How Can You Invest In Stocks When You Don't Trust the System?

"You Want a Friend, Get a Dog"

Professor Brad DeLong of the University of California at Berkeley wrote an excellent essay last month discussing why investors continue to flee stocks in favor of bonds. 

First, he sets out the incredible valuation difference between stocks and US Treasury Inflation-Protected Securities (TIPS):

The S&P stock index now yields a 7% real (inflation-adjusted) return. By contrast, the annual real interest rate on the five-year United States Treasury Inflation-Protected Security (TIPS) is -1.02%. Yes, there is a “minus” sign in front of that: if you buy the five-year TIPS, each year over the next five years the US Treasury will pay you in interest the past year’s consumer inflation rate minus 1.02%. 

http://www.project-syndicate.org/commentary/the-economic-costs-of-fear

So, just doing the math, an investor who puts $10,000 into a S&P 500 index fund today has a reasonable chance of having roughly $14,200 five years from now.

Buying a intermediate maturity TIP, on the other hand, locks in a loss.  In five years, $10,000 in a TIP will be worth around $9,500 - guaranteed.

So why would anyone prefer a certain loss to an investment with a pretty high probability of gain?

Dr. DeLong cites many several reasons - economic uncertainty; memories of the "lost decade" in stocks; Europe, etc. - but he also mentions something that really hadn't registered with me until I read it.

Namely, that most investors have lost faith in our financial institutions.

There's something to this, I believe.  Just think of the three events in the past few weeks:

• A month after dismissing questions as "a tempest in a teapot", JP Morgan is now facing the possibility of a $9 billion trading loss in Morgan's London office. Morgan CEO Jamie Dimon, meanwhile, continues to rail at the thought of any new regulations;

• Barclays Bank faces huge legal and financial sanctions after regulators uncovered widespread manipulation of the LIBOR benchmark by some of its internal traders in order to generate trading profits;

• Facebook comes to market with much hoopla, and prices its IPO at $38 a share after initially indicating a price of $28 per share.  Meanwhile, Facebook management quietly lets major institutional investors that recent trends in its business have slowed, and that Facebook shares are probably overpriced.

Stories like these coming so soon after the taxpayers had to bail out Wall Street and the banking sector leave a bad taste in everyone's mouth.

And so is it any surprise that investors continue to pull money out of the stock market?

Forecasting Follies

Writing in his book Thinking, Fast and Slow, psychologist and Nobel Prize winner Daniel Kahneman discussed the perils of overconfidence.

He talks about the illusion that all of us to some degree share about our ability to forecast the future.

Although there is overwhelming historic evidence that many events - political, markets, etc. - are merely random, it doesn't prevent us from listening to forecasts from learned experts.

For example, here's one experiment that Dr. Kahneman describes:

For a number of years, professors at Duke University conducted a survey in which the chief financial officers estimated the returns of the Standard & Poor's index over the following year. The Duke scholars collected 11,600 such forecasts and examined their accuracy. The conclusion was straightforward: financial officers of large corporations had no clue about the short-term future of the stock market; the correlation between their estimates and the true value was slightly less than zero!

Kahneman goes on to describe how the professors asked the CFO's to give "confidence ranges" in which they were fairly certain that their forecasts would be accurate.

Here again, unless the CFO's gave a sufficiently wide range of potential outcomes (e.g., that the market would return somewhere between -10% and +30%), the actual results compared to the "highly confident" forecasts were often wildly different.

I bring this all up because year-end tends to be the time of year when you will see all types of forecasts, ranging from the markets, weather, or elections. However interesting these discussions might be, we should recognize that statistically most of them have little chance of actually coming to pass.

Writing on the blog Business Insider, former Wall Street analyst Henry Blodget discusses the fallibility of forecasting.

He cites a number of different areas where analysts and economists from the Street have been consistently wrong, yet continue to make forecasting that somehow continue to gain a wide following.

For example, he notes that most economists will forecast moderate growth for the coming year. The reason is simple: for a mature country like the United States, moderate growth tends to be the norm. Forecasting strong growth, or a severe downturn, may make headlines but can be severely career limiting if the forecasts prove inaccurate.

Here's what Blodget writes:

If economists can't predict the future, why do they always predict that the economy will grow about 4%? Because that's what the economy's long-term growth average is--and, therefore, that's the prediction that gives the economists the best odds of being generally "right" (or at least not too embarrassingly wrong).

