Choice Architecture: the decoy effect

Also known as the asymmetric dominance effect (1), the decoy effect is a phenomenon noticed when people have to choose an option from a choice set, when a decoy is employed.

The decoy is a high-price, low-value product compared to other items in the set, expected to distort the choice towards a targeted item (1). This low-value choice is not expected to be chosen: its purpose is to be a reference point for another item which has both high-price and high-quality (2).

One of the most known studies (3) is the newspaper subscription experiment. Students were asked to choose from a set of three options a monthly subscription for a newspaper:

web subscription – $59, (chosen by 16 students)
print subscription – $125, (not chosen)
web and print subscription – $125; (chosen by 84 students)

The result is amazing: 84% of the students chose the last option. The highly expensive, low-value print subscription is a decoy that makes the last option look better.

In a second test, the decoy option was removed. The results looked different:
web subscription – $59 (68 students)
web and print subscription – $125 (32 students)

Calculating the newspaper’s revenue in these two conditions seemed to explain the use of a decoy.

Now, imagine what happens if you go in a travel agency to book a vacation. Out of the next options, which one would you choose if prices were equal?

– 10-day trip to Athens, with five dinners included
– 10-day trip to Rome, with breakfast and spa facilities included
– 7-day trip to Rome, spa facilities included

I would choose to see more options, of course.

REFERENCES:
1. Puto, C. (1982). Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis. The Journal of Consumer Research, 9(1), 90-98.
2. Josiam, B. M., & Hobson, J. P. (1995). Consumer choice in context: the decoy effect in travel and tourism. Journal of Travel Research, 34(1), 45-50.
3. Ariely, D. (2008). Predictably irrational (p. 20). New York: HarperCollins.

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