Shopping, Advertising & Consumer Choice
The Decoy Effect
How adding a third, less attractive option can steer people toward a particular choice, and how businesses use it.
Imagine a cinema selling small popcorn for 3 dollars and large popcorn for 7 dollars. Many people buy the small. Then the cinema adds a medium for 6.50 dollars. Suddenly, many more people buy the large. The medium is a decoy: few people buy it, but its presence changes what people choose.
How it works
The decoy effect, also called asymmetric dominance, happens when a third option is added that is clearly worse than one option but not the other. The decoy makes the “target” option look like a great deal by comparison.
In the popcorn example, the medium at 6.50 dollars is barely cheaper than the large at 7 dollars. Next to it, the large looks like excellent value. Without the medium, the comparison is only between small and large, and the large seems expensive.
The magazine example
Behavioural economist Dan Ariely described an example from The Economist magazine. It offered a web-only subscription for 59 dollars, print-only for 125 dollars, and print plus web for 125 dollars. The print-only option was a decoy: no one would choose it over print plus web at the same price. In Ariely’s experiment with students, when all three options were shown, most chose print plus web. When the decoy was removed, most switched to the cheaper web-only subscription.
A coffee shop sells a small coffee for 2.00 dollars, a medium for 3.50 dollars and a large for 3.80 dollars. The medium is priced so close to the large that most customers conclude the large is the better deal. The shop sells many more large coffees, which have a higher profit margin, than it would if it sold only small and large.
Why it works
The decoy effect shows that people often judge options relatively rather than by their absolute value. We find it hard to know what something is worth on its own, so we compare it with what is nearby. This is part of choice architecture: the way options are presented influences decisions.
Protecting yourself
To avoid being steered, ask whether you would choose the same option if the decoy were not there, and focus on what you actually need rather than which option looks like the best deal.
An option that rarely sells can still be very valuable to a business if it pushes customers toward a more profitable choice. The decoy is doing its job precisely by not being chosen.
- A decoy is an option designed to make another option look better by comparison.
- It works because people judge options relative to each other.
- Ariely's magazine experiment showed a decoy changed most people's choices.
- Asking whether you would choose the same without the decoy helps avoid being steered.
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