By Evan Barale, Senior Product Manager at Access Softek. Originally published at The Financial Brand, June 6, 2019.
The conventional wisdom holds that giving someone more options means their choices are better.
But are their choices really better? Or just hopelessly complicated?
Studies have found that “choice overload,” with accompanying feelings of anxiety and dissatisfaction, frequently appears around important decisions. Financial products are no exception, and if you offer accounts online your applicants may be struggling — and quitting — due to choice overload.
As an example, studies of 401(k) plans reported in the Journal of Financial Services Research have found that while wealth and income increased the odds of participating in a 401(k), increasing the number of mutual funds offered had a negative effect on participation.
“Increasing the number of options makes individuals not only less likely to invest but also more likely to pick conservative options…that over the long run lead to lower returns,” observed Alexander Chernev, Associate Professor at the Kellogg School of Management, Northwestern University, in a white paper for the Filene Research Institute.
The feeling of choice overload is particularly likely to appear when someone is offered a selection among products that all differ in several ways.