Paradox Of Financial Choices: Maximizing vs. Satisficing

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In the book Paradox of Choice by Barry Schwartz, he talks about how there are two types of people, maximizers and satisficers (think satisfy + suffice). I will simply quote the excellent summary from the book’s Wikipedia page:

A maximizer is like a perfectionist, someone who needs to be assured that their every purchase or decision was the best that could be made. The way a maximizer knows for certain is to consider all the alternatives they can imagine. This creates a psychologically daunting task, which can become even more daunting as the number of options increases. The alternative to maximizing is to be a satisficer. A satisficer has criteria and standards, but a satisficer is not worried about the possibility that there might be something better. Ultimately, Schwartz agrees with Simon’s conclusion, that satisficing is, in fact, the maximizing strategy.

If you can’t tell already after 10 seconds of reading this site, I am a hardcore maximizer. I love collecting data, poring over alternatives, finding out secret exceptions, all so I can choose the “best” choice. I prefer the term “good enough-er” to satisficer. For some people, the second it reaches the “good enough” stage, they are done and move on.

A Pathetic Maximizer Story
This happened just last week. A friend of mine comes over, and brings some McDonald’s with him. After he leaves, I go to throw out the garbage but notice an unpeeled Monopoly game piece. I peel it out of curiosity, but I get no instant-win and two random streets (St. James Place and Atlantic Avenue). But wait… I vaguely know that one of the rules of the game is that if you collect all the streets of a neighborhood (same color), you win a cash prize. However, some streets are given out all the time, while others are very rare. What if I had one of the rare pieces?

Of course, I then had to fire up the computer and search for the rare pieces. Lo and behold, Wikipedia also has a list of all the rare pieces. For example, Ventnor Avenue is also yellow like Atlantic, but is always the “missing” piece and thus essentially worth $25,000 by itself. My pieces were of course worthless. But I still had to know.

Maximizing and Investing
I began to think about how this relates to personal finance. In investing, you’d obviously like to maximize your returns. However, it is very difficult to know in advance which stock or mutual fund will outperform the rest. You could read books, financial statements, interview executives, or watch CNBC all day. You could listen to Warren Buffett’s every bowel movement and dissect all his annual shareholder letters for hints and tips.

Or if you’re like me, you may decide that even though the market isn’t perfectly efficient, it is still very efficient especially when costs like mutual fund fees, trade commissions, and tax considerations are taken into account. I now invest passively, and agree to be “satisficed” with the returns of the world markets minus costs. But even here, I am trying to maximize my returns by minimizing costs by buying Vanguard index funds or similar ETFs so that my portfolio costs less than 0.20% of assets annually.

Better to Satisfice?
The things I could maximize financially go on and on. From bank interest rates to cell phone plans, credit card reward structures to auto insurance premiums. Would I be happier if I just picked something “good enough” and moved on? Perhaps it is you readers that are the smartest, letting us slightly kooky bloggers do all the research for you, and then just picking what is good enough for you! 😉

Where maximizing hurts most is when it stops you from taking action. It doesn’t matter if your interest rate is 1.8% vs. 1.85% when your money is still stuck in a 0% checking account at some megabank. It doesn’t matter if you get the optimal 401k asset allocation if you’re not even contributing the most you can to the plan. For me, I have been putting off fixing up my house and adding solar hot water for several months because I want to find the “best” contractor. Meanwhile, I’m still using too much electricity and the tax breaks may expire.

Are there some things where you maximize, and others where you satisfice?

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  1. I am a maximizer and I agree that it’s only harmful if it prevents you from taking action. I often analyze every positive / negative in a purchase /decision. While some decisions are a no brainer to most, my maximizer personality stops me from taking action many times.

    My brother is a satisfier and if he likes and is satisfied he goes through with his decision without much thought.

    He makes twice my income, has zero saved, has a lot of debit and lives a very fun life with always on vacation and doing things.