Just as no one ever gets fired for buying IBM or hiring someone from Harvard B-school, no one ever gets fired for predicting that the economy will do about as well as it has always done. And, of course, staying close to the average also gives the economists the best chance of being close to right. So that's what economists predict!

Read more: http://www.businessinsider.com/economist-forecasts-wrong-2011-12#ixzz1h56NPkie

Consider yourself warned!

Managers, Pigeons, and The Perils of Overconfidence

Let's start the week with a pop quiz.

I am going to sit you down in front of a screen where I will flash two lights: red and green. I will tell you the sequence is completely random, but 80% of the time the light will flash green.

And, oh, by the way: one of my assistants will be doing the exact same experiment in the next room, only she will be having a pigeon doing the guessing.

Who do you think will get more right? You or the pigeon?

Now we'll start our experiment. I will start flashing the light, and I want you tell what color is coming up next.

Here's what you should do: I have already told you that 80% of the time the light will flash green, and that the sequence will be totally random. So, the correct guess will always be "green", so you will be right 80% of the time.

But that's not what most humans do. They tend to look for patterns where none exist. Here's how Jason Zweig described our human tendencies in his book Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich:

Human, however, tend to flunk this kind of experiment. Instead of just picking green all of the time and locking in an 80 percent chance of being right, people will typically pick green four out of five times, quickly getting caught up in the game of trying to call when the next red flash will come up. On average, this misguided confidence leads people to pick the next flash accurately on only 68 percent of their tries. Stranger still, humans will persist in this behavior even when the researchers tell them explicitly...that the flashing of the lights is random.

Meanwhile, the other room, your pigeon competition is guessing correctly 80% of the time, since the bird automatically picks green every time. Mr. Zweig explains:

...birds seem to stick within their limits of their abilities to identify patterns, giving them what amounts to a kind of natural humility in the face of random events. People, however, are a different story.

In short, the pigeon probably wins.

---------------------

I was reminded of this story yesterday, when I read a piece by Dan Kahneman in yesterday's New York Times about the perils of overconfidence.

Dr. Kahneman was awarded a Nobel Prize in 2002 for his groundbreaking research into behavior finance. He has also written extensively about how one should view any predictions about future events, especially economic or related to the stock market, with a grain of salt.

In my field, you often read predictions about the future course of the stock market, or the direction of interest rates. These pronouncements are usually made with great confidence, yet are often just as likely to be wrong as they are right.

Just as in the behavior experiment, we humans like to look for patterns where none exist. We might know, for example, that investing in stocks will tend to outperform other asset classes, yet we persist in trading in and out of the market based on our belief that we will be able to "time" the market.

Here's Dr. Kahneman's advice:

We often interact with professionals who and confident predictions even when they know little or nothing. Overconfidence arises because people are often blind to their own blindness. ls who exercise their judgment with evident confidence, sometimes priding themselves on the power of their intuition. In a world rife with illusions of validity and skill, can we trust them? .... We can believe an expert who admits uncertainty but cannot take expressions of high confidence at face value. As I first learned on the obstacle field, people come up with coherent stories and confident predictions even when they know little or nothing. Overconfidence arises because people are often blind to their own blindness.


http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-hazards-of-confidence.html?pagewanted=4&_r=1&ref=general&src=me

Want Better Investment Returns? Stop Trading on Instinct

The world is obviously in turmoil.

Earthquakes in Japan, civil unrest in the Middle East - you name it, this is one of those times that reading the newspaper takes twice as long as normal.

A lot of investors - including me, perhaps - will look at everything that is going on and try to figure out areas that will either prosper in the months ahead (e.g. building companies in Japan) or ones that should be avoided (e.g. the nuclear industry anywhere).

As it turns out, according to a recent study cited in Saturday's New York Times, this is probably a better time to sit tight.

Authored by Paul Sullivan, the article (with the full link below), the piece was titled "When to Buy or Sell? Don't Trust Your Instincts" . According to research done by Phillip Maynim and Gregg Fisher, in periods of volatility the real value of an investment adviser was restraining the impulse to actively trade:

...the value of investment advisers was not in the stocks or mutual funds they recommended but in their ability to restrain investors from impulsively trading at the wrong time. It cites data showing that aggressive orders by individuals can cost them about four percentage points a year.

