[MUSIC] We're really going down this checklist here. We're already up to option confusion. Okay and you probably experience this, or I know, at least I do In my personal life, so what's an example of this? So I'm in Las Vegas, I'm kind of hungry, I want to get some M&Ms. You go into the M&Ms store and whoa, it's like visual blitzkrieg here. Do I maybe just get, so many options here, I'm confused, I decide to just get the Snicker bar. Okay, so I haven't had this experience with M&M's but let me tell you an experience I did have. I go to the local supermarket, kind of a big chain. I want to get some regular Oreo cookies. I kind of know one Oreo cookie, I look for the Oreo cookies. I actually count, there's 16 varieties, including pumpkin spice. And I can't find the old fashioned Oreo cookie. So too much, again, kind of go away with the consolation prize of the standard Snicker bar. But kind of the psychological phenomenon of choice overload is If you give people too many choices, do they mentally just shut down, and then not make any choice, or kind of choose not to participate? Now from a economist's perspective, okay. You would think more choice has to be good. But from a psychology perspective more choice could, behaviorally, potentially be bad. Here is kind of another example I'm looking at some of these financial district, Callahan Tunnel, kind of Broad Street, Aquarium, I guess this has to be from Boston. This again, this kind of financial district, this is like information overload! If I'm driving the car and seeing this sign I'm probably freaking out, and trying to get off the highway as soon as possible. Again, option confusion doesn't lead to just a mental shutdown. Is choice a good or bad thing, in all these examples, is kind of the fundamental question, applies to finance as well, okay. Behaviorally, too much choice can potentially be a bad thing if it causes people to mentally shut down, or mentally then adopt kind of go to, simple strategies. In my Oreo example, I want an Oreo, I'm confused by seeing pumpkin spice Oreos. I just kind of take the kind of standard Snickers candy bar, kind of the old tried and true here. Participants in 401K plans, retirement plans, if they're presented with too many investments options, empirically Iyengar, Huberman and Jiang actually find that they're less likely to participate at all in defined contribution plans. Actually a stunning finding. You give people more options, they may be less likely to actually participate in the first place. And here's kind of a figure that documents their finding very well. You can actually see here that as you, and they get this from regression, where they're controlling for several individual factors that might determine whether you participate in the plan or not. Like your age and your income, they're controlling for plan level factors like how large is the plan, how many people are participating in it. And they have a very striking relationship, you can see with this solid black line. That the more options there are in the plan, the lower the participation rate is. And these dotted line heres, on the top and bottom, are the 95% confidence intervals. But a very, very striking result that more fund options, less people participating in the plan. We think we're providing more choice, but instead we're actually maybe making people more confused, and less likely to save In the first place. And this is a concern because the average number of investment options has gone up over time. The dark blue bars are counting target date funds as one single fund and pension plans. You may have balance fund options that are set aside for people who are going to retire in 2035, 2040, 2045, 2050. I just ticked four or five separate funds, do we want to count that as one group of fund? Or do we want to count as four or five different funds? That's the difference between the light blue and the dark blue bars. But the key point is the number of investment options has been increasing a lot. One of the potential down sides of that is if people are getting more confused with presented with all these choices, are they just likely to participate in the first place? And remember that my own personal anecdote of the 403B plan in June of 2016 that had 206 investment options to think about, okay? So we talked about the research of our participants with too many options, seem to be less likely to participate in a plan at all. Another interesting result that if they do participate, they're more likely to pick a familiar option like investing in company stock. So again, think of Scott looking for the Oreos, there's too many options. Instead, he just goes with the old Snickers bar. [SOUND]