Paralysis by Analysis

Is having too many choices bad for us? Back when we were small innocent creatures, we tend to listen to our parents and what they think is best for us. “Go and study! Don’t play already!” usually has its benefits for our academic performance and our career prospects in the future. We weren’t given too much of a choice and we still grew up well. We dug our heads in our books.

As we slowly gained more autonomy through aging – I mean – as we age, life decisions became slightly tougher. “Which university to go to? Which course to take? Which module? Which professor? Which timeslot!?”. There are so many choices that we tend to notice a slowdown of our decision-making and we feel significantly more regrets. “Aiya, this university need class participation so much. Oh no, too early in the morning I cannot wake up. This prof I chose can’t teach…”.

We have to make many choices in our daily lives, and they come with a consequence. But, not only that, but we are also deliberating with the opportunity cost of a decision. The very presence of a counterfactual scenario causes us to submerge in a vegetative-like state of trance for a period prior to deciding. Psychologists call it “Decision Paralysis” or “Paralysis by Analysis” and it is essentially an outcome of the Paradox of Choice.

The greater the impact on one’s life, the greater the paralysis. Choosing which place to eat at with your buddy likely won’t stress you out but the selection of the restaurant to go to with your crush could send you into frantic research that may be worthy of a research paper.

The same goes for investments where we decide which stock is worth our hard-earned cash. One company that is touted to have the best quality product, another with a laudable proportion of the market under its belt, and another with promising R&D results. Which company do we then invest in? Multiply that by a good 10 to 20 stocks for our diversification purposes.

We may unknowingly delay ourselves from prime investments opportunities laid out in front of us because of this. There were a few stocks that I have let go in the past because of my inability to determine a course of action for myself. I teetered with all these thoughts in my head: At what take-profit & stop loss do I set, for how long a time horizon, what warning signs I should look out for, what other better choices from the same industry do I have etc. In the end, I went in with my decision but have lost a good 1-day worth of a green candlestick and it was a thick one in fact.

Even after our decision, the alternative reality that we have chosen to forego can lead to regrets. For a counterfactual that we cannot directly observe such as choosing another university or another career path, we may not wrench our hearts that painfully. But, in the area of investments, we can wallow in self-pity as we see the choices that we have foregone decide to take on a more successful course while ours head into the doldrums.

I had my fair share of regrets as well by taking my profits in certain well-known tech stocks a little too early (despite huge gains already). Then, the mini bubble emerged, and tears were rolling down my eyes just from seeing the lost gains. It took a huge deal out of me to make that decision to take profit and I eventually regretted it. Okay, that’s pretty much exaggerating but you get what I mean.

When there’s no choice, it’s the world’s fault for the failure. But when there’s a choice, you can only blame yourself for the failure. A plethora of options but you are the one to exercise it (pun intended), and you are the one to take the responsibility for that choice. It’s perhaps the same as how some doctors are to provide the choice to patients on which surgical method (let’s say bypass vs keyhole surgery) they would like to do for something minor. Patients may be influenced to pick one that’s way more expensive with the idea that it has a better chance of survival when both methods have the same probability of survival. It is the fear of regret that causes patients to avoid the cheaper method. In this way, too, hospitals pass on the burden of choice to the patients and in return get more revenue for the expensive option selected – what a brilliant strategy!

Worse still, when there are more choices, we have greater expectations. Thus, we are more prone to regret, and we have a dumbed down level of happiness from our success. From the previous anecdote of my “early” withdrawal of profits, I should have been satisfied with my gains. But, looking at the foregone choices to continue to hold for another X number of days, I could have made way more profits. My regret was immeasurable, and my days ahead were ruined. But do take note that with a respectable level of profit already, I should have been satisfied according to standard laws of utility.

Because my buddy’s moniker is a goldfish, let me part of with this pretty intelligent imagery. The paradox of choice is akin to smashing the bowl that goldfishes live in. The goldfish can imagine doing many things out of the fishbowl, but it will cause paralysis when it really comes to that point of smashing the bowl. We may find it better at times to stay in our fishbowl (perhaps in some fund rather than in multiple stocks?) and perhaps our first instincts may lead to the best decision we could make too.

If you're interested to chat on this topic or to exchange ideas, please feel free to drop me a message on Telegram @elijah2212 or through email elijah.thj@gmail.com!