The decoy effect: from product pricing to dating apps

Imagine you are standing in line at a cinema to buy popcorn. As you get to the front of the stand you see that there are three size options: small, medium, and large. You are not too hungry, so you’re thinking of buying the small one. The small costs € 4, the medium € 6.50 and the large € 7. You didn’t really need to buy the big popcorn, but in the end you just couldn’t pass the great deal of getting a larger popcorn by paying only € 0.50 more. It seemed like a much better bargain than the medium.

This is an example of a cognitive bias known as the “decoy effect” or “asymmetric dominance effect”, in which the presentation of an additional less attractive option – in this case, the expensive medium-sized popcorn – makes you spend more money than you would have rationally chosen (Robson, 2019). Consumers change their preference between two original options when there is a third option – “the decoy” – that is “asymmetrically dominated”. This means that the decoy is intentionally priced to drive people towards the “target” option – often the most expensive. Therefore, the decoy is “dominated” in regards to its perceived value and is seen as unappealing (Mortimer, 2019).

The concept of decoy effect was first introduced by academics Joel Huber, John Payne, and Chris Puto. Previously, most economic decision models followed the regularity principle, the idea that adding a new alternative to a set of options cannot increase the probability of choosing one of the original options. That is, economists did not believe that something like the decoy effect could occur. By conducting experiments where the participants were first asked to make choices between two options and later were given a third alternative – the decoy – the researchers were able to demonstrate the asymmetric dominance effect, since in every hypothetical scenario the decoy was able to increase the likelihood of the target being chosen (Mortimer, 2019).

These results challenged not only the regularity principle, but also the “similarity heuristic” proposed by Amos Tversky. The similarity hypothesis states that when a new product enters the market it will split consumers between the new product and the old ones that have a lot of similarities to it. However, this is not the case with the decoy effect as the third option is specially designed to drive consumers in the direction of the target option and not steal its market share (The decision Lab, 2024). 

Thus, the decoy effect is a form of “nudging”, that is, an aspect of the choice architecture that steers people’s behavior in a predictable way without restricting or forbidding any options. The decoy effect is not necessarily manipulative, since like any nudge it only involves subtle suggestions to push us in the desired direction (Mortimer, 2019). Usually, we do not even realize that a decoy effect is in action. Consider the price of juice in a cafe: a small size costs € 5.10; the medium € 6.10; and the large € 6.50. Although the effect is subtle, the price of the medium option – € 1 more than the small but only € 0.40 cheaper than the large – is assigned to be asymmetrically dominated, leading the consumers to see the biggest drink as the best value for money (Mortimer, 2019).

Pricing strategies also capitalize on “loss aversion” by using the decoy effect. People hate losing a given amount more than gaining an equivalent sum and the “loss” is relative to some point of reference. What the decoy does is change the frame of reference of consumers. The competitor option – the one consumers are directed away from – has some advantages and disadvantages compared to the decoy. But loss aversion makes people focus more on the disadvantages when making a choice. And, since people are more averse to lower quality than to higher prices, consumers are more likely to opt for the target, which has a higher quality and a higher price (Hendricks, 2018). 

Moreover, the decoy effect is not always associated with products. Take politics as an example. In elections, leading candidates are usually busy competing with each other, but don’t realize that when people cannot decide between the two, their decision can be swayed by the candidate in third place. The candidate who is in third place often has the unintended effect of making one of the front-runners appear better in the minds of undecided voters (Vedantam, 2007). The decoy effect may even be present on the choice between options on the dating pool. People tend to be more interested in someone if they are seen beside a similar looking, but less attractive, decoy. This effect is especially relevant in dating apps, as people swipe through a long list of potential partners, so their choice can be affected by the faces they have seen just moments before (The Decision Lab, 2024).

Therefore, being aware of the decoy effect can help people make better decisions. When presented with three options, think to yourself whether you are choosing the option that is best for you or whether you were swayed by a deliberately unattractive alternative. So, next time you’re at a cinema, don’t just go for the largest bag of popcorn just because it seems more advantageous than the medium – unless you are hungry, of course. 

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Sources:

Decoy effect (2024) The Decision Lab. Available at: https://thedecisionlab.com/biases/decoy-effect (Accessed: 05 March 2024).

Hendricks, K. (2018) The decoy effect: Why you make irrational choices every day (without even knowing it), Kent Hendricks. Available at: https://kenthendricks.com/decoy-effect/ (Accessed: 05 March 2024).

Mortimer                    Associate Professor in Marketing and Consumer Behaviour, G. (2019) The decoy effect: How you are influenced to choose without really knowing it, The Conversation. Available at: https://theconversation.com/the-decoy-effect-how-you-are-influenced-to-choose-without-really-knowing-it-111259 (Accessed: 05 March 2024). 

Robson, D. (2019) The trick that makes you overspend, BBC News. Available at: https://www.bbc.com/worklife/article/20190801-the-trick-that-makes-you-overspend (Accessed: 05 March 2024). 

Vedantam, S. (2007) The Decoy Effect, or How to Win an Election, Washington Post. Available at: https://www.washingtonpost.com/wp-dyn/content/article/2007/04/01/AR2007040100973.html (Accessed: 05 March 2024).