Decoy Effect

From Weekly I/O#58

Decoy Effect: When we are choosing between two options, introducing a third option can cause shifts in our preference between the first two items.

Article: The decoy effect: Why you make irrational choices every day (without even knowing it)

When we are choosing between two items, introducing a third and less attractive item (the decoy) can influence our perception of the original two choices. The decoys are asymmetrically dominated, meaning they are entirely worse than one option but only partially worse than the other. A famous example of the decoy effect was The Economist subscription page a few years ago. They offered three annual subscriptions at the following prices:

  1. Website-only subscription: $59
  2. Print-only subscription: $125
  3. Print+Website subscription: $125

The decoy was the second option (print-only) because it was completely inferior to the third option (print+website). MIT Professor Dan Ariely divided his students into two groups and conducted an experiment. When he hid the second option and only offered website-only and print+website options to the first group, 32% of people chose print+website, and 68% chose website-only. However, when the second option (decoy) is offered, the ratio of people who picked print+website increases to 84%, and the ratio of people who chose website-only drops to 16% (0% chose print-only).

Why the additional decoy shifts the preference between options? It's a lot easier to choose when we compare similar things. Our brain can quickly evaluate the differences as opposed to when options are different.

Dan Ariely explained in his talk:

"The option that was useless was useless in the sense that nobody wanted it. But it wasn't useless in the sense that it helped people figure out what they wanted. We actually don't know our preferences that well, and because we don't know our preferences that well, we're susceptible to all the influences from external forces."

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