The study found that as volatility increased the urge to trade also increased - to the detriment of investment returns:

More than that urge {to trade} not going away, the Maymin-Fisher study found, it reappears just after a sudden rise or fall in the market. In other words, investors did not trade in expectation of intense volatility or even during it, which might be rational. They waited until the period of greatest volatility had passed and then looked to do what any adviser would tell them not to do: sell at the bottom or buy at the top.

http://www.nytimes.com/2011/03/12/your-money/stocks-and-bonds/12wealth.html?_r=1&emc=eta1

Put another way, this may in fact be one of those times that simply reading the newspaper - and resisting the urge to "place a trade" - might be better for your investment returns than any other investment activity.

Rich, or Just Well-Off? It's All Relative

I thought this was a very interesting piece from the Economix blog of the New York Times.

I work with a number of clients who, by most statistical measures, could be termed very well off, if not wealthy. And yet most of them do not in their own minds feel rich.

I suppose there are a number of reasons for this. Many of my clients, for example, came from relatively modest backgrounds to achieve financial success in their chosen fields. However, they still remember those days of living on very tight budgets, struggling to make ends meet, and find it hard to leave their frugal habits behind.

However, as the Times piece indicates, there could be another reason. In the very high income brackets, the differences in income become much more pronounced (I have added the areas of emphasis):

... for the bottom 90 to 95 percent of Americans, the income distribution is relatively flat. For an American household in bottom 30 percent of the distribution, a move upward of five percentiles (to the 35th percentile) would mean an increase in cash income of a just few thousand dollars. Same goes for a family at the 40th percentile, and at the 60th percentile.

But... around the percentiles in the mid-90s...the monetary divisions between percentiles grow much greater. Those in the middle earn a little less than people a few percentiles up from them, whereas those at the top earn a lot less than their counterparts in nearby, higher percentiles. For example, those who aspire to hop from the 30th percentile to the 35th percentile would need in increase their cash income by $4,000 annually (or by about 17 percent); those who aspire to hop from the 91st percentile to the 96th percentile would require an increase of $324,900 (or 171 percent).

In other words, at least in dollar terms, there is much greater inequality at the very top of the income scale than at the bottom or in the middle.

Why So Many Rich People Don't Feel Very Rich - NYTimes.com

In other words, a high net worth client in comparison to the general population is considerably better off, yet in comparison to the group they might socialize with in tony places like Nantucket or Palm Beach the same client feels - dare I say it - poor.

Question Authority

In the midst of reading a blizzard of news reports about the bailout of the Irish banks (and, by extension, the euro zone), I came across this article about TARP.

As we all remember, the Troubled Asset Relief Program (TARP) was supposed to be a major financial sinkhole for the government. Pundits from Wall Street to academia declared that the proposed $700 billion program would only scratch the surface of the needs to bail out the banking system.

Well, they were right about $700 billion being the wrong number - but they were wildly wrong when it came to the ultimate cost of the program.

Here's an excerpt from an article in the Los Angeles Times:

The projected cost of the $700-billion financial bailout fund — initially feared to be a huge hit to taxpayers — continues to drop, with the nonpartisan Congressional Budget Office estimating Monday that losses would amount to just $25 billion.

That's a sharp drop from the CBO's last estimate, in August, of a $66-billion loss for the Troubled Asset Relief Program, known as TARP. Going back to March, the budget office estimated that the program would cost taxpayers $109 billion.

Estimate of TARP losses falls to $25 billion - latimes.com

Which brings me back to Ireland.

A couple of years ago, when Washington was being blasted for their fiscal policies, the government of Ireland was being praised as being a model of fiscal probity. Budgets were balanced through a combination of tax increases and service reductions, and even former Fed chairman Paul Volcker gave a speech praising the Irish.

And now look where we are.

Frankly I am not totally clear on how and why everything went so badly for the Irish, so I have been turning to one of my favorite columnists, Ambrose Evans-Pritchard of the London Telegraph. Here's an explanation from his column yesterday:

Patrick Honohan, the World Bank veteran brought in to clean house at the Irish Central Bank, wrote the definitive paper on the causes of this disaster from his perch at Trinity College Dublin in early 2009.

