“Opportunity Paranoia” and 6 More Ways Your Brain Sabotages Your Money

“Less is more. Too much is stressful.”

This simple phrase is the most significant outcome of psychologist Barry Schwartz’s research, described in The Paradox of Choice.

…while increased choice allows us to achieve objectively better results, it also leads to greater anxiety, indecision, paralysis, and dissatisfaction.

Barry Schwartz

This idea is most often applied to consumer scenarios. “Chocolate or vanilla” is less stressful than “here are our 50 flavors!” My favorite example: it’s why Costco has such limited options. If you want peanut butter, here’s JIF. You don’t have to decide between 12 different brands.

But when applied to personal decision-making, Schwartz’s research is commonly called “analysis paralysis.” It’s the inability to make a decision due to overthinking. Our own thoughts create too many choices. We second-guess ourselves. We stall, we stress, we flail, we fail.

This analysis paralysis creates four major problems in day-to-day life:

  1. Analysis paralysis lowers performance on mentally-straining tasks. Simply put, our brains have limited “working memory”—just like a computer. If you use that working memory on overanalyzing, you’ll have less to use on more important tasks.
  2. …it kills creativity. When your brain is caught up in analysis, your creative synapses are less active.
  3. …it saps willpower. This is so-called “decision fatigue.” Our brains have finite willpower each day. If you use it all while paralyzed on one decision, you’ll have nothing left for later decisions.
  4. …and, ultimately, it makes you unhappy. This is the famous satisficer vs. maximizer conundrum. “Satisficers” solve a problem until they’re satisfied. “Maximizers” solve a problem until the solution is perfect. Analysis paralysis is a maximizing behavior. But study after study shows that satisficers are happier.

Analysis paralysis, in other words, is bad! And it certainly creeps its way into personal finance. I hear a new story every week. It’s a significant and common source of financial stress.

So here are the 6 common ways I see analysis paralysis in personal finances, and what you can do to avoid it.

  • Too much thought over too small a purchase. Should you buy the $5 JIF peanut butter or the $4 store brand? Stop it. Every decision—big or small—hurts your willpower for the rest of the day. Don’t waste a decision on $1 of peanut butter.
So many choices…but why?!
  • Opportunity paranoia, or the preoccupation with determining everything’s opportunity cost. This is especially prevalent in the FIRE community, where the zealots view every facet of life through the lens of money and time. “I could spend $50 on dinner. But if I invested that money, I might have ~$1600 in 50 years…”

    Sure. You could. Every decision today has a painful opportunity cost in the future. But skipping today’s dinner (and every nice expense ad infinitum) might make you the unhappiest guy in the nursing home and the richest guy in the graveyard.

    This money…you can’t take it with you!

  • Knowing everything before jumping in. If you insist on knowing everything about budgeting, investing, etc. before starting your personal finance journey, you’ll stagnate on the starting line forever. Zero progress.

    There’s nothing wrong with a little self-study. But you’ll have to admit eventually: you can’t get wet unless you jump in the pool. So set a deadline to take action and follow through.

  • Picking stocks, timing the market, and other “pursuits of perfection” in investing. It’s so enticing for investors, like all people, to seek out “I’m smarter than you” scenarios. But time and again, the data shows that most professionals aren’t smarter than the market. What chance does an amateur have? Instead, diversify your portfolio, buy and hold, and keep a long-term mindset.
Source: Smart Financial
  • The “Iyengar Study” – the more investment choices in a 401(k) account, the less likely employees are to participate in it. More choices = more analysis…and more paralysis. Yikes! The lesson? Do your best to avoid scenarios with too many choices.
  • Automation is key. The decision to automate removes 100 decisions in the future. Banking, investing, budgeting, bill pay…it can all be automated. A stitch, in time, saves nine.
  • Making perfect the enemy of “good enough.” My budgeting is rarely perfect. I’ll reconcile my accounts and realize that $16.35 is “missing” and the balances don’t line up. I could spend 30 minutes reviewing every line item, searching for the missing $16.35. Or I could chalk it up to a mistake and add in a fake $16.35 expense.

    Knowing that I got $3000+ of monthly spending perfectly documented, my time and brainpower are worth more than a $16.35 mistake.

Perhaps my favorite quote from The Paradox of Choice is:

When asked about what they regret most in the last six months, people tend to identify actions that didn’t meet expectations. But when asked about what they regret most when they look back on their lives as a whole, people tend to identify failures to act.

Barry Schwartz

Personal finance and investing can be cruel if you fail to act.

Don’t let analysis paralysis get in your way.

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-Jesse

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