On the face of it, it sounds like trying to get the best deal is a good thing. Who wouldn’t want to get the best possible product for the least possible price? But economic theory and psychology research show that this isn’t what you always want to do.
From economics, one relevant concept is opportunity cost. The cost of a decision includes not only its price, but also the cost of the time and effort spent deciding. If it takes you thirty minutes to decide what you’re having for lunch, then that’s thirty minutes that you’re not able to spend taking a walk, doing errands, or earning more money. So while it’s probably worth it to spend 30 minutes looking up reviews on that hundred-dollar toaster oven you’re thinking about buying, it’s probably not worth it in terms of the time and effort sacrificed to spend the same 30 minutes agonzing over a $6.95 lunch entree.
Another relevant concept from economics is the principle of diminishing returns. Let’s go back to the toaster oven purchase example (I bought one of these just last week). With the advent of the internet, doing a bit of basic research is very easy–amazon.com and other online retailers usually offer consumer reviews, and there are independent review sites such as epinions as well. Twenty or thirty minutes spent browsing one of these sites can tell you which products the majority of (commenting) buyers are happy with, give you an idea of the price you can expect to pay, and the relevant features to look for in making your decision. What you learn in the first half hour of research should make your decision a significantly better one. (To quantify it, we’ll say that your deicision is now twice as good, or 100% better). But some people continue their research well beyond this time frame. Spending 4 hours, for example, on online research for a hundred dollar product is not worth it. Yes, you may end up with a better product, but the improvement in quality in what you find in your second, third, and fourth hours of research over what you already learned from your first hour of research is not that much better. Whereas your first 30 minutes of research yields you an outcome that is 100% better, the second half hour may add only a 50% improvement beyond that. Using the idea of “halving” your improvement, by the end of your third hour of research, you still may be finding a better product that you found after 2.5 hours of research, but now it’s only 3% better–not enough better to justify the additional time and effort.
According to research in psychology, however, not everyone recognizes this. Professor Barry Schwartz of Swarthmore College, in his book The Paradox of Choice, proposes that people can be divided into two types, Maximizers and Satisficers. Maximizers are motivated to get the best possible outcome, while Satisficers are happy with an outcome that’s “good enough.” Maximizers are particularly likely not to recognize the diminished returns from extra time and effort spent shopping. So they spend more time, may actually end up with a marginally better product, but end up much less satisfied with their purchases than Satisficers do.