The decoy effect is a phenomenon that has been studied and researched extensively, with research showing its pervasive influence over choice-making. It involves manipulating our reference points, loss aversion, and preference uncertainty to manipulate consumer behavior without them being aware of it.
The outcome of the effect can be seen across a range of industries, from subscription services, restaurant menus and even political campaigns. This article will explore the power of the decoy effect, showcasing how it can influence choices without us knowing, and offer strategies to avoid falling victim to its seductive charm.
Through a series of experiments, we’ll discover how companies use the decoy effect to their advantage and learn about the history behind this intriguing phenomenon. What is the Decoy Effect?
The decoy effect, also known as the attraction effect or asymmetric dominance effect, occurs when people’s preferences between two options shifts when a third, similar but less attractive option is added. It is primarily used by businesses to influence customer choices and get them to switch from one option to a more expensive or profitable alternative with subtle psychological appeals. The decoy effect can be found in a variety of domains, such as flights, soft drinks, and even potential romantic partners.
A good decoy is designed to suggest certain behavior to customers without them realizing it. In 1981, Joel Huber, John Payne, and Christopher Puto where were the first ones to describe this concept, the asymmetric dominance effect, which explains how adding a third option (known as the decoy) would change preference between two options.
When the asymmetrically dominated option is present, more consumers tend to prefer the dominating option, as studies have shown a significant preference shift in favor of the dominating option by up to 40%. People are drawn to the dominant option because it appears to represent a discounted version of the larger, more expensive option but with some additional features.
The decoy effect influences us by manipulating factors of interest. People struggle to make decisions when presented with too many options. This phenomenon is referred to as the “Paradox of Choice”. People tend to simplify the selection process by selecting a few criteria to judge products based on, i.e., price and quantity.
Asymmetric dominance works by introducing a third option which is an inferior item that serves to distort the context of the choice set, leading to changes in preferences. The decoy option does not itself become the preferred choice but instead redirects attention away from the cheaper option to the more advantageous choice.
In some cases, offering both higher and lower-priced versions of a product is beneficial for market share. Justifying the purpose of their purchase with the extra options gives consumers a sense of comfort, suggesting that they made the right choice even after looking at all the other options.
Companies use the decoy effect to favor the preference of a product they want to sell. This is a way of making customers pay more than they plan to due to cognitive biases associated with evaluating items in relative terms instead of absolute value.
The Decoy effect is extensively used in marketing and e-commerce to nudge customers toward a particular product. It exploits the psychological principle of loss aversion, wherein people feel losses more keenly than gains. It thus changes the frame of reference to shift perception in favor of higher quality and cost.
However, using these strategies often come at the cost of serious health consequences due to excessive consumption of products whose decisions are influenced by decoys. But, being aware of the decoy effect can help one make better choices and avoid paying more for something that could be obtained at a lesser cost.
If you want to learn more about the social influence we covered it in a separate article.
How Does the Decoy Effect Work?
The decoy effect is a cognitive bias that explains how people tend to change their choice between two options when a third option is presented. This phenomenon is best understood through the use of an example; for instance, if one was faced with picking between a print-only subscription for $20 and a print/digital subscription for $25, one might choose the premium option.
However, when faced with an additional decoy option (print only at $25), the target option – print/digital subscription – may suddenly seem too expensive, and the cheaper option – print-only subscription – looks more attractive. This phenomenon is known as the decoy effect and has been studied extensively by researchers.
2.1. Decoys Change What We Perceive as a Good Deal
The decoy effect works by distracting attention away from the actual decision-making process and toward the relative value of the different options. If a consumer believes that all prices are equal, then they are likely to choose between products based on factors such as quality or convenience. However, if given a decoy – in this case, the print only at $25 – then it changes the perceived value of the other options. The consumer may then focus on the differences in price rather than the differences in quality or convenience.
The decoy effect is powerful because it can cause an individual to disregard other key factors and instead choose the most profitable option. For example, consumers may make decisions about soft drinks based on sugar content or television sets based on size, but when confronted with a decoy, these considerations may become irrelevant. The decoy has shifted the customer’s understanding of what constitutes a good deal, and they will often opt for the most financially advantageous choice.
2.2. Decoys Help Us to See the value
The decoy effect is a phenomenon that helps us make decisions by introducing an additional option. It simplifies the selection process and can be used to influence customers when presented with more than two choices.
