Freedom of choice
Is what you got
Freedom from choice
Is what you want

In ancient Rome there was a poem
About a dog who found two bones
He picked at one he licked the other
He went in circles he dropped dead

Then if you got it you don’t want it
Seems to be the rule of thumb
Don’t be tricked by what you see
You got two ways to go

Freedom from choice?

– DEVO – “Freedom of Choice”

Financial services providers are under increasing pressure to act in consumers’ best interests. But they often confuse this duty with simply offering more and more choice. In fact, as choice gets closer to being unlimited, consumers get further away from being able to make good decisions. 

We’ve all heard of “analysis paralysis”, or the inability to make a decision when faced with too many choices; or “buyers regret”, a post-purchase malaise lamenting the possible opportunity cost of rejected alternatives. Even worse than avoiding or doubting decisions is committing to sub-optimal choices due to uncertainty.

Let’s face it, while financial services providers can convincingly argue each individual product’s case for existence in a crowded market, the current framing of choice tends to be more in the supplier’s interests than in the consumer’s interests. Helping consumers make meaningful and constructive decisions is a far more nuanced process than either offering them choice or offering them no choice; it’s about how much choice is really optimal for making the best decision, and what support is provided to make that decision. 

With numerous ongoing scandals, industry reforms and consumer backlash, financial services brands increasingly need to earn their right exist by transcending slogans, and actually put this central “customer-first” conviction into action.

Consumers want to believe they have a wide range of options to choose from, but “choice” looks different for everyone, depending on who they are and where they’re are at. Some consumers are looking for limited simple choice, with some reassurance the other options are not exactly right for them. Others want to explore their options in more depth and conduct more comprehensive cost benefit analysis to decide.   

Four roles for financial services providers

Financial services providers need to meet consumers where they live and help them make the best possible decision for their needs. Depending what a consumer needs, there are four potential roles a financial services provider can play in facilitating best-interest decision making:

1. Prescription
Present a very finite set of options. Have recommended option and use other options as reference points for next best but clearly inferior alternatives.

2. Curation
Reduce decision making task into key ‘need to know’ considerations with pros and cons for each relevant option to choose from. Facilitate decision making task by summarizing key points, allowing easy access to detail if required and providing a clear stepped process to making a decision.

3. Education
Provide support to develop capacity and expertise driving underlying decision – skills such as knowledge, domain (theories) and evidence-based learnings (fast tracked experience).

4. Co-creation
Collaborative decision-making process more akin to a high-performance coach and athlete relationship – drawing from mutual experience but ultimately requiring the athlete to make the call in the heat of play. All options are on the table and investigated in a more thoroughly deductive manner. 

The freedom to choose is inevitably associated with the “pursuit of happiness”. However, will unlimited choice ultimately drive unlimited levels of happiness? Happiness has oft said to be commensurate to our expectations minus (perceived) reality. If expectations help determine happiness, then unlimited choice may in fact make expectations unlimited and therefore harder to achieve.

Don’t like it, not good at it

The reality of making decisions is that we usually don’t enjoy it and more often are not very good at it. Behavioural finance repeatedly demonstrates that we are rarely perfectly rational, perfectly informed or even acting in our own best interests. Emotion, cognitive biases and “short-cut” heuristics play a central role in our decision-making processes. 

Complex decision making is more like an argument between an engineer and a bored teenager. Rather than seek to make perfect decisions, we satisfice with “just right enough” – we readily accept a bounded rationality. We prefer to reduce our options down to a manageable consideration set and we are naturally drawn to making the easier of any decisions put before us.

Despite unlimited choice sounding like an ideal, the reality is choice and complexity amplifies uncertainty. We all want to believe we have a choice, but unlimited choice with unsupported decision-making creates vulnerability to exploitation, and often ends badly for consumers.

Beware of choice “short-cuts”

All this might seem to lend some support to the argument of industry super fund market consolidation and policy options such as the Productivity Commission’s “best in show” proposal. This would lead to a shortlist of 10 super funds, to which new entrants to the superannuation system would be directed unless making an active choice of an alternative fund.

However, drawing up a shortlist like this does not necessarily support consumers in making best interest decisions for themselves.  

Consumers often struggle with the hypothetical and uncertainty in the future. Overcoming this barrier is the key to helping people make better decisions and to choose what is truly in their best interests.

Mature markets like the United States tend to unquestionably believe that greater consumer choice is always better and look to product development as a panacea for all that ills. However, consumers are just looking to make their best possible decision and are not necessarily seeking product innovation – especially endless ‘innovation’ that just involves tweaking of existing offers and reworking marketing spin.

The superannuation industry can better serve its members by helping them make decisions best suited to their unique needs – not just by giving them more choice. Like Devo said back in 1980, sometimes what we really need is not freedom of choice, but freedom from choice – with curation and support to make better decisions about what is really just right for us.