Decoy Effect

An option is asymmetrically dominated when it is worse, in all respects, than another option. But, when compared to a third option, it is worse in some respects and better in others.

When the third option is presented, a higher percentage of consumers will chose the dominating option (the one that's worse in some respects and better in others than the third option) than when the third option is absent.

The third option, when it’s asymmetrically dominated, acts as a a decoy and serves primarily to prompt people to choose the second (dominating) option.

Decoys de-stress the decision making process and calm our anxiety of having differentiated options to choose from.

The 'paradox of choice' is another principle of psychology, and describes how people have a harder time making decision and become overwhelmed when presented with too many options.

This happens because of preference uncertainty. In any given choice, we decide based on personal factors. But the less certain we are about those factors, the more difficult it becomes for us to make a choice.

As a result, people typically focus on just a few factors, such as price and quantity, when choosing among products. The decoy affect leverages this by manipulating those factors.

And, the decoy affect takes advantage of another principle of psychology - loss aversion. People hate losing more than we like winning. Finding $10 on the street may improve your mood for a short while, but losing $10 may ruin your whole day.

But, we don’t define losses absolutely. We define them relative to something else. And, that’s how the decoy affect can strongly influence behavior. Decoys work, in part, by manipulating our reference point. Compared to the decoy, the next best option is better in some ways and worse in others. But, loss aversion causes us to think more about the disadvantages when making our decision. As a result, we tend to pick the next best product, when compared to the decoy.

Additionally, people are more averse to worse quality than we are to higher prices. Good decoys are designed to promote someting that is both better quality and higher priced.

One of the best examples of the decoy effect was an old subscription page of The Economist. Three options were presented: $59 for electronic only, $125 for print, and $125 for print and electronic.

The first option at $59 seemed reasonable. The second option at $125 seemed expensive. The third option offered options 1 and 2 (web and print) for the same price. When this was tested with students, zero students chose option 2. Most chose option 3. When the second option was eliminated, most students chose option 1 (online subscription only).

The decoy effect works well because it is rational. So, it’s not easy as a consumer to void it. But, there are some strategies you can use to decrease the influence of the decoy effect.

You can minimize the decoy effect by choosing your preferences ahead of time. Decide on what qualities you value the most. So, if you’re buying a car, decide if it’s most important for it to have self-driving capabilities. That way, when comparing different models from a manufacturer, you can focus on that important factor.

Another way to minimize the decoy effect is to buy only what you need. Focus on why you’re buying the product or service and what you specifically need. Buy to meet your exact needs, not the product or service that appears to offer an overall better value to someone.

Finally, be cautious when presented with three options. This is a clear signal the decoy effect may be present.

There are many important principles, theories, and concepts used in marketing psychology. These include:

• the principle of reciprocity
• information-gap theory
• scarcity
• social proof theory
• and loss aversion marketing

You can research each of these principles, plus dozens of other key principles of marketing psychology, via the links below.