ON PREDICTABLE IRRATIONALITY: the decoy effect
Yevhenii Shapovalov. Project Ukraine Oberig. Trypil Culture, 2022
How often have you found yourself choosing between two products or services, when suddenly a third option appears — one that ultimately determines your final choice?
You walk into a café and see a price board behind the counter. It offers coffee in small, medium, and large cups. The medium one costs almost as much as the large. Your choice? The most expensive one — it seems like the best value. Am I right?
If yes, then you’ve fallen into the trap of a cognitive bias known as the decoy effect, or asymmetric dominance effect.
You were presented with an additional, less attractive option — in this case, the relatively expensive medium-sized coffee. And you ended up paying more for the large one. Although from a rational point of view, another choice might have been better. «If you structure the options in a certain way, you can nudge people toward more expensive products», — suggests Harvard University psychologist Linda Chang.
Initially, the decoy effect was considered strictly a marketing strategy designed to steer consumer choice. However, recent studies show it can also be used in recruitment, healthcare, and even politics. This means that in a certain context, deliberately structured information can influence our decisions. It turns out this effect often works on an unconscious level. And you might even find yourself tempted to use it as a tool of influence.
FIRST ENCOUNTER WITH THE EFFECT
The decoy effect was first described by researchers Joel Huber, John Payne, and Christopher Puto in 1982 in their joint paper «Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis» (Journal of Consumer Research). They demonstrated that the presence of decoys significantly increases sales of items like beer, cars, televisions, movies, and restaurant food.
The findings were revolutionary, as the researchers challenged the long-standing notion that introducing a new product only cannibalizes market share from existing ones. Another example. Suppose you’re flying for business and the airline offers you three options:
– Flight A: $400 with a 60-minute layover
– Flight B: $330 with a 150-minute layover
– Flight C: $435 with a 60-minute layover
The researchers concluded that most people would choose the first option — it’s cheaper than the third, with the same layover duration, although more expensive than option B.
Now imagine you’re offered:
– Flight A: $400 with a 60-minute layover
– Flight B: $330 with a 150-minute layover
– Flight C: $330 with a 195-minute layover
Here, most people will naturally choose flight B. Yet logically, nothing has changed: flight B isn’t any more attractive than before — the layover and price are the same. It’s just that the reduced price of flight C made flight A suddenly seem overpriced, although it wasn’t in the first scenario.
In both cases, flight C — the decoy — is designed to look similar but less attractive than one of the target options. Experiments show that with a well-placed decoy, preference between the remaining two options can shift by up to 40%. In the first scenario, the positioning of the inferior option subtly suggests that the customer is willing to pay more. That’s what makes the decoy effect so valuable for marketers.
THE EFFECT IN SCIENTIFIC USE
Israeli-American economist and professor of psychology and behavioral economics Dan Ariely, in his book Predictably Irrational (2008), described how the British weekly The Economist (published since 1843) used the decoy effect to nudge readers toward the most expensive subscription plan.
The website offered the following subscription options:
– Web-only access for $59
– Print-only subscription for $125
– Print + web access for $125
Clearly, few would decline free web access when bundled with print. So why list three options? They could’ve simply said the print subscription includes online access.
Nevertheless, Ariely asked 100 of his students to choose. Sixteen selected the cheapest option; the remaining 84 chose the combined one. Then he removed the «print-only» option and asked again. This time, 68 chose the cheaper first option, and only 32 went for the combo. So the «print-only» decoy led 52 more people to select the most expensive plan, yielding a hypothetical profit of $3,432.
DIVERSE APPLICATIONS OF THE EFFECT
Marketers use the decoy effect successfully by leaving expensive, poorly selling items on shelves to steer you toward buying something you didn’t intend to. Resisting decoys isn’t easy: it takes time to compare products thoroughly while constantly asking yourself what you truly need — and whether you need it at all. The decoy effect pushes us to choose «with pleasure», convincing us that we made a rational and informed decision. That’s what makes the method so effective.
A University of British Columbia (Canada) article described testing the decoy effect in a major online diamond marketplace. Results showed that adding slightly worse — but equally expensive — items increased retailer profits by 21.4%.
The National Geographic Channel also participated in decoy research. Viewers were offered two popcorn sizes — small ($3) and large ($7). Most chose small. But once a medium-sized option was added at $6.50 (the decoy), large popcorn sales surged.
WHO IS MOST SUSCEPTIBLE TO THE DECOY EFFECT
Not everyone is equally vulnerable to the decoy effect. Researchers found that it depends on your cognitive style. Some people rely on their gut feelings, while others analyze more and make deliberate choices. (Those who rely on intuition are most likely to fall for decoys.)
Interestingly, hormones may play a role: for instance, high testosterone levels tend to increase impulsiveness. People with such traits are especially susceptible to the decoy effect.
A good example of vulnerability to the decoy effect comes from interpersonal relationships. Researchers, including Ariely, found that it can influence dating. Someone may appear more attractive if accompanied by a «decoy» — a friend or sibling who looks similar but is slightly less attractive.
Ariely also examined Tinder (the dating app). He found that your perception of someone’s attractiveness is affected by who appeared before and after them. A less attractive «decoy» profile makes the others seem suddenly more appealing.
WHEN THE DECOY EFFECT MIGHT NOT WORK
Decoys are less effective if the buyer has clear preferences — for example, always choosing quality over price, or showing strong brand loyalty. Decoys are also usually ineffective with people over age 65, likely due to their accumulated life experience.
HOW THE DECOY EFFECT CAN HELP
On the bright side, the decoy effect can be useful in promoting healthy lifestyles. British researchers explored this application. Christian von Wagner of University College London conducted a study on how patients respond to unpleasant cancer screenings.
He noticed that when given two options — to book a screening or decline — most chose to decline. But when he added a third option (an appointment at a less comfortable hospital with a longer wait time — the decoy), the number of bookings increased.
In other experiments, von Wagner offered female patients a choice between being examined by a doctor of the same or opposite gender (the decoy). Again, the presence of the decoy led to more women agreeing to undergo screening.
CHOOSE THE RIGHT MINDSET
Always remember that you, too, can fall victim to this seemingly invisible decoy effect — even when buying something simple like an MP3 player or a platinum ring. Make a habit of asking: Are you really being offered what you need, with the attributes you were looking for? Or are you being distracted by a well-tested trick — presenting an unattractive option as an alternative? Then, perhaps, your decision will be more competent and thoughtful — and your mind will shine with clarity.
AUTHORITY EFFECT: Milgram Experiment
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