This is one of my favorite Google Talks.  It features Barry Schwartz.  Here he discusses how people make choices.  Here is my very quick breakdown.

When people are confronted with a  number of choices this is how they respond or feel:

• 1-2 choices does not feel like much of a choice
• 3 choices feels optimal and will generally go for the middle
• 4 choices or more are overwhelming and causes people to not make a choice

The general rule of thumb is create three choices with the middle choice being your main target.

There is way more detail in the video and I highly recommend watching it if you are in sales, marketing, or design.