Decoy effect

The decoy effect is what happens when a choice gains a weaker neighbor. Suppose you are torn between two options that each win on something: one is cheaper, the other is better. Now a third option appears that is clearly worse than one of them and not clearly worse than the other. Almost nobody picks the newcomer, but more people now pick the option that beats it. The decoy does its work by losing, and the seller who placed it there gets the sale they wanted.

The 1982 study

Classic theories of choice assumed that adding an option to a menu could never raise the share of an option already on it. A new choice might take customers away, but it should not send extra customers to an old one. In 1982 the marketing researchers Joel Huber, John Payne and Christopher Puto set out to show that a particular kind of option breaks that rule.

They asked 153 graduate and undergraduate business students to choose among options in six categories: cars, restaurants, beer, lotteries, photographic film and television sets. Every option was described on just two attributes. Cars, for example, were rated on ride quality and gas mileage, and beers on price per six-pack and a quality score from a blind taste test. In each category there was a target and a competitor, each better on one attribute. Some students also saw a decoy, an option that the target beat on both attributes but the competitor did not.

The decoys were almost never chosen, about 2 percent of the time, which showed that people noticed they were worse. Even so, they moved the choice. Across the categories, students who saw a decoy picked the target more often than students who did not. Adding an option had raised the share of an option already on the menu, which is exactly what the classic theories said could not happen.

The paper also offered business examples that now read like a pricing manual. One imagined a store with two camel hair jackets at $100 and $150, where the dearer one is not selling. Add a third jacket at $250, the authors suggested, and even if it never sells, the $150 jacket starts to.

Why a loser changes the winner

Choosing between two options that each win on something is hard, because it means trading one quality against another. A decoy offers an easy comparison: the target beats it outright. That gives you a clear reason to choose the target, and reasons are what people reach for when a decision feels uncertain. The decoy also changes how the attributes look. Adding an even more expensive option makes the target’s price seem moderate; adding an even weaker option makes its quality seem high.

The effect has limits. In 2014 Shane Frederick, Leonard Lee and Ernst Baskin found it weak or absent when options were shown as pictures or real experiences instead of numbers. Huber, Payne and Puto replied that it holds when the original conditions are repeated. A price page, with options laid out in columns of numbers, is about as close to those conditions as everyday life gets.

How a decoy starts a chain

Decoys rarely add an extra purchase on their own. What they do is lift the first link of a chain. You go in for a $599 55-inch television. Next to it are two 65-inch sets: one at $1,199 with an ordinary panel, and one at $1,249 with a better panel and a faster processor. The $1,199 set is the decoy; it exists to make $50 more look like the best deal in the store, and you take the $1,249 set. At home, its size makes the old speakers sound thin, so a $400 soundbar follows, then a $130 wall mount, then a $450 media cabinet to sit under it. A purchase planned at $599 has become one of about $2,230, and the decoy only had to move the first step.

Where decoys turn up

• Tiered plans. Three subscription tiers, where the middle one costs nearly as much as the top one but includes far less, steer buyers to the top.
• Sizes. A medium popcorn or coffee priced close to the large makes the large look generous.
• Bundles. A kit that costs almost as much as a better kit is there to make the better kit look like the sensible choice.
• Labels. “Most popular” or “best value” badges point at the target, so the decoy’s job is done even faster.

How to take the decoy off the table

1. Strike out the dominated option. If one option beats another on everything that matters, cross the loser out and decide between what is left.
2. Test the cheapest option alone. Ask whether you would have been happy with the basic option if it had been the only one on the shelf. If yes, the extra spending was the decoy’s idea.
3. Write your must-haves first. List the features you need before you open the price page. Anything that is not on the list is not a reason to move up a tier.
4. Price the chain, not the step. A higher first purchase usually raises what comes after it. Our Chain Cost Calculator adds up what the follow-on purchases would cost.

Where it meets the Diderot effect

The Diderot effect explains why a new purchase raises the standard for everything around it. The decoy effect explains why that first purchase is so often a level higher than you meant it to be. Put them together and a modest upgrade turns into a showpiece that the rest of the room then has to live up to, just as Diderot’s scarlet robe set the standard for his study. Decoys pair naturally with anchoring, and a crowded menu can tip into the paradox of choice. For more on how sellers arrange the set, see how marketers use the Diderot effect.