The Paradox of Choice

Greater choice is something we learn to desire, however as the number of choices increases, so does the difficulty of knowing which is best. Sudden wealth opens the door to limitless choice - something that can easily lead to decision paralysis if not properly understood.

We’ve all been there. Brunch with a friend, and you’re each perusing the menu. You flip-flop between several equally great sounding options. You think you’ve made your mind up, but then in creeps a smidgen of doubt.

The server comes over, and your friend orders the Ricotta Pancakes with Maple Bacon and Honeycomb Butter. You hesitate for a moment, before going for… the muesli.

The food turns up, the envy kicks in, and it’s simply too late to change now. You’ll spend the rest of the meal regretfully eyeing up the plate opposite, vowing never to make the same mistake again.

While it might affect the odd meal out, ‘food envy’ thankfully, has minimal lasting impact on our lives. But what happens when we’re faced with more complex choices, ones which may have important consequences for us or those we’re closest to?

In the beginning…

Arriving into the world as new-borns, we’re plunged into a world where choice is an alien concept; our caregivers are likely to make every single decision for us. Indeed, it’s only as we grow into toddlerhood that an element of choice and control over our own bodies becomes even a possibility.

As we grow, caregivers may offer us a simple ‘this or that’ binary choice over food or activity decisions, however, for a brain just getting used to optionality as a concept, too many choices can easily overwhelm.

Becoming children means being plugged into a world of consumerism. A first visit to a toy shop can result in overwhelming frustration at the endless options on offer - leading to ‘choice paralysis’ where decision-making becomes impossible.

As we grow, we’re taught that more choice is desirable - a sign of affluence perhaps - and a quality of Western culture more broadly.

In his 2004 book The Paradox of Choice, and his accompanying TED talk, Barry Schwartz shows how an abundance of choice might not be such a great thing.

Instead of bringing freedom, being presented with numerous choices can have the opposite effect, requiring greater effort and ultimately leaving us feeling less satisfied with the choice we have made.

That frustration we felt as a child in the toy shop remains very much part of us, albeit sufficiently disguised and buried. Choice, Schwartz argues, can tangibly impact not only our levels of happiness but also our mental health.

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A wealth of options

To massively oversimplify, wealth buys optionality. To go through a liquidity event means being suddenly faced with a huge number of choices. It’s not just the toy shop scenario either; many of the decisions you make over the coming months and years will have long-lasting and important implications.

Suddenly where you live, what you do, what you have, and how you spend time, are no longer limited by your bank balance. Did you expect feelings of elation, relief and perhaps euphoria? In our experience, for most clients, the opposite is true.

Realising a substantial sum - perhaps from a company sale - can be profoundly anticlimactic, and the sheer number of complex choices and endless possibilities can feel overwhelming and in some cases lonely. It also creates questions about friendships, who should (not) know, should I pay for things, what will they think of me?

And unlike our brunch scenario, these choices are not inconsequential. Do I just leave the cash in my bank account? What if something happens to me? How much of it can I spend? Is that big purchase irresponsible or well-earned? What can I afford to do, and what can I still not afford to do? Who should I talk to about this? The kids all have smartphones: what do they already know?

To compound this new and unforeseen complexity, your inbox fills up with solicitations from wealth managers. Do I need one? Why? How do I possibly choose when they all look and sound the same?

It is not surprising that over half of people who realise sudden and large amounts of wealth do absolutely nothing for at least six months. And while we don’t advocate for inertia, a certain amount of thinking time at this juncture is crucial.

Wealth strategy is everything here. Starting with the purpose of your wealth, a good advisor will lay out the options but advise on the right choice for you, showing conviction in one route over another.

It’s why it was crucial for us when we founded Six Degrees to ensure that we provide clear advice on the best course of action, both at the outset and in perpetuity. Coming to the table with conviction and accountability is incredibly important for the business owners we look after, and coupling this with a deep understanding of their wealth’s purpose creates an anchor to the strategy itself.

And what about brunch? In our experience it always pays to go for the pancakes.

About the Author

Oliver Saiman is Co-Founder of purpose-led wealth manager Six Degrees. Along with his Co-Founder Katherine Waller, he advises high-net-worth business owners on the creation and management of their wealth strategy. Six Degrees partners with families and individuals who have ￡3m to ￡50m in investable assets who have a very high affiliation with purpose. They are typically on the wealth journey, but have not fully arrived at their destination.

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This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

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