Knowing What You Like
People are good at knowing their preferences for familiar options but struggle to predict their preferences for unfamiliar choices. This difficulty in translating choices into experiences leads them to rely on others or limited options to make better decisions.
THE IDEA
Knowing What You Like
Most of us have a good sense of whether we prefer coffee ice cream to vanilla, Bruce Springsteen to Bob Dylan, and basketball to football (of either variety). These are examples for which we have had the time to sample the alternatives and learn about our tastes. But suppose that you have to forecast your preferences for the unfamiliar, such as when dining for the first time in a Burmese restaurant, or in a country with an exotic cuisine. Smart tourists often rely on others (waiters, for example) for help: “Most foreigners like x and hate y.” Even in less exotic locales, it can be smart to let someone else choose for you. Many of the best restaurants in the world give their diners very few choices. You might be asked whether you want the two-hour or three-hour treatment, and whether you have any dietary restrictions. The benefit of having so little choice is that the chef is authorized to serve you things you would never have thought to order. At the best sushi bars, the tradition is to let the chef decide what you eat. Just ask for “omakase” and you will eat well. If there are things foreigners often dislike, the chef will sometimes ask, “Are you sure you want the uni?” That is personalized omakase.
It is particularly hard for people to make good decisions when they have trouble translating the choices they face into the experiences they will have. A simple example is ordering a dish from a menu in a language you do not understand. But even when you do know the meaning of the words being used, you may not be able to translate the alternatives you are considering into terms that make the slightest sense to you.
Take the problem of choosing a mutual fund for your retirement portfolio. Most investors (including us) would have trouble knowing how to compare a “capital appreciation” fund with a “dynamic dividend” fund, and even if the use of those words were made comprehensible, the problem would not be solved. What an investor needs to know is how a choice between those funds affects her spending power during retirement under various scenarios. That is something even an expert armed with a good software package and complete knowledge of the portfolios held by each fund can have trouble analyzing. (As they say in the required disclaimers, “Past returns are not always a good predictor of future returns.”) The same problem arises for the choice among health plans; we may have little understanding of the effects of our selection. If your daughter gets a rare disease, will she be able to see a good specialist? How long will she have to wait to be seen by that doctor? Choosing a car isn’t the hardest decision in the world, but exactly which features do you want your car to have? Traction control? Adaptive headlights? Blind-spot warning? Rear cross-traffic alert? When people have a hard time predicting how their choices will end up affecting their lives, they have less to gain from having numerous options and perhaps even from choosing for themselves. A nudge might be welcomed.
When to use it
When traveling to a foreign country, allow a local guide to choose meals and activities to avoid disappointment from unfamiliar choices.
When selecting a complex financial product like a retirement fund, seek advice from a fiduciary advisor who can simplify options based on your goals.
When customizing a product (e.g., a computer or car), rely on a curated package or 'recommended configuration' rather than choosing every feature individually.
When joining a new health plan, ask a knowledgeable HR representative or broker to explain how different plans cover rare or serious conditions.
FROM THEORY TO EVERYDAY LIFE
In practice
Dining at an exotic restaurant
When dining for the first time in a Burmese restaurant or in a country with exotic cuisine, smart tourists rely on waiters for guidance: 'Most foreigners like x and hate y.' This delegation helps avoid poor choices when the menu is unfamiliar.
Choosing a mutual fund
Investors struggle to compare funds like 'capital appreciation' and 'dynamic dividend' because the names don't translate into meaningful retirement outcomes. Even experts find it hard to predict future returns, making it difficult to choose wisely.
Selecting car features
When buying a car, features like traction control, adaptive headlights, blind-spot warning, and rear cross-traffic alert are hard to evaluate in terms of their actual impact on driving experience. People may benefit from a curated trim level rather than building from scratch.
A MOMENT TO REFLECT
Put it to work.
Think of a recent decision where you had difficulty predicting your preferences. How might you have benefitted from delegating the choice to an expert?
Consider a situation where you had too many options. Did you experience choice overload? Could a 'menu' designed by someone else have improved your satisfaction?
How can you apply the 'omakase' approach—letting a trusted expert decide—to other areas of your life, such as career decisions or technology purchases?
CONTINUE THE CONVERSATION
Source texts
- Nudge The Final Edition (Richard H. Thaler Cass R. Sunstein)