nutrition, etc, satisficers who are willing to accept a good enough loaf of bread will have more decision-making energy left over by the end of the trip.
This is also true for larger purchases. How many maximizing car buyers have found themselves purchasing under-car coating just because it will get them done with the deal faster?
2. Less choice paralysis
How long did it take you to sign up for your company’s retirement program? If you’re like most people, you procrastinated for quite some time and felt overwhelmed. This is because many company retirement options offer you an array of choices, and it seems like making the wrong one will have negative consequences in your golden years. The problem, however, is that your choice paralysis means that you make no decision whatsoever-which is the worst thing you can do.
This crops up again and again when individuals are presented with complicated choices, including when they need to choose health benefits, decide on investments, or even accept a job or pick a college. In all these cases, doing nothing is the worst possible decision.
In this and other situations wherein you are presented with important information you know very little about, find out the most basic information you can, and make your choice quickly based on that. It will be an infinitely better choice than doing nothing.
3. Rational methods of handling sunk costs
If you have ever refused to cancel an unused gym membership because you know you will have to pay a higher signup fee if you ever decide to rejoin, then you have fallen victim to the fallacy of sunk costs.
A sunk cost is an amount of money that you have already paid and cannot recover. The price you paid for the new pair of shoes that pinch your feet or the theatre tickets that you don’t really want is sunk costs. When you don’t think rationally about a sunk cost, you end up trying to get your money out of the purchase, even if you don’t really want to. So your uncomfortable shoes stay in your closet and you snooze your way through Hamlet.
But irrationally dealing with sunk costs gets expensive you when you continue to try to save your original stake. In the gym example, if you paid $100 to join, and pay $30 each month for membership (even when you don’t go), it is irrational to continue your membership just because you know it will cost you $150 join again later. You are wasting $30 per month to make the $100 sunk cost worth it.
Instead, make your current decisions based on current and future costs and what you want to do with your time. You’ll make decisions that are more likely to make you happy, and will be more rational, to boot.
The bottom line
Once the burden of finding perfection is lifted, you will find that you are spending less money, time, and energy on your decisions.