Entitled “What Went Wrong In Ireland?”, it recounts how the genuine tiger economy lost its way after the launch of the euro, and because of the euro.

“Real interest rates from 1998 to 2007 averaged -1pc [compared with plus 7pc in the early 1990s],” he said.

A (positive) interest shock of this magnitude in a vibrant fast-growing economy was bound to stoke a massive credit and property bubble.

“Eurozone membership certainly contributed to the property boom, and to the deteriorating drift in wage competitiveness. To be sure, all of these imbalances and misalignments could have happened outside EMU, but the policy antennae had not been retuned in Ireland. Warning signs were muted. Lacking these prompts, Irish policy-makers neglected the basics of public finance.”

“Lengthy success lulled policy makers into a false sense of security. Captured by hubris, they neglected to ensure the basics, allowing a rogue bank’s reckless expansionism,” he wrote.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/

The lessons from all of this continue to unfold, but it is worth remembering that even the most knowledgeable among us can be wrong. We should all invest accordingly.

Scientist at Work - Dr. Donald A. Redelmeier - Debunking Myths of the Medical World - NYTimes.com

The stock market is roaring ahead this AM on the basis of some ISM data that showed that manufacturing in August was expanding at a more rapid clip than expectations.

So naturally a number of bearish commentators are dismissing the figures as meaningless.

I don't know about other professions but this seems to happen a lot in my business. Once someone declares they are either bullish or bearish they have a hard time accepting data that might indicate a contrary opinion.

I remember reading an story about John Maynard Keynes, the great British economist who was also a very successful investor. He was in a meeting one time, and gave some advice that was different than he had given previously. When someone at the meeting pointed this out, Keynes was reported to have said:

"When the facts change, so do my opinions. What do you do, sir?"

This article from the New York Times describes Dr. Donald Redelmeier, an innovative thinker along the lines of the book Freakonomics (a fun read, by the way). Dr. Redelmeier is apparently not afraid to change his opinion if circumstances warrant:

Another Redelmeier philosophical pearl is “Do not get trapped into prior thoughts. It’s perfectly O.K. to change your mind as you learn more.”

In patient care, he said, he frequently does just that. “I think I know the diagnosis and start the treatment, then follow up and realize I was wrong,” he said. “I intercept a lot of my own errors at a relatively early stage.”

This, not surprisingly, became the basis of some classic Redelmeier research around raising physicians’ awareness of their own thinking — cognitive shortcuts that might lead to a diagnostic error.

Some of Dr. Redelmeier's research is whimsical (e.g. finding that Academy Awards winners live longer than those that are runners-up) but some of his other research on cell phones and driving have actually resulted in changes in the law.

Scientist at Work - Dr. Donald A. Redelmeier - Debunking Myths of the Medical World - NYTimes.com

The Mental Anchor of Money Mistakes - Bucks Blog - NYTimes.com

Normally I wouldn't link to a short blog piece but I thought this was pretty good.

"Loss aversion" is one of the most common emotions that I see in my clients. No one likes to take a loss, but sometimes refusing to take a small loss may mean a missed opportunity, or an even bigger loss.

Stock prices have no memory, nor does a stock know who owns it. The most important consideration for investors should be forward-looking, yet it is always hard to avoid looking back, as the piece discusses:

You buy a stock for $50 a share, and six months later it is $30. You decide that you really shouldn’t own it anymore but you want to wait until you “get back to even” before you sell. This idea of holding on to an investment that is no longer appropriate, or may have been a mistake in the first place, until you get back to even makes no sense. The fact that you paid $50 has no bearing whatsoever on what you should do now.

In fact, I think it is fair to say that getting back to even is never a good reason to hold on to an investment. If you find yourself saying that, it’s time to re-evaluate.

Now, if only I could always remember this....


The Mental Anchor of Money Mistakes - Bucks Blog - NYTimes.com

New Retirees Often Make Poor Decisions

Last week I posted a note discussing the dangers of trusting your instincts in making investment decisions.

Loss aversion, and extrapolating recent market actions into the future, can often lead retirees to make decisions that don't take into account the longer term prospects for any given investments.

Investment professional are no different, by the way. A month ago, interest rates were rising, commodity prices were up, and the stock market had recovered from the poor start in January. The talk among my investment friends was all about boosting allocation to stocks.

