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Mom takes charge of planning the family holiday and delves into extensive research. She explores various destinations, compares hotel reviews, considers weather conditions, and thoroughly plans each day's itinerary. She wants the vacation to be filled with exciting activities and unique experiences. Despite the complexity and time-consuming nature of her planning, she believes that this thorough approach will ensure the family has the best possible holiday.
Dad’s approach is however very different. He values a more straightforward criteria for the family holiday. He prioritizes a destination based only on the weather and proximity to the beach. Dad saw a brochure of a resort that offers just that and is content that there is no need for further research. He values simplicity in planning, preferring to focus on enjoying the vacation rather than getting lost in endless details.
With this scenario in mind, we make reference to Barry Schwartz's maximiser-satisficer theory as articulated in his 2004 book "The Paradox of Choice: Why More is Less”. We will delve into the complexities of this theory and illustrate how it relates to the world of investing, aiming to empower individuals with insights that can collectively lead to more informed and hopefully happier choices for the whole family.
Maximizers are those who aim to make the best possible choice, seeking the maximum benefit in the long run. On the other hand, Satisficers are more modest in their approach, making choices based on straightforward criteria. Maximizers, while also refining their options based on essential needs, aim for the choice that provides the maximum benefit or utility. However, they often set unachievable standards, leading to decision-making difficulties and dissatisfaction when these standards aren't met.
The concept of "satisficing" was introduced by Nobel Prize-winning economist Herbert A. Simon in 1956. Satisficers consider what they want to gain or preserve from a situation and evaluate their options to find a solution that meets their requirements.
By now you may have inferred that Mom, with her exhaustive planning and pursuit of the ideal holiday experience, embodies the traits of a maximizer. Dad, on the other hand, with his clear criteria, represents a satisficer. Obviously, there is as much of a chance that these roles be reversed. Either way there now appears to be a conflict of choice. What to do?
Barry Schwartz (a psychologist by profession), explored the paradox of this choice, finding that an increased range of options doesn't necessarily lead to higher satisfaction. More is less? Maximisers, despite their /thorough approach, may not always benefit from an expanded set of choices.
We quote Nassim Nicholas Taleb, author of ‘’Fooled by Randomness’’ in saying that “most humans stop when they are satisfied (satisfied + suffice) with a result rather than working towards the most optimal outcome. Satisfices are happier; where as mazimizers end up being more successful on any traditional metrics of success. The causality is not clear though”.
Further insight suggest that Maximizers are individuals who meticulously explore every available option, seeking the absolute best outcome. In contrast, Satisficers adopt a more pragmatic approach, aiming for a satisfactory choice that meets their criteria without exhaustive exploration. In general, all the research that we have gathered seem to suggest that Satisficers tend to be happier with their decisions compared to Maximisers. The constant pursuit of perfection by Maximisers often leaves them with lingering doubts about their choices. Satisficers, in contrast, experience greater contentment due to their ability to make decisions efficiently and move forward without dwelling on the possibilities they might have missed. Having said this however, we believe there is a place for both Maximisers and Satisficers in most things and as such we should becareful to base our happiness on immaterial events. Let us rather conceptualize other people’s viewpoints and collectively find what encumbers the most happiness for all. Now, let’s put our investment hats on for a second and return to Mom and Dad.
Collectively Mom and Dad have two objectives. The first objective is to grow their existing savings by a predetermined amount for a known deposit on their dream home in 2 years time. For simplicity sake, let us say they only need a return of 8% to achieve this goal. In this case all the inputs are known, and their outcome is clear. No need for Mmaximiser Mom’s in-depth analysis. The objective and the choice of investment go hand in hand. They can therefore simply invest in a conservative fund that have consistently returned around 8% without taking on too much volatility. A suitable investment in this case would be the Arysteq Money Market Fund that offers just this.
The second objective for mom and dad is to save for their 2-year-old boy’s university education. Now the time horizon is much longer (+/- 16 years) than the time horizon set forth in the deposit example (2 years). This means Mom the Maximisor and her meticulous attention to detail could come in handy as the objective here may be to achieve returns well beyond 8%. To do this would most likely require investments in various geographies and different asset classes. The issue here however might not be the conflict of choice but rather too much choice. This is where the dedicated team at Arysteq comes in. We do all the meticulous research and analysis to maximise your investment returns so you can spend more time focusing on what makes you happy, spending more time with your 2 year old son and focusing on that great family vacation!
We believe that finding joy in your financial journey involves understanding your preferences, setting realistic goals, and making informed decisions. At Arysteq , we're here to help you find the perfect balance in your investment journey by understanding your needs. We understand the challenges of decision-making in finance and aim to provide the tools and resources you need to reach your financial goals.
