No Satisficion

Among the basic tenets of economic theory is that both producers and consumers maximize economic benefits. For consumers this means maximizing satisfaction (getting the most bang for the buck) and for producers (including labor) this means maximizing profit. Yet, we’ve long known (perhaps always have known) this isn’t true. It is a close enough approximation of how people generally behave in large numbers to still offer predictive power, but fine-tuning economic theory requires recognizing the ways we deviate. For example, when contemplating making an investment a coldly calculating maximizer should weight a 25% chance of a $25,000 loss exactly the same as a 25% chance of a $25,000 gain. We don’t. It is a quirk of human nature that the large majority of us are deterred by a potential loss more than we are lured by an equally probable potential gain of the same amount. Hence we fail to maximize our investment returns. The potential upside must be significantly larger than the potential downside before most of us are tempted. (A minority – gamblers – have the opposite problem.) A small business owner might opt to close on Sunday rather than a (normally less busy) Monday even at the expense of profits. A consumer might buy a product due to brand loyalty even if there are alternatives that are better bargains. You get the idea.

All this strays heavily into psychology, and in the past couple of decades there have been numerous studies on how consumers in particular actually behave. It turns out that some people are in fact broadly maximizers while others are satisficers, a term coined 70 years ago by psychologist Herbert Simon from satisfaction and suffice. A maximizer doesn’t rush into buying a car or TV. He will research the brands and features. He’ll read reviews and consumer feedback while comparing prices from different suppliers before making a choice. A satisficer operates by the “good enough” standard. (Voltaire: “Best is the enemy of good enough.”) He’ll walk into the car dealership or electronics store and pick something on the spot that is more or less what he wants at more or less the price he wants to pay. The two personality types do not confine their strategies to consumer goods: they pick jobs, friends, and romantic partners similarly.

 
Which group makes better decisions? That depends on how you look at it. Objectively, the maximizers do. They really do get better products at better prices. A 2006 study showed that maximizers straight out of college also had starting salaries 20% higher than satisficers who presumably settled for the first offer they figured was good enough. Subjectively, however, the matter looks different. Never mind that maximizers have difficulty making up their minds at all. They are far more likely to second guess themselves afterwards and suffer buyers’ remorse. They also regret their choice of their jobs (despite the higher pay) more than satisficers. Satisficers don’t expect their choices to be perfect and so are satisfied with them most of the time. They are happier in life generally. (See Psychology Today article "How Settling Can Be Good for You" by Dr. Janina Steinmetz.) Furthermore, according to a study published just last year (The Maximizing Penalty: Maximizers are Perceived as Less Warm and Receive Less Social Support by Yuqi Chen, Yuhan Yang, and Jingyi Lu) on an “important but largely ignored downside,” there is a “penalty in social cognition wherein maximizers (vs. satisficers) are viewed as less warm and consequently receive less social support.” In short maximizers make objectively better decisions, but nobody likes a smart ass.
 
I’m not sure if maximizers and satisficers can change their stripes. I suspect we tend one way or the other by nature, but that we can change if we try – that the tendency impels rather than compels. That is simply a suspicion however and I could be wrong.
 
I’m very much a satisficer. Has that worked out well for me? Not always. But on the whole it’s been good enough.
 
 

Van Halen – Good Enough