    I have a nice bank account, but don’t travel too much and live a frugal life.

    I wish I could be somewhere between a maximizer and a satisfier, and I guess that would be a maximizer that actually takes action.

    example: In the process of looking a place, I crunch the numbers, realize I can afford, try to get a better price, when I complete all that I often think about all the money I’d be spending on an apartment and end up procrastinating and not taking action. The point of my story is, being a maximizer I think and research buy a place, know the best costs for a place I want, but never take action.

    I enjoyed this blog and it has made me think about my personality and how I make purchases and financial decisions, and I don’t nessesrily see a maximizer as better than a satisfier.

  2. What an excellent post!

    What? You make mistakes? I thought I had to be embarrased and hide my weaknesses and that everyone else has it all figured out.

    Such honesty about frailities and being human is very refreshing.

    Any tips on how to tell when it is better to be which and how to wean myself off my maximizer habits?

    I can’t seem to resist my maximizer habits.

    P.S. Last year I missed your 5.0% WAMU CD rates because I couldn’t resist researching further and then days later WAMU/Chase slashed the rate and I’ve been collecting pitiful interest since.

  3. matt @ Churnless says

    Great article – Barry is a mentor and friend and I’m always glad to see people applying the research, particularly in the domain of finance.

    I think you have 1/3 of the story right: action is a huge part of what maximization impeeds. During my time at Thrive (, I used principles of satisfaction frequently to help inspire people towards action and to avoid decision paralysis. For example, you’ll notice the site recommends only one savings account, the very best one we can find. Why? Because more options can make maximizers do nothing, and above all else, we want you to actually take action.

    Part two of the story with regard to finances, however, is about regret and satisfaction. Maximization folks tend to make more money at their first job, for example, but they’re are considerably less happy at the job than satisficers. With NY Guy, for example, the question needs to be asked: while you may be financially better off for crunching all those numbers, does that financial gain actually result in happiness that outweighs the regret you feel about having missed potential other options? For some people it does, and some people it doesn’t, but the general trend in the data is that it doesn’t. Thus, we have to be a little careful about maximization: if it gets us more/better, and more/better doesn’t make us happier, is more/better actually better?

    The third part of the story is related to inaction in some ways, but deserves a separate mention, and that’s oppurtunity cost. There is not just a regret angle about being in search of the best, in which you feel bad about not having achieved the optimal, and it is not just that you don’t end up doing anything and that causes problems. Rather, there is the cost of the search itself to consider. I like the Monopoly piece example for this: it isn’t that you regret looking or were paralyzed by a choice, it is that you spent a bunch of time on something that didn’t actually end up making you happier. This is a tichy one, in that scratching that itch may have made you happier. So let me say it this way: when you spend a bunch of time crunching the numbers or looking up rare pieces, you are using time that you could be using to do something you actually enjoy.

    That last point is actually one of the reasons that net can (isn’t always, for lots of reasons, but “can”) be helpful – there are lots of sites that do that heavy lifting for you. for finance, Google for search, Wikipedia for knowledge, etc.

    Great stuff!

  4. adam in Florida says

    Another potential pitfall for maximizers is the opportunity cost of all of the maximization, versus the time that could be spent with other activities (family, work, sleep). I would suggest that since you cannot maximize on every decision, it might make sense to stratgically focus on where maximization efforts are most efficient – in other words, maximize the maximization. The decision points on how to maximize would involve one’s available schedule, as well as the projects that one finds particularly useful/enjoyable. It can also be argued that procrastinators should be mindful not to use maximization as an excuse to avoid making painful/tough choices.
    I seem to recall reading recently (either this site or Money magazine)about the marital dynamics of financial decision making. Should a maximizer marry a satisfier? If so, how should they navigate their differences?

