The Decoy Effect: Influencing Choices With a Clever Trick
The Decoy Effect uses a less appealing third option to influence decisions, pushing consumers toward pricier choices by making them seem more attractive.
The Decoy Effect, also known as the Asymmetric Dominance Effect, is a fascinating psychological phenomenon where the introduction of a third, less appealing option influences people's choices between two options. This effect is widely used in marketing and pricing strategies to nudge consumers toward purchasing a more expensive product.
To understand the decoy effect more clearly, consider an example involving movie tickets. Imagine you are presented with two options:
- $5 for just the movie ticket.
- $15 for the movie ticket plus popcorn.
Given these choices, some people would choose the first option for its lower price, while others might opt for the second option because of the added value of getting popcorn with the movie. Now, let's introduce a third decoy alternative:
- $13 for the movie ticket plus a small popcorn.
This third option is less appealing because it is marginally cheaper than the second option but offers less popcorn. This inadequate option makes the second option appear more attractive, causing more people to choose it over the first or third alternatives.
Joel Huber and Christopher Puto first formally described the decoy effect in their 1982 paper "Market Boundaries and Product Choice: Illustrating Attraction and Substitution Effects." They conducted experiments demonstrating that adding a product similar to but worse than another product (the ‘decoy’) increased the preference for the better option.
Marketers have extensively used this principle since its introduction into behavioral economics literature because of its effectiveness. The decoy effect reveals an exciting interplay between psychology and economics, illustrating how simple rearrangements of available choices can easily manipulate our decision-making system.
Despite being not widely known outside academia or advertising circles, the Decoy Effect is a powerful testament to the irrationality of human behavior and decision-making. It challenges traditional economic theories, which view humans as rational actors, by highlighting how we are more susceptible to cognitive biases and heuristic shortcuts.
References
- Huber, J., & Puto, C. (1982). Market Boundaries and Product Choice: Illustrating Attraction and Substitution Effects. Journal of Consumer Research, 10(1), 31-44. doi:10.1086/208945
- Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins.
- The Guardian. (2013). The Decoy Effect: How You Are Influenced to Choose Without Even Knowing It. Retrieved from The Guardian