Now, a month later, the turmoil in the euro block has smacked the world markets, and the market mood has turned 180 degrees. Investors who shunned bond investments when the Treasury 10 year note was yielding 4% now think that Treasurys yielding 3.35% are a good deal.

Meanwhile, the news from corporate America (and Europe, for that matter) continues to improve. For example, one of my favorite analysts Ken Hoexter from Merrill Lynch posted this note about an analyst meeting yesterday at Union Pacific. Here's an excerpt:

Meeting upbeat...Vols, Pricing, Coal, Op leverage & Buyback
Yesterday, we hosted meetings with Union Pacific's management in Omaha, which had a bullish overtone, as volumes continue to surpass expectations, coal inventories are no longer outsized relative to daily burn levels (first time since 7/06), pure pricing is gaining strength through the year, its leverage could drive its operating ratio into the 60's (mgmt didn't commit, we're just doing the math), and it has launched a $2.4 billion stock buyback (or 32.6 million shares, 6% of total).

Volumes running more than 500 bps ahead of target
For the third quarter in a row, we increased our volume targets intra-quarter, as carloads are currently up 19% vs. our 13% target, according to AAR weekly carload data. We increased our 2Q10 target to 17% from 13% (comps bottomed during 2Q09). Our largest increases are at Industrial (+21% vs. our prior +13% target), Intermodal (+22% vs. +17%), and Coal (+6% vs. +3%). Additionally, management noted it anticipates a peak season for the first time in 3 years.

The longer term prospects for stocks continues to look favorable, despite the recent swoon. Focusing the fundamentals, and the data, rather than on "gut instinct" should serve all of us well.


New Retirees Often Make Poor Decisions

Posted using ShareThis

Tell Your Gut to Please Shut Up - Michael Schrage - Harvard Business Review

A friend of mine named Bob Quinn first got me interested in behavioral finance. Bob is a portfolio manager, and is in the process of getting an advanced degree on the subject from Harvard.

In my business, people tend to rely on their instincts far more than they should. We all get emotional, and make decisions based on what we're feeling at the moment. While this is not a bad thing in some situations, "gut" decisions can be pretty expensive in the investment world.

I saw this post today from the Harvard Business Review which I thought was pretty good. Here's a key passage:

Daniel Kahneman and Philip Tetlock, among many others, have conclusively demonstrated that experts tend to be remarkably overconfident about their abilities to make accurate predictions or quickly solve problems. Ironic, isn't it? The entire field of behavioral economics has been built on the intensifying recognition that people, particularly smart ones, are suckers for cognitive illusions and heuristic biases that pretty much guarantee that "gut-trusting" will, on average, yield heart burn. Dan Ariely didn't call his best-selling book "Predictably Irrational" because instant intuition was a recipe for success. It's not just that high IQ types mistakenly over-rely on their gut instincts; it's that they make the same mistakes over and over again. They're overconfident about their ability to manage their overconfidence. That's beyond ironic; it's perverse.


Tell Your Gut to Please Shut Up - Michael Schrage - Harvard Business Review

Everything is Relative

Today's Wall Street Journal blog (written by Robert Frank) had an interesting angle on people's feeling about their financial situation, and whether they consider themselves "wealthy" or not.

• March 24, 2010, 10:54 AM ET

Maybe Status, Not Wealth, Makes Us Happier

Maybe money can’t buy happiness. But it can buy status, and status can indeed make us a bit happier.

An article in Time describes new research from Chris Boyce, a psychologist at the University of Warwick, and Simon Moore, a psychologist at Cardiff University. The pair sought to understand why societies that became wealthier didn’t become collectively happier. After all, rising incomes and wealth made individuals happier, up to a certain point of course.

So the researchers decided to dig deeper into what is called the “reference-income hypothesis,” a fancy way of saying that wealth is relative. If an entire country gets richer at the same time, individuals wouldn’t necessarily feel wealthier, since their relative positions in society hadn’t changed.

Most people don’t compare themselves with an abstract national average. Messrs. Boyce and Moore decided to try to figure out how people compare themselves with their neighbors, colleagues at work or friends from college. The higher their rank, the greater their sense of happiness and self-worth would likely be.

“For example, people might care about whether they are the second most highly paid person, or the eighth most highly paid person, in their comparison set,” write the authors.

