Paradox of choice
This is actually called the paradox of choice, by Schwartz.
Basically, the more options you offer, the less choices will be made by the user.
This YouTube video is a clear explaination of the book.
Cognitive dissonance
The small amount of users that finally decide to choose, will mostly face cognitive dissonance after choosing. Which leaves a negative effect.
How many choices can we handle?
Our average short term memory can only save between 5 and 9 items in 15-30 seconds.
Sollutions
The sollution depends on your website or service.
- If you own a webshop, you could make special offers based upon good
reviews or based upon the interests of the user.
- For webshops, a "recently viewed products" section helps the user remember the options he considered.
- If you have a website where you need a solid navigation, you need to
make choices for the user based upon their preferences. Making
personas and knowing their basic needs will help with that. There should be no hard choices in a navigation bar.
Choices made for us by others happens every day when, for exaple, you watch your favourite television show. The director chooses what frame from which distance on which angle you get to see.
Conclusion
Advice the user what he should see by making a selection of a few (5-9) products. Or make the choice for him when making navigation systems.
As Schwartz said:
Taking care of our own "wants" and focusing on what we "want" to do does not strike me as a solution to the problem of too much choice.
Examples
Amazon:

Spotify:

Bonus section
Adobe Photoshop has many ways of doing the same thing. That's now a problem, because when they removed certain options, many people complained because they were used to that specific option.
Having so many choices makes it hard for new Photoshop users to get used to the software. So with new items coming to the software at every new release, no items can be removed, resulting in an interesting situation where Photoshop will be very hard to handle for new users.
Once you create multiple options for the same purpose, you won't be able to undo it very easily..
So.. Keep It Simple, stupid.
KISS,
Max.