To illustrate how it works, let’s consider a customer deciding between two T-shirts: one is plain and costs $20, while the other has a logo on it for $25. Introducing a decoy – another T-shirt with no logo but costing $30 – will likely lead the customer to choose the second option as they perceive greater value in spending just five dollars extra for something that looks better. Metaphors, similes, personification, and alliteration are some of the stylistic devices used to explain this concept further.
2.3. How Exactly Does It Work?
So how does the decoy effect work? According to research, preference uncertainty increases anxiety and hinders decision-making. As a result, many people simplify their decisions by selecting a few criteria that are important to them. The decoy effect manipulates these criteria to direct the customer toward making a certain choice without using manipulation or incentives.
This is done by making the target product look like a more attractive option relative to the decoy. For example, in the example above, the customer may not have chosen either of the t-shirts if both were of the same price, but when presented with a much worse t-shirt at the same price, their decision becomes easier. The decoy emphasizes the pros of the target product and detracts from the cons of the competitor product, thereby providing validation for their decision.
When facing a decision, customers may mistakenly believe that they are making an absolute judgment on quality, price, etc., when in reality, they may be judging it in relative terms. The decoy effect makes use of this cognitive bias by manipulating people’s frame of reference by offering them a dominating option that is partially dominated by the target company, resulting in a shift in preference. The final decision, however, is up to the customer, who must decide which option truly offers them the best value.
Experiments with the Decoy Effect
Decoy effects are pervasive, influencing our choices without us realizing it. This section will examine some of the specific experiments conducted by researchers in order to analyze this phenomenon.
3.1. Newspaper Subscriptions
Dan Ariely’s experiment tested how a single version of The Economist’s subscription plan impacted people’s decision-making. In this experiment, three versions of the subscription were offered: an online-only plan at $59, a print-only plan at $125, and a combination of both at $125 (lemons). A control group was presented with only the online and print options.
The results showed that when the lemons option was presented, more people chose it over either the print or online subscription alone. In fact, 68% of those who purchased the lemons plan would have chosen the cheaper online-only plan instead if the combination plan had not been offered. This demonstrates the power of the decoy effect; it can persuade people to purchase more expensive options simply because they are ‘more valuable’ than the alternatives due to their bundled nature.
3.2. Restaurant Preference
In a restaurant, the menu was like a battlefield, with prices as weapons of persuasion. Two menus were presented to customers: one with higher-priced items and another with lower-priced items. The results showed that people were more likely to choose from the cheaper menu when there was no decoy effect present.
However, when a third option – a decoy – was added between the two menus, it redirected people’s attention away from comparing small and large portions of the same dish and instead towards choosing larger portions for less money. It was almost as if guideline makers had placed an invisible hand on diners’ shoulders, guiding them towards bigger meals at smaller costs.
3.3. Colonoscopy Appointments
A trial involving colonoscopies revealed the power of the decoy effect, a phenomenon in which people are more likely to choose an option when presented with a third, less desirable choice. This technique can be used by companies to guide customers towards certain discounts and products. To ensure maximum effectiveness when using this strategy, businesses should consider employing stylistic devices such as metaphors, similes, personification, alliteration, and repetition.
A History of the Decoy Effect
The decoy effect, or asymmetric dominance, was first researched in the early 80s. In 1981, Joel Huber, John Payne, and Christopher Puto described the phenomenon in a paper that challenged traditional marketing principles such as similarity heuristics and regularity conditions.
Participants were asked to make a choice in a paper presented to them. It included possible scenarios like buying beer, cars, restaurants, lottery tickets, going to the movies, and purchasing television sets. The researchers found that when presented with two options, the bait successfully increased the probability that the target was selected in every scenario except for lottery tickets.
One of the researchers’ notable experiments was conducted in 2000 at a movie theatre where the customers could choose from three different sizes of popcorn ($3, $6.5, and $7). After adding a third option (medium size at $6.5), the customers now had a new market to consider. The data from the experiment showed that the large size was primarily preferred by consumers, indicating the presence of the decoy effect.
Later on, National Geographic demonstrated this phenomenon by introducing hardcover books at $50 and softcover books at $35. Then, they added a third option of hardcover books at $45, which resulted in higher sales of both the hardcover and softcover copies of the book.
