Before getting into the reasons why the decoy effect is so effective, we need to explain the concept of “asymmetric domination” more thoroughly. In an ideal decoy situation, there are three choices available:
The target is the choice someone else (for example, a business) wants you to make.
The competitor is the option competing with the target.
The decoy is the option that is added to nudge you towards the target.5
The crux of the decoy effect is the fact that the decoy must be asymmetrically dominated by the target and the competitor, with respect to at least two properties—let’s call these A and B. This means that the target is rated better than the decoy on both A and B, while the competitor might be better on A but worse on B.
Let’s revisit the popcorn example from above. In this scenario, you, the customer, are evaluating your options based on two factors: size and price. The large popcorn is the target, and the small is the competitor. The medium popcorn works as a decoy because it is asymmetrically dominated by the other two. Although it is bigger than the small, it is also more expensive, making it only partially superior. The large, however, contains more popcorn and is only slightly more expensive than the medium, making it less expensive per unit.
This situation was actually used in an informal experiment by National Geographic. Although very few people purchased the large popcorn when their only other option was the small, once the medium was added as a decoy, the large became “irresistible.”
Decoys work subconsciously
The decoy effect is an example of a behavioral nudge—a type of intervention that “steers” individuals towards making a certain choice. Nudges do not manipulate behavior by providing large incentives to behave a certain way, or threatening some form of punishment for failing to do so. Instead, they involve very subtle changes to an environment or situation, leveraging some aspect of human behavior to push us in the desired direction.3
As with all nudges, the decoy effect does not technically violate our free will, because it doesn’t impose any restrictions on us. Usually, decoys affect us without us even realizing it; whatever we ultimately choose, we believe that we are doing so independently. This invisibility is part of what makes the decoy effect so powerful.
The idea that our decision making can be influenced by factors outside of our awareness may be hard to believe. However, research has shown that in general, we are not very good at determining the reasons for our own behavior. Even though we believe that we make all of our decisions consciously and deliberately, in reality, we are often unaware of factors that have influenced their choices, nor how they have affected us.
In one study, researchers had participants memorize pairs of words. After doing so, they completed a word association task, where they were asked to name examples of a certain type of object. Some of the word pairs were designed to elicit specific answers during the association task. For example, the pair “ocean–moon” was intended to prime participants to say “Tide” when asked to name a type of detergent.
The word pair cues worked as intended: individuals who were exposed to a given prime were twice as likely to name the target word. However, when asked why they had responded the way they did, very few participants mentioned the word pairs. Instead, their explanations focused on some defining feature of the target (“Tide is the best-known detergent”), or personal meaning associated with it (“I use Tide at home”; “I like the Tide box”, etc.).4
Decoys provide a justification for our choice
In the Tide study, people’s choice of words was influenced by factors outside their awareness—but that didn’t stop them from readily providing explanations for why they responded the way they did.
This leads us to an interesting point: when people make decisions, their goal is not to pick the correct option. Instead, the goal is to justify the outcome of a choice they’ve already made.5
In another study that specifically looked at the decoy effect, researchers asked participants to pick from sets of various products. As expected, when there was a decoy option present, people were more likely to pick the target. However, this effect was stronger if participants were told they would have to justify their selection to other people afterwards.10 Why? Decoys provide an easy rationale for people to choose the target: they emphasize the pros of choosing the target and the cons of choosing the competitor. They make us feel comfortable in our choice by handing us a ready-made justification for it.
Decoys make the choice feel less overwhelming
Decoys serve to de-stress the decision making process in more ways than just providing a nice-sounding explanation — they also calm down the anxiety of having too many options to choose from.
The “paradox of choice” is a concept that describes how, the more options we have, the more difficulty we have making a decision. Although you would think having a broader selection would simplify the process, in reality, we get overwhelmed when we have too many choices, and experience more regret over making the “wrong” choice.11
There are a few reasons for this, but one that is relevant to the decoy effect is the idea of preference uncertainty. In any given situation, there are numerous factors that an individual could take into account in order to make a decision; the less certain they are about which ones should be prioritized, the more difficult it will be to choose.6
In order to avoid preference uncertainty, people typically pick a small number of factors to focus on in order to judge their options—for example, price and quantity. The decoy effect capitalizes on this by manipulating the factors of interest.7 Preference uncertainty also make it more likely that we will make a reasons-based choice—i.e., choose the option with the nicest-sound rationale attached to it.10
Decoys capitalize on loss aversion
As humans, we hate losing more than we like winning. Loss aversion describes how, for most people, it is more unpleasant to lose a given amount than it is pleasant to gain an equivalent sum.9 Finding $20 on the street will probably brighten your mood for a short while, but losing $20 out of your wallet may well ruin your whole day.
However, what qualifies as a “loss” is not set in stone; instead, losses and gains are defined relative to some reference point. Decoys partially function by manipulating where our reference point is. Compared to the decoy, the competitor option (i.e. the option we are not being nudged towards) is advantageous in some ways and disadvantageous in others. However, loss aversion causes us to direct more focus towards the disadvantages when making our decision. As a result, we are more likely to pick the target.5
Research has also shown that people are more averse to lower quality than we are to higher prices.5 This is another feature that decoys exploit, as they are typically designed to push us towards a target that is of higher quality and higher price.