When creating new attributes for an entity the obvious data type is a picklist - especially when there are only a few valid choices such as Title (Mr, Mrs etc).
However, picklists are not without some problems and in some situations it may be better to create a new entity and a 1:n relationship between the main entity and the new entity.
The table compares picklists and using entities.
|Easy for user to select value||More clicks than picklist to select the value|
|Can't be reused between entities||Can be used on more than entity (create additional relationships)|
|Can't be set using a dynamic value in Workflow||Easier for users to maintain (just add/update/delete records)|