Why a third, inferior option, can change how we decide between two options that are similar in value.

The 

Decoy Effect

, explained.

What is the Decoy Effect?

The decoy effect is the concept that people tend to change their preference between two options when presented with a third option. The third option is the “decoy”.

decoy effect

How does it happen?

According to economic theory, we make decisions based on what will have the most utility to us. This is probably 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 important features of each object, A and B.

  • Object 1 has a better feature A
  • Object 2 has a better feature B.

In this circumstance, if asked to decide, it is unclear which option most people would pick. This would depend on how each feature is valued.

Now imagine that there is an object 3, who’s feature A is at the level of object 1, but who’s feature B is inferior to either object’s feature B. This object is demonstrably worse than object 1, but its relationship with object 2 is unclear. As a result, object 1 becomes more appealing, because it is clearly superior to another object. Thus, a seemingly irrelevant choice affects our decisions.

Example

Let’s run through an example – the classical one 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.