They found that the person’s rank within the comparison set was a stronger predictor of happiness than absolute wealth. “If absolute income matters, as we increased our income, everybody should get happier at a national level, but we don’t seem to,” Mr. Boyce said. “So what we are showing is that in terms of life satisfaction, rank is a better predictor than absolute wealth.”

The research may help explain why there is much consternation about wealth inequality over the past two decades even though standards of living have improved for many in the lower strata.

Do you think your happiness depends in part on your wealth rank among your friends or colleagues?

Gender Differences in Investing

One of the "hot" topics in investment studies these days involves behavioral finance.

Building on the work of psychologists and social scientists in other areas, researchers are investigating how to apply behavioral traits in analyzing how people invest their money.

Today's piece in the Business section of the New York Times discusses, for example, why women tend to be better investors over time then men.

March 12, 2010

How Men’s Overconfidence Hurts Them as Investors

By JEFF SOMMER

MEN and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.

The latest data comes from Vanguard, the mutual fund company. Among 2.7 million people with I.R.A.’s at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago.

Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.

Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.

Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times.

That fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley. In a 2001 study titled, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they analyzed the investing behavior of more than 35,000 households from a large discount brokerage firm. All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns.

http://www.nytimes.com/2010/03/14/business/14mark.html?ref=business

Interesting Article on Choices

Whenever I go on vacation with my family, one of the most "stressful" times of the day always seems to revolve around where to eat dinner. This seems odd, I know, since the whole point of going on vacation is to enjoy a break from a regular routine, and try a variety of different dining experiences - but there it is.

Turns out that behavioral scientists have been studying this phenomena for some time. There was an article about this in this morning's New York Times; I've excerpted a couple parts, but the full link can be found below:

February 27, 2010

Shortcuts

Too Many Choices: A Problem That Can Paralyze

By ALINA TUGEND

TAKE my younger son to an ice cream parlor or restaurant if you really want to torture him. He has to make a choice, and that’s one thing he hates. Would chocolate chip or coffee chunk ice cream be better? The cheeseburger or the turkey wrap? His fear, he says, is that whatever he selects, the other option would have been better.

Gabriel is not alone in his agony. Although it has long been the common wisdom in our country that there is no such thing as too many choices, as psychologists and economists study the issue, they are concluding that an overload of options may actually paralyze people or push them into decisions that are against their own best interest.

------------------------------------

Research also shows that an excess of choices often leads us to be less, not more, satisfied once we actually decide. There’s often that nagging feeling we could have done better.

Understanding how we choose could guide employers and policy makers in helping us make better decisions. For example, most of us know that it’s a wise decision to save in a 401(k). But studies have shown that if more fund options are offered, fewer people participate. And the highest participation rates are among those employees who are automatically enrolled in their company’s 401(k)’s unless they actively choose not to.

This is a case where offering a default option of opting in, rather than opting out... doesn’t take away choice but guides us to make better ones, according to Richard H. Thaler, an economics professor at the Booth School of Business at the University of Chicago, and Cass R. Sunstein, a professor at Chicago’s law school, who are the authors of “Nudge: Improving Decisions About Health, Wealth and Happiness” (Yale University Press, 2008).

-------------------------

..... one way to tackle the choice problem is to become more comfortable with the idea of “good enough,” said Barry Schwartz, a professor of psychology at Swarthmore College and author of “The Paradox of Choice” (Ecco, 2003).

Seeking the perfect choice, even in big decisions like colleges, “is a recipe for misery,” Professor Schwartz said.

This concept may even extend to, yes, marriage. Lori Gottlieb is the author of “Marry Him: The Case for Settling for Mr. Good Enough” (Dutton Adult, 2010). Too many women — her book focused on women — “think I have to pick just the right one. Instead of wondering, ‘Am I happy?’ they wonder, ‘Is this the best I can do?’ ”

And even though we now have the capacity, via the Internet, to research choices endlessly, it doesn’t mean we should. When looking, for example, for a new camera or a hotel, Professor Schwartz said, limit yourself to three Web sites. As Mr. Scheibehenne said: “It is not clear that more choice gives you more freedom. It could decrease our freedom if we spend so much time trying to make choices.”

http://www.nytimes.com/2010/02/27/your-money/27shortcuts.html?ref=business