Actually, there's a theory very similar to that in UI/UX design. Menus that are too large often intimidate the user and cause them to bounce out of the site.

And here I thought I was creative for applying it to UX...thanks for this! :)

This is general psychology and applies just as well to product design as it does to marketing. Too much choice can be a bad thing both because it clutters up the flow of your product and because humans just aren't very good at picking their optimal set of choices. You wouldn't release a Twitter clone to the public that required you to check 100 yes/no feature boxes just to set up an account.

Reading your comment, I immediately had two thoughts:

1. Apple 2. Communism

This explains the popularity of the iPhone and the iPad right?

Not necessarily. I don't know if it applies to products. I feel for products, since you get to hold them in your hands, its a much more subjective decision. With a website, you are only relying on your sense of sight to make decisions. With a product, you can use all 5 senses (maybe not taste, haha!). Does that make sense?

Didn't one of the original studies involve choices of jam at a supermarket? Seems like it applies equally well to products.

Compare and contrast the number of iPhone or iPad models with the rest of their respective industries. They're delineated along good/better/best and the tradeoffs are obvious. It's a lot easier to shop for an iPad than it is an arbitrary laptop.

It would apply in the way that there is only one iPad or iPod branded device from one company, which has marketed it as the only thing in its category. While on the other hand there is a plethora of various Android based tablets with many differing features, hence leading to confusion and analysis paralysis.