Description

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.

Example

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.

Further Reading

The Decision Lab

The Decision Lab is a think tank focused on creating positive impact in the public and private sectors by applying behavioral science.

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