  5. Naturally, it should be important to be a maximizer when you are locking yourself into an expensive contract with a long term (like a refinance). ‘Satisficing’ in this is really a bad strategy. But there are so few (IMO) of these types of purchases you are faced with normally. Your investments, your mortgage, your car — maybe a couple of others. Anything where the savings is going to under the $1K mark is probably fine to just ‘satisfice’ about. Even something like a $400 item (an exercise bike my husband’s been looking at), if we get the sale, and go to the right place, were going to save about 10% — but 40 bucks for waiting a month (not in stock) and having something shipped (the shipping is free, but things can get damaged), to me, isn’t really worth it. Coupon clipping, for me, has become more annoying than money saving. Even if I save 10% again on my grocery bill, which is like $150 a week, that’s $15, and I’ll spend the time clipping, sticking it in my bag (where it will get lost), and schlepping the coupons around, getting stressed about not remembering it at the register — it’s not worth the $15 to me. Better is to just buy sale items, less digging my bag, getting stressed out.

    Of course, if I wasn’t working, maybe these small items would be worth worrying about. I think ‘satisficing’ probably has an inverse relationship to your free time. Lots of free time, maximize, otherwise, satisfice (except on major purchases).

  6. The last part of your post is the key – does maximizing delay or even prevent action?

    There is a diminishing return on additional information. At some point, the cost of getting additional information outweighs the benefit it will provide. Cost can include your time, delay (your solar example, many investment decisions), cost to buy information, etc.

    It is probably good to not make a completely impulsive, random, or uninformed decision. But at some point, it’s time to make the decision, accept that it is “good enough”, and start making the next one!

    You also have to look a the costs globally – perhaps agonizing over the solar heat has taken so much time that you never got around to checking on your car insurance. Your fine tuning may save another $1000 on the solar, but you will have spent $2000 extra on car insurance.

    To NY GUY: Your brother is not a satisficer – he is impulsive!

    Satisfice means to do enough, but not too much. Like Goldilocks – not too hot, not too cold, but just right!

  7. Excellent post (again). Unfortunately, I am one of those maximizers who doesn’t take action. Thanks for the reminder.

  8. I’m a total maximizer. It takes me months of research to make a big purchase decision, and I often end up knowing more about the choices that the people who work in the store! So frustrating.

    For the most part, I consider this a good thing, and once I’ve made my purchase, I’m usually content, even if I spot something better down the line.

    Where this has been a huge problem is buying a point-and-shoot digital camera. There are so many out there that I have literally been in research mode for over 2 years. I’ve missed countless great photo moments, or only had a crappy cell phone camera because of this.

  9. “Hi, my name is Lewis and I am a maximizer.”
    Seriously though, I feel like I need to address the underlying AA style confession in this post. A tendency towards maximization is a personality trait, not a mental condition. It has upsides as well as downsides.

    I would argue that a satisficer shares the maximization trait, but tempers the downside by acknowledging:

    – Opportunity cost (value of time spent)
    – Impact of your actions on those around you. Keep in mind, your innate level of utility (enjoyment) from carrying out the maximization is higher than others’.

    The 2nd can be especially important. (My wife finds maximization above her satisficant level to be quite irritating 😉

    Satisficing is nice wordplay, but I’ve always called it optimization. And no, maximal is not the same as optimal.

  10. I rarely leave comments, but I have to say this was a good read. I read the whole post and all the comments.I never knew there was a real term for this – but now I know that I am also a hardcore maximizer.

    Case in point, I am looking to buy a sub-$300 mountain bike for some weekend fun, and have found myself scouring the web and going into three different retail stores now…and I still have no bike! For such a small purchase is it worth wasting all this time to save a few bucks? Probably not.