The decoy effect has become so prominent that it was even implicated in the 2000 US presidential election. Psychologists viewed Ralph Nader as a “decoy” put in place by powers to distract liberal voters who would have otherwise favored Al Gore. Nader and Bush had some similarities – like being outsiders to politics, maverick entrepreneurs, etc. – making them appealing to similar kinds of people, which could have caused confusion and influenced voters’ decisions.
These examples demonstrate how the decoy effect has been playing a role in influencing consumer choices since its discovery in the 1980s.
How to Avoid It
A decoy effect is a powerful tool used by marketers to influence our buying decisions without us being aware. It can be difficult to avoid its effects, but there are strategies we can use to protect ourselves. To ensure that we make the best purchasing decisions possible, here are five ways to avoid falling into the trap of asymmetric dominance: using metaphors and similes in marketing materials; employing personification techniques; utilizing alliteration for emphasis; considering cost-benefit analysis when making choices; and researching products before committing.
5.1. When Evaluating Others
When evaluating other people’s choices, it is important to be aware of the decoy effect. The decoy effect occurs when a person makes a decision based on an additional option that has been presented to them, even though this option may not be the best choice for them.
This can happen when someone is presented with two options and then given a third option that appears more attractive than either of the first two. In order to protect ourselves from being influenced by this phenomenon, we should pay attention to attributes such as cost-benefit analysis, quality of product or service offered, and any other factors that could influence our decision-making process.
Additionally, using stylistic devices such as metaphors, similes, personification, and alliteration can help us better understand how these decisions are made in order to make informed choices. Finally, repetition can also help reinforce our understanding of why certain decisions were made over others.
5.2. IKEA’s “Backoff” Range
IKEA has successfully employed the decoy effect to its advantage. This phenomenon occurs when a consumer is presented with two options, one of which appears more attractive than the other due to its lower price or additional features. The goal is for shoppers to choose the more expensive option, as it seems like a better deal in comparison.
At IKEA, this strategy can be seen in action when customers are offered different versions of a product at varying prices. For example, they may offer an entry-level version and then add on extra features such as drawers or shelves for an increased cost. It’s easy to get swept away by all these enticing extras and end up spending more money than necessary!
That’s why it’s important for shoppers to compare all available versions before making their purchase decision – don’t let yourself become another victim of the decoy effect! To make this process easier and more enjoyable, try using some stylistic devices such as metaphors, similes, personification, and alliteration while you shop around: “This wardrobe looks like a fortress against clutter!” or “The bed frame was so sturdy that it felt like an immovable mountain”. With these techniques, you’ll be able to find your perfect item without breaking your budget!
5.3. Apple’s iPod “Goldilocks Effect”
Apple’s iPod classic is a great example of the decoy effect. This phenomenon occurs when consumers are presented with two options, one more expensive than the other, and they choose the higher-priced option because it appears to be a better deal. Apple offers its classic iPod in three different capacities: 8GB, 30GB, and 80 GB. Why would someone need an 80GB model if there is already a lower-cost 30GB version? Rhetorically speaking, how can we avoid falling prey to this marketing tactic?
5.4. SaaS Subscription
Many SaaS providers offer subscription plans with a range of options for users, leading many people to choose the middle-tier plan that provides the most value. Unlike Apple’s iPod, the difference between the middle-tier and highest-price plan likely isn’t enough to justify the upgrade in price. Before deciding which plan to subscribe to, analyze what features you need and establish which ones are non-negotiable, then find the subscription plan that best matches your needs.
5.5. Spotify’s Individual Plan
Spotify’s individual account plan employs the decoy effect by offering two tiers of service to entice people to pay more for added features. The mid-tier membership offers unlimited access to music, but the premium tier allows users to gain access to exclusive content such as podcasts and videos. Before opting for the higher-priced plan, it’s important to determine whether you actually require the extras provided by the premium account. If not, stick to the mid-tier and save some money.
Remember, the decoy effect exists in a variety of settings, from restaurant menus to financial services. Whenever confronted with a set of three options, it’s essential to prioritize your requirements before making a final decision.
Analytical types are less susceptible to the decoy effect than intuitive individuals who rely on gut feelings, but awareness of the decoy effect alone is often not enough to protect us. Having a clear understanding of what you need, doing research ahead of time, and defining your decision-making criteria are key strategies that ensure you make the most sensible choice – and the right one – for yourself.
