Sanity and happiness are an impossible combination."
- Mark Twain

As most economists, I have been thoroughly educated to believe that people maximize utility (well-being). Sometimes people do not appear to do so (at all!), but if you correctly take into account all benefits and costs, and the information set available, a good economist can explain almost every decision as being rational and utility maximizing.

In a world of utility maximizers, more choice is better, as it improves the chances of reaching the highest possible utility: With many options available, we can find just the dish that makes our mouth water, at a nicely decorated restaurant, with really great music, and at a reasonable price, whereas if there were fewer options available, we might have to choose between good food and awful music, or good music and awful food. Even with few options, we would of course be maximizers and choose the option that provides us with higher utility, but our utility could have been much higher, if there were more options available.

However, even a slight brush with the field of psychology (or the real world, for that matter) will tell you that maximizing behavior is quite unusual, and that more choice may actually make us less happy.

According to American psychologist Barry Schwartz, author of “The Paradox of Choice,” only about 10 percent of the American population are maximizers, in the sense that they will search for and accept only the best. The remaining 90% are satisficers, as they will settle for something that is good enough and not worry about the possibility that there might be something better available. Maximizers will spend hours, days or years investigating and evaluating options, while satisficers will settle for the first option that satisfies the need, and then move on.

One of the problems with being a maximizer is that it requires a tremendous amount of time to investigate all options and evaluate the expected utility of each. With too many choices available, a maximizer may easily experience analysis paralysis. But an economist would just include research time as a cost and conclude that satisficers are really optimizers with high opportunity costs.

However, there are other characteristics of optimizers, which economists can’t explain away, and one of them is regret. People who have spent an inordinate amount of time picking out just the right restaurant are much more likely to feel disappointed by any imperfections in the evening, ending up questioning their own choices and wondering whether another choice might have been better, and thus simply not enjoying the evening as much. In contrast, visitors to the Mosquito Bar in Rurrenabaque are guaranteed a great time, simply because there are no other options available in the region (at least not when I was there years ago), and everybody will be there enjoying themselves.

Another problem of maximizers is their high expectations. If there are lots of options, a utility maximizer would expect it to be possible to find a restaurant with just the right combination of features, but if the actual experience do not match those high expectations, he would feel disappointed and somewhat unhappy.  In contrast, a satisficer who just picks the first open restaurant probably won’t have very high expectations, and thus might end up getting pleasantly surprised.

Yet another problem with being a maximizer in a world of many choices is that if things do not work out as well as expected, the maximizer has only himself to blame, and such self-blame tends to be hard on the self-esteem and reduce happiness. In contrast, satisficers can much more easily shrug off a bad experience, blaming it on bad luck or a bad cook.

There are of course more serious choices to be made in life than picking restaurants, and Schwartz’s insights apply to these, even if he tends to focus on shopping (see Schwartz’ TED talk). Job choice is one of those serious choices, and with just about as many jobs existing as there are working-age people on the planet, the options are almost infinite (especially if you take into account the option of becoming an entrepreneur). However, if you have a job, but are constantly looking around for better options (maximizing behavior), you are unlikely to do very well in that job and unlikely to be happy with it.

Marriage is another serious choice, and as far as I can see, the institution of marriage is designed for a world of satisficers, not optimizers. Indeed, optimizers would never marry, as marriage reduces choice dramatically (usually from several billion to one). Satisficers, on the other hand, are much more likely to be happy in marriage and rather appreciate not having to go through the hassle of searching for and picking out who to sleep with each night.

I vaguely remember an economics class teaching the advantages of commitment (the possibility of reducing choices), so these ideas are not entirely new to economists. However, the commonly used utility-maximizing behavior of a representative agent is still too far removed from reality, and there is a serious need for new concepts and theories in economics which recognize these psychological insights as well as real world behavior.