Did you ever notice how strange some prices are calculated? For example, imagine this - you are at the cinema, ready to buy some popcorn. When you get to order, you see that the small box of popcorn costs $3, the medium one costs $5.50 and the large one is $6.
You didn’t initially plan to buy a large one, because you don’t need such a significant quantity of popcorn, but you buy it anyway because it seems like a much better deal.
Funny thing is, when choosing the larger size, people often feel as if they have found a loophole in the system. In fact, everything was planned beforehand, so the system has just gamed them.
This was an example of the decoy effect - it shows how adding a third, less desirable option (the decoy), might change how we see the other two options when faced with making a decision between them.
In the popcorn situation, if there were only two options - the $3 small box and the $6 large one - the customer would have made a decision based totally on their needs, so they decide that the large one is too expensive.
However, if we add a third price between the two options, the decision changes. With a $5.50 medium box added (the decoy), the customers will believe that they would be making a wiser purchase if they get a large box, even if they don’t really need it.
So, what exactly is the decoy effect?
The name of the effect comes from the object that hunters are using to attract ducks into gun sight - called a duck decoy. These objects are usually made of wood, canvas, or plastic, and they are made to resemble various kinds of ducks (or other aquatic birds).
To start with, although powerful, the human brain has its own limitations. Your brain tries to make information processing as simple as possible, which frequently results in something called cognitive biases. They are actually some unconscious errors in thinking, that are developed by problems related to memory, attention, and other mental mistakes. They allow people to navigate daily life more quickly by making mental shortcuts, but they can also lead to incorrect interpretations and conclusions. There are numerous types of cognitive biases, and the decoy effect is one of them.
The decoy effect also goes by the name asymmetrical dominance effect or attraction effect, and it is frequently seen as “a violation of rationality”, given the fact that only by adding another option, our brain makes a sudden shift in preferences.
Briefly, it demonstrates how easily we can present data in a different way, so it can influence other people’s judgment.
The Nudge theory
After the book “Nudge: Improving Decisions About Health, Wealth and Happiness” (by Richard Thaler and Cass Sunstein) was published, the nudge concept was highly popularized.
The theory states that you can influence people’s decisions by subtly altering their environment (choice architecture), making them feel like they made the “right” decision without any outside influence. The decoy effect is one approach to applying the nudge effect.
What makes the decoy effect so powerful?
The decoy effect is extremely influential because people don’t usually like being overwhelmed by having too many options when making a choice. We don’t like putting too much effort into figuring out many things at once, with our brain handling more than what it can process (this is called cognitive overload). Too many options can create as much stress as having no options. So, this is where the decoy effect excels.
It usually influences us to overspend on things that don’t match our initial needs but appear to be the best choice. It is effective when similar products with a few different features are being sold, with differences like the volume, as in the case of the popcorn situation presented above.
The decoy effect was initially considered a marketing strategy to influence customers to spend more or to buy a particular product, but lately, it has been used also in politics, healthcare, and recruitment.
More examples of the decoy effect’s presence in our lives
1. The Economist Subscription
This is one of the most famous examples of the decoy effect, presented in Dan Ariely’s book “Predictably Irrational”. The newspaper’s publishers were offering 3 options of subscription: $59 for digital only, $125 for print, and $125 for print and electronic.
So which one was the decoy? The print-only choice, of course. Since the print-only option here gives less than the print + online bundle for the same price, it is obviously a scam. Ariely discovered that its simple existence significantly drove acceptance of the combined membership, rather than the digital-only.
This situation was tested on students, and none of them chose option 2, most chose option 3. However, when the second option was eliminated, most of them chose the first option (digital print only).
2. Huber’s research on restaurants
Joel Huber ran a study to examine how the decoy effect influences our daily life decisions. In the test, participants had to decide between a 3-star restaurant 5 minutes away, or a 5-star restaurant 25 minutes away. The main conflict was between convenience and quality, so the participants struggled to make a choice.
However, a third option was added when testing another group of people - a 4-star restaurant that was 35 minutes away, so even further away than the initial two. At this point, the group unanimously opted to go to the 5-star restaurant, being closer and having a higher rating. The simple presence of the 4-star restaurant made the 5-star one look more appealing.
Finally, Huber made the decision to add another restaurant and did research on another group of people. He placed a 2-star restaurant between the initial 2 options, being 15 minutes away. In this case, the 3-star restaurant became more popular because it was more close, and its quality was superior to the 2-star option.
3. Cancer screening
At first sight, it may seem as if the decoy effect only influences us in a negative way, making us give more money to some companies. On a more encouraging note, some researchers in the UK explored the possibility of using the decoy effect to influence people’s lifestyle decisions when it comes to their health.
For instance, Christian Von Wagner, a reader in behavioral science and health at the University College of London, investigated people’s intentions to undergo an essential (but unpleasant) colon cancer screening.
After some tests, he observed that when people had the alternative between setting an appointment or not having the operation, many respondents opted not to do this.
However, when given a third option - scheduling a visit at a less convenient hospital with a longer wait time (the decoy) - many people signed up for the screening.
How can you avoid the decoy effect as a consumer?
First things first, you obviously need to read more about it so your mind can get used to the fact that it happens in several different situations, and you should be more aware of it. It’s not easy to detect it and avoid it as a consumer, because of its rational nature.
Another strategy is to decide on your preferences beforehand. Whatever you are planning to buy, choose the features or qualities that are most important to you, and stick to them. In this manner, you can concentrate on the crucial aspects when contrasting several options.
It can seem hard to remember to stick exclusively to your needs, without thinking about what product or service appears to offer a better value to you, so it’s easy to fall into overspending traps, that’s why it is important to practice your awareness when it comes to the decoy effect. You can practice it without even planning to buy something, just remember to look for the decoys whenever you are in the mall or on some e-commerce site.
To sum this all up, just try to not let yourself become a victim of the decoy effect. Whether you are only buying coffee, a pair of headphones, or deciding on a retirement plan, consciously question whether you are really following your actual needs, or you are distracted by an intentional unappealing option.
Resources
Books
Dan Ariely - Predictably Irrational: The Hidden Forces That Shape Our Decisions
Richard H. Thaler & Cass R. Sunstein - Nudge: Improving Decisions About Health, Wealth, and Happiness
Malcolm Gladwell - Blink: The Power of Thinking Without Thinking
Daniel Kahneman - Thinking, Fast and Slow
