My finances, my projects, my life
March 23, 2023

Learning to make informed choices

  Compiled by myLIFE team me&myFAMILY September 20, 2022 2

We don’t always have the time or energy required to properly respond to the multitude of choices we are forced to make every day, which is good news for anyone looking to influence our decisions in their own interests. Find out more about how you may be influenced by some of these external factors and then adopt a few good practices that will help you make the right decisions.

Our brains have a limited capacity for decisions and the range of choice available is constantly growing, so making the right decisions is sometimes difficult and occasionally exhausting. The problem is that too much choice is fatal! What’s the solution? Use “choice architecture” to help you make decisions. Of course, but choice architecture can also be used to nudge us into taking decisions which aren’t necessarily the best for us but instead work in the interests of those using them. Let’s look at a few examples of this before sharing a few approaches that will help you make better decisions without wearing yourself out.

Special offers that are not that special and biased comparison sites

When searching for a product or service and trying to find the best price, it’s important that you use price comparison sites carefully and are aware of their drawbacks. Such sites don’t always offer the clearest and most objective view and often guide you in a direction that may not necessarily be the best for you.

For example, when choosing a new telephone subscription or a hotel, you are asked to provide some information about yourself and your preferences. On this basis, you will often be offered a default choice dressed up as a tailor-made option. Flattering isn’t it? Or you’ll be offered a list, but will probably only look at the top few, ignoring the dozens of others that correspond equally well to the criteria you’ve given.

Always ask yourself why one particular option is suggested rather than another.

Always ask yourself why one particular option is suggested rather than another and don’t be excessively influenced by offers with the supposed advantages underlined in red. Colour also influences our decisions.

We need to be particularly vigilant about how the information and attributes of each option are presented. An offer with a few additional extras on top of the basic product may look tempting with a purported 30% saving. But 30% versus what? Versus the total of the individual prices for each element included in the offer, but not necessarily versus the price of the offer that best meets your criteria. Watch out for the phenomenon of attribute framing which aims to capitalise on our tendency to prefer special offers, even if they aren’t necessarily the best match for our requirements.

Watch out for the promotional effect, i.e. packages at half price or with an added bonus. They have a strong influence on decisions, whether it’s a free gift (a package of TV channels free of charge for a year) or a discount (your gym subscription at half price for six months). Make sure you check the small print in the signed agreement and the price of the package after the year is up. Are you aware that this amount will be automatically debited and the agreement tacitly renewed for several months unless you take action to unsubscribe?

Packages that offer too much

What about package deals? It’s an interesting idea to bundle services to get a better price. But is this particular package really what you need to make your life easier and save money? Do the programmes that let you personalise your car with options packages really offer the solution you need and are looking for? The issue is not with the principle of a package, but the fact that it will often include elements that you wouldn’t otherwise have chosen.

Scientists at the University of Iowa carried out an experiment on such packages, asking 150 students to put together their own pizza based on different ingredients. The first group were offered a basic cheese pizza for USD 5 to which they could add different toppings to create their perfect pizza. Students could choose from 12 toppings and had to tick those they wished to add on. Each additional ingredient cost USD 0.50.

In the second group the situation was reversed. The students were offered a deluxe pizza that cost USD 11 and included all 12 toppings. This group were asked to tick the ingredients they wished to remove. Each item removed reduced the price by USD 0.50.

Guess what – the group offered the pizza with 12 toppings ended up with many more ingredients (on average, 5.29 toppings) than the group offered the basic pizza to which they could add each topping individually (an average of 2.71).

Before choosing a package, make sure it is really what you want and you’re not subscribing for more than you need.

The moral of the story: before choosing a package, make sure it is really what you want and you’re not subscribing for more than you need. You may get something that complies with your actual requirements more cheaply by choosing the basic package and adding on a few extras.

A few tips on how to make better choices

Now that you understand choice architectures better, it’s easier to distinguish between those that make your life easier and those that mostly serve the commercial interests of the sellers. Let’s finish with a few good practices to help you make informed choices.

Recharge your decision-making powers

Just as too much exercise exhausts your body, having too many decisions to take can result in ego depletion. How can you avoid this? By recharging your batteries. Our brain needs the right quantity of sugars to function properly. Just as an athlete will eat an energy bar to recharge their batteries, you need to take the time to take good care of yourself and rest before taking any major decisions. Make sure that you don’t take decisions when you’re already tired or go shopping without a list when you’re very hungry – there’s a risk you’ll be manipulated.

If you are under time pressure, you’ll become more overwhelmed by the choices available more quickly.

Take your time

How overwhelmed you are by decisions is directly linked to the time you have to make them. If you are under time pressure, you’ll become more overwhelmed by the choices available more quickly. The decision will be harder to make and more stressful. You will be less satisfied with the outcome and more likely to choose the default option or rely on a price comparison site, which despite its claims will not necessarily suggest the best option for you.

Where possible, fill your virtual basket with all of the options that you’re considering and the special offers you find tempting. Leave your basket to mature, think about it with a cool head and go back to it later. It’s quite likely that the decision that looked impossible in the heat of the moment will be obvious. Brands are very familiar with how powerful time pressures can be. That’s why they often encourage you to make a quick decision.

Ask others for advice or get the assistance of an expert

The issue of too much choice increases dramatically when we’re taking a decision in a field with which we are unfamiliar. The more you know about something, the less overwhelmed you feel. To avoid being overwhelmed, it’s important to know when to call on an expert before taking a decision, in order to transfer part of the burden of choice on to the shoulders of someone better informed than yourself. This definitely applies when it comes to choosing financial investments. Your banker can help you untangle the complexity of choices and simplify the decision sufficiently to enable you to make a satisfactory choice.

Aim for satisfaction, not perfection

Before studying the options available to you, define a limited number of criteria that will enable you to take a satisfactory decision. Don’t look for perfection by trying to compare all of the available criteria, aim to be satisfied with a good option based on what you consider to be a few key factors. The story of Captain Chesley Sullenberger, known as Sully, is the perfect illustration of how effective this approach can be in extreme situations.

You now have all the right tools to boost your decision-making ability and help you avoid the influence of detrimental external factors.