  11. I would consider myself a Satisficer.

    I don’t necessarily agree with the comments that you should maximize something like a refinance. Of course, I take the definition quite literally. “A Satisficer is not worried that there might be something better.” Back to the refi example, I didn’t obsess over the fact that if I waited and/or shopped around more, that I *may* get something better. I jumped when a low/enticing interest rate presented itself. I know far too many people who waited for better rates that never materialized. Case in point – my current 30-year mortgage rate is 4.875%. The last I refied before was 2003 (historic low rates at the time – I certainly didn’t expect I’d ever refi again). I’m happy with having a better interest rate than 95% of the people I know. & having had so for the last 6 years or so. & I am not going to sweat that I knew a few people who attained 4.75%. Most of them either had better timing, or took a bigger gamble in waiting. To save 0.125%??? Certainly not worth the gamble. IT would be a waste of time to fret that I didn’t get 4.75%!

    I am a careful shopper, and I identify with some of the comments, but I just don’t take it to the extreme. (I’ve taken a year to purchase a bike, but was not because I thought there would be a better deal out there).

    Somebody mentioned marriage. Good point. I Was going to comment that I think my spouse is a Maximizer. & he tends to drive me a little nuts. I find that we make a good team though. I don’t think he would ever act on ANYTHING if it wasn’t for me. Though I admit he has had some good insights and more patience than me when it comes to certain purchases. We tend to balance each other out.

    Anyway, from my interpretation of the post, not sure anything is worth maximizing (in my opinion). Time is very valuable to me, and that is reflected in a lot of my decisions.

    BTW, I do think you nail it on the head a bit. I love to read blogs of “Maximizers.” They tend to do the heavy lifting for us Satisficers, definitely!

  12. Alexandria — I would say that 4.875 was a mortgage being maximized. No one can guarantee a bottom — you got in at an ideal time. If you took 6% just to be over and done with the thing, I would say you ‘satisficed’, not at the rate you got. To say you didn’t maximize here, I think, isn’t true. You avoided risk by jumping in when you did, with a remarkably low rate. A true maximizer, to me.

  13. I think all this blog’s readers are maximizers….

    The topic reminds me of Eric Tyson’s book “Mind Over Money”. (Tyson also wrote Personal Finance and Home Buying for Dummies.)

    Interesting book that categorizes people according to their money personality… Was a fascinating read.

  14. Interesting – I think the whole reason I read this blog is because I’m a maximizer and this blog is totally geared toward that. Is it possible to be a “maximizer” of happiness? Is that any different than a satisficer? I dunno, I still feel like defending my maximizing habits, even though I haven’t read the book. So I’ll call myself a happiness maximizer.

  15. Mimi,

    I don’t think low(er) standards in the way you implied is a requirement for a “satisfier”. In the mortgage case, a satisfier might do the research and conclude that a rate of around 4.875 in the current market is a good enough rate and one that he/she would be satisfied with. Once she finds a rate of 4.875 or better, she locks it in and doesn’t look back. If she later finds out her friend got a rate of 4.7 three months later, she doesn’t care.

    A maximizer in the same situation might conclude that 4.875 is a great rate, but there might be a better rate coming soon and wait it out. Or, they may pull the trigger and lock in the 4.875 since they perceive that rate to be maximizing with the information they have. BUT, if she later finds out that her friend got a rate of 4.7 three months later, she will likely react negatively and feel bad. She didn’t maximize after all!

    Satisfiers can have high standards, they just don’t look for the “absolute best out of all possible options” and once they make their decision based on their “good enough” criteria they are content. They don’t care that there might have been a better choice.

  16. highstandards says

    Stats Says is absolutely right and a points out a common misunderstanding of the “satisfier” strategy. “Satisfiers” can have very high standards backed by research, but pull the trigger as soon as their standards are met and don’t look back.

    I think the example in the book involves a sweater. So, say your criteria for a new sweater was super fine casmere, a certain shade of color, and under $300. If the Satisfier found a sweater that met this criteria in the first store he/she entered they would buy the sweater and be on with their life (and likely very happy with their purchase). The extreme Maximizer would visit every store in the area to see which sweater was the very best, eventually might buy one and then probabely feel less satisfied with their purchase because they are not quite convinced if the very best they could have done.

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