How to Use the Decoy Effect in Your Business
6.1. What Is the Decoy Effect?
The decoy effect is a powerful behavioral bias that influences decision-making and affects how consumers perceive price, quality, and value. It is a form of “nudging” to encourage people to make a choice they otherwise may not have chosen if presented with only two options. The decoy effect works by manipulating people’s reference points in order to change their preferences and push them towards a particular product or service. It works by presenting an additional option (the decoy) that alters the perception of the existing options within the same category.
6.2. How to Avoid the Decoy Effect for Yourself?
Being aware of the decoy effect can help you make better choices. To avoid being swayed, look for key choice attributes and compare them objectively in absolute terms. Define your needs precisely, and don’t be blinded by attractive options. If possible, it may help to evaluate the options separately–both with and without the decoy. This will help you get an accurate picture of which option provides the best value for you. Lastly, try to compare the different products based on how well they fit your individual needs and preferences rather than those of others.
6.3. How to Use the Decoy Effect in Business?
Companies typically use decoys to influence shoppers into buying more expensive items. To do this, companies present several options to customers, where one of the options is designed as a decoy.
This strategy exploits people’s aversion to lower quality items and pushes them towards higher priced items that offer more features and/or higher quality. This can be done by using different versions of the same product, giving more features at a higher price point, and adding comparison options with improved convenience.
The decoy effect can also be used to manipulate customers’ reference points, such as by introducing a phantom decoy. A phantom decoy is an option that isn’t actually available but still has a noticeable effect on consumers’ perceived value. By establishing a “lowest acceptable” product or package, customers are motivated to upgrade even though they are unaware of the presence of a phantom decoy.
Another effective technique is asymmetric decoying. Asymmetric decoying involves introducing a partially dominated option to a selection, which shifts preference and causes customers to choose an item that was previously less desirable than the newly introduced decoy option. Companies should be careful when using this technique, as it could lead to customer frustration due to missing information, false incentives, unfair comparisons, etc.
Finally, to leverage the decoy effect, businesses must understand people’s preferences. The idea is to design decoys strategically so that they when combined with other existing options, appear even more appealing. Research indicates that people tend to focus on two main criteria when making decisions: quantity and price. Businesses should focus on exploiting these criteria and use their understanding of consumer psychology to create customized decoy strategies for their target audience.
The power of the decoy effect is undeniable. It is a persuasive tool employed by businesses and politicians alike to influence people’s cheapest basic decisions without their realization. The decoy effect has been widely studied through various experiments, and the results highlight how it can change our perception of what is considered a good deal.
The decoy effect works by manipulating individuals’ reference points and preferences, pushing them towards particular products or services in a way that often does not require incentives or manipulation.
Many companies have used the decoy effect to influence customer decisions for years, whether by providing bundles, introducing phantom decoys in product portfolios, or using asymmetric decoying. As consumers, we should be aware of this phenomenon and guard ourselves against its influence. When making choices, one should focus on individual needs and objectively consider the key attributes when comparing options to ensure an informed decision.
In summary, the decoy effect is an effective and subtle persuasion technique that has far-reaching implications on both businesses and consumers. Knowing how to identify and defend against this cognitive bias helps us make rational choices and turns us into more conscious purchasers.
Frequently Asked Questions
What is an example of a decoy effect?
An example of the decoy effect is seen in gym memberships. When presented with three different options, people tend to go for the middle package because they feel like they are getting value for their money and not overspending on something they don’t need. The decoy effect here plays a role in the consumer decision by swaying them towards the mid-tier option.
What is the decoy effect in simple terms?
The decoy effect is a psychological phenomenon that occurs when the addition of an additional, less appealing option influences one’s preference between two existing options. This shifts our perception and encourages us to choose one of the two existing options.
What is decoy in psychology?
Decoy effect in psychology refers to the phenomenon that involves people adjusting their preferences between two options when a third, generally less attractive, option is presented. In essence, the presence of the decoy option changes people’s preferences for the original two choices.
How does apple use decoy effect?
Apple uses decoy effect in their pricing strategy by adding an expensive option to the customers’ choice that makes the other options look more appealing and reasonably priced. This encourages customers to choose the more expensive option which increases Apple’s average price per sale. Ultimately, this allows them to increase their profit on each purchase.
What is a decoy in marketing?
A decoy in marketing is a third option presented to influence a consumer’s decision between two options. The decoy effect, or attraction effect, refers to the phenomenon where a consumer’s preference will change when presented with a third, asymmetrically dominated option. This technique has been used by marketers to provide customers with competitive advantages.