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Jean’s Journal November 8, 2017

Election Season is upon us.  I don’t mean the political election – I mean the election of your medical plan for Medicare or your election of possible benefits from our employer, your election of health plans from employer, your health insurance provider or Medicare supplemental plan.  This is not a simple task, nor easy.  This task becomes especially more challenging as we enter into changes into our lives.   Forks in the road of life (marriage, divorce, job changes, children, retirement) add variables that need to be considered in our choices. This as well as the complications of the many choices we have can frustrate and dismay. American psychologist Barry Schwartz labels this the Paradox of Choice in his book for 2004. He comments on how to make good decisions – for me it aligns so incredibly well with financial planning and with investment options – I thought to relay his wisdom taken directly from the Wikipedia page below.
Schwartz describes that a consumer's strategy for most good decisions will involve these steps:

1. Figure out your goal or goals. The process of goal-setting and decision making begins with the question: "What do I want?" When faced with the choice to pick a restaurant, a CD, or a movie, one makes their choice based upon how one would expect the experience to make them feel, expected utility. Once they have experienced that particular restaurant, CD or movie, their choice will be based upon a remembered utility. To say that you know what you want, therefore, means that these utilities align. Nobel Prize winning psychologist Daniel Kahneman and his colleagues have shown that what we remember about the pleasurable quality of our past experiences is almost entirely determined by two things: how the experiences felt when they were at their peak (best or worst), and how they felt when they ended.
2. Evaluate the importance of each goal. Daniel Kahneman and Amos Tversky have researched how people make decisions and found a variety of rules of thumb that often lead us astray. Most people give substantial weight to anecdotal evidence, perhaps so much so that it cancels out expert evidence. The researchers called it the availability heuristic describing how we assume that the more available some piece of information is to memory, the more frequently we must have encountered it in the past. Salience will influence the weight we give any particular piece of information.
3. Array the options. Kahneman and Tversky found that personal "psychological accounts" will produce the effect of framing the choice and determining what options are considered as subjects to factor. For example, an evening at a concert could be just one entry in a much larger account, of say a "meeting a potential mate" account. Or it could be part of a more general account such as "ways to spend a Friday night". Just how much an evening at a concert is worth will depend on which account it is a part of.
4. Evaluate how likely each of the options is to meet your goals. People often talk about how "creative accountants can make a corporate balance sheet look as good or bad as they want it to look." In many ways Schwartz views most people as creative accountants when it comes to keeping their own psychological balance sheet.
Pick the winning option. Schwartz argues that options are already attached to choices being considered. When the options are not already attached, they are not part of the endowment and choosing them is perceived as a gain. Economist Richard Thaler provides a helpful term sunk costs.
5. Modify goals. Schwartz points out that later, one uses the consequences of their choice to modify their goals, the importance assigned to them, and the way future possibilities are evaluated.
Note – I cannot remove the complexity of the many choices upon us but I hope I can guide you to a process of improved outcomes.

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