According to economic theory, we make decisions based on what will have the most utility to us. This is provably untrue; the way we make decisions is affected by the context in which we are making this decision. One such example is the decoy effect. Say there are two objects, 1 and 2, and two aspects of each object, A and B. Object 1 has a better aspect A, while object two has a better aspect B. If asked to decide, it is unclear which option most people would pick; it would depend oin how each aspect is valued. Now imagine that there is an object 3, who’s aspect A is at the level of object 1, but who’s aspect B is lower than either object’s aspect B. This object is demontrably worse than object 1, but its relationship with object 2 is unclear. As a result, object 1 becomes mroe appealing, because it is clearly superior to another object. Thus, a seemingly irrelevant choice affects our decisions.
The classical example is the Economist pricing.
Web Subscription – $59
Print Subscription – $125
Web and Print Subscription – $125
The third option is clearly superior to the second, which makes it an easy choice, as it is the only dominant option.