401(k)s: The Information Excuse

information

Even though most of us have access to a vast treasure trove of information at your fingertips, we still make crappy choices regarding our retirement savings and then blame it on a lack of information. Why? Sometimes the answer is a phenomenon called information overload. Paradoxically, having access to a lot of information can increase our likelihood of making poor decisions regarding our retirement savings and investments.

Information overload occurs when the amount of input to a system exceeds its processing capacity.1 – Speier et al (1999)

Information overload – also known as infobesity, infoxication and data smog – can occur when a person is trying to make a decision in the presence of an abundance of information. Both humans and computers have limited processing capacity, and being overloaded with information can result in decreased decision quality.

Psycholinguist George Armitage Miller (1920-2012) proposed that humans can process about seven chunks of information at a time, and that under overload conditions, we tend to become confused. In a now famous experiment involving over 190 housewifes, researchers Jacob Jacoby, Donald Speller and Carol Kohn Berning noticed how more information about brands could lead to poorer decision making.2

Information overload can lead to information anxiety by creating a gap between the information we understand and the information that we think that we must understand. There is also the risk of information pollution, where useful information is contaminated with inaccuracies or simply irrelevant facts.

Of course, there are ways to deal with information overload. As Clay Shirky succinctly puts it:

It’s not information overload. It’s filter failure.3

Information overload – an ancient problem

It’s easy to regard information overload as a curse of our time, but information overload has actually been recorded as early as a few centuries BC. One of the most famous antique laments regarding information overload is from the 1st century AD, where Roman rhetorician a Seneca the Elder complained about how the abundance of books is a distraction. Similar complaints were written down in ancient China as the amount of available books increased there.

In the mid 15th century, information overload got a huge boost from a German smith named Johannes Gensfleisch zur Laden zum Gutenberg who invested the printing press. By lowering production costs, Johannes Gutenberg ushered in an era not just of proliferate book making but also of the production of ubiquitous pamphlets. For the first time in history, large amounts of reading material were made available to the average person. Unsurprisingly, scholars complained about this new abundance of information and claimed that it was distracting and difficult to manage.

18th century Europe

Between 1750 and 1800, book production increased by 150% in Europe. As early as 1702, jurist and philosopher Christian Thomasius compared the production of books to an epidemic, linking increased production to reduce quality. Almost a century later, Johann Georg Heinzmann lamented how Germans now read about ideas instead of creating original thoughts and ideas. (Heinzmann himself was both a German, a publisher and a book vender.)

French 18th century philosopher, art critic and writer Denis Diderot also worried about the proliferation of books.

As long as the centuries continue to unfold, the number of books will grow continually, and one can predict that a time will come when it will be almost as difficult to learn anything from books as from the direct study of the whole universe. It will be almost as convenient to search for some bit of truth concealed in nature as it will be to find it hidden away in an immense multitude of bound volumes.

— Denis Diderot, “Encyclopédie” (1755)

Denis Diderot is best known for serving as co-founder, chief editor and contributor to the Encyclopédie, ou dictionnaire raisonné des sciences, des arts et des métiers. He also wrote novels, plays and essays.

19th century Europe

In 19th century Europe, where countries such as the United Kingdom were in the midst of the industrial revolution, sociologist Georg Simmel hypothesized that the modern city came with an overload of sensations that caused its inhabitants to turn jaded and changed their ability to react to new situations.

1Speier, Cheri; Valacich, Joseph; Vessey, Iris (1999). “The Influence of Task Interruption on Individual Decision Making: An Information Overload Perspective”. Decision Sciences. 30. doi:10.1111/j.1540-5915.1999.tb01613.x.

2Brand Choice Behavior as a Function of Information Load: Replication and Extension (1974) Journal of consumer research, Volume: 1, Issue: 1 (June 1974), pp: 33–42.

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