Decoy Effect: Is it desirable to have an undesirable option?

Written By: Archana Ravi

Imagine you are at the movie theater. You just bought your ticket and now decide to get some food for the movie. You want to buy popcorn and there are two options to choose from: a small popcorn for R30 or a large popcorn for R90. Which one would you choose? The small size or the large size? We have all been here before. We love popcorn, but the large option is so expensive, that we stick to the smaller option at a more reasonable price.

Now consider this scenario. Imagine that there are three popcorn options instead of two: A small for R30, a medium for R80, and a large for R90. Doesn’t the large option look a bit more appealing now? For just R10 more, you can upgrade from a medium to large, so why not get the large option?

A study with this exact scenario was conducted by National Geographic and showed that the number of people that chose the large popcorn increased from 13% to 74% after adding the middle option. This study portrays the power of the decoy effect.

What is the decoy effect?

Decisions are rarely made in a vacuum, and often the options given can influence our decision. In this example, adding another option (the medium-sized popcorn) had an influence on people’s decision to buy the large popcorn.

The decoy effect describes how adding another less attractive option can change our perception of the two original choices. This phenomenon is sometimes called the asymmetric dominance effect. This is because the decoy choice is asymmetrically dominated, i.e. the decoy option is entirely inferior to the target option (large size popcorn) but is only partially superior to the competitor option (small popcorn). For the decoy effect to work, the third option ( in our example the small popcorn) must be completely undesirable, hence changing people’s perception of the value of the large option.

How does it work?

The decoy effect is an example of a behavioral nudge. It uses subtle changes in choice availability to influence decision-making and steer us towards the target option. It is subconscious, as with most nudges, so we don’t realize we are being influenced and often think we are making that decision independently. This is what makes the decoy effect so powerful.

Here are some of the reasons for why we fall prey to the decoy effect:

Decision Justification- With the introduction of a new option that is inferior, it makes the target option look like a better deal.
Eliminates Uncertainty- The decoy can ease the process of decision-making and reduce decision paralysis. It might be hard to choose between the small and large sizes because we are uncertain about which deal is better. However, with the addition of the decoy, the uncertainty is reduced because the large size seems like the best value for money.
Loss Aversion- As humans, we are sensitive to loss and therefore like to minimize loss. Since what is considered a ‘loss’ is subject to the reference point, our perception of the existing choices can change when the decoy acts as the reference point. Hence, we might feel like we will lose out on the best deal if we pick anything other than the target option.

Can the decoy effect improve sales?

Since decision-making is a lot harder with uncertainty, giving consumers the right nudge can ease uncertainty while also improving sales. It is essential to have a clear target and competitor options for the product. The decoy option will have to be inferior to the target option, which nudges people to buy the target product. One of the earliest studies that portrayed this effect is by Dan Ariely, professor of psychology and behavioral economics at Duke University. He presented his students with three options for a subscription to the Economist. The options were: $59 for an online subscription and $125 for both print and online access. Only 32% of the students picked the print and online access option for $125. He then added a third option which was $125 for print access only. Given these three options, 84% of the students chose the print and online access option for $125. Hence adding the undesirable option of $125 for print access only increased the number of people who wanted the online and print access option. In the end, more people were willing to pay $125 compared to $59 due to a shift in perspective brought about by the decoy option.

How can we use the decoy effect to nudge behavior in a positive direction?

The decoy effect can be used in a variety of situations such as restaurants, schools, and hospitals. The decoy effect could be used to nudge people towards picking more sustainable food options from menus or in cafeterias. Additionally, the decoy effect can be used to discourage the consumption of alcohol or even increase interest in screening for cancer. One study by Stoffel and Yang demonstrated the effectiveness of using the decoy effect to increase interest in colorectal cancer screening. By having a decoy option, more people chose to be screened at the target hospital as opposed to not taking part in screening at all. The overall interest in screening increased from 37% to 59%. Additionally, they found that the decoy option helped reduce decision anxiety while still encouraging respondents to learn more about the screening process. Hence, they could nudge people towards screening without influencing their ability to make an informed choice.

In conclusion, the decoy effect can be an effective way to nudge behavior that results in people choosing the target option through the introduction of an inferior option. Introducing the decoy can reduce consumer uncertainty and capitalize on loss aversion. There are various applications for the decoy effect. It can be used to improve business or promote a specific product. It is also used to change existing bad habits subconsciously. Additionally, it can help nudge people towards better decisions while not taking away their ability to make an informed decision. The reason this works so well is that we are often unaware of the factors affecting our decision-making. So next time you go buy your popcorn, I hope you’ll remember the decoy effect and think: do I really need the large popcorn or is this a nudge?

References:

Ariely. (2015). Predictably Irrational: The Hidden Forces That Shape Our Decisions. Joosr.

Stoffel, S. T., Yang, J., Vlaev, I., & von Wagner, C. (2019). Testing the decoy effect to increase interest in colorectal cancer screening., 14(3), e0213668.