Asymmetrically Dominated Choice

The Basic Idea

Imagine you are at an amusement park, in line to purchase a snack. You’re not that hungry, so a small hot dog should suffice. When you get to the concession stand, you see that a hot dog is $3, a jumbo dog is $6, and a jumbo dog combo (with fries and a drink) is $7. You justify the combo because it wouldn’t make sense to only get the jumbo dog; after all, for only $1 more, you can get a whole meal. So, you purchase the $7 combo because it is a better deal, despite the fact that you just wanted a small snack. 1

You have been influenced by an asymmetrically dominated choice. If you had been presented with only two options, the small hot dog and the jumbo dog meal combo, you would have likely picked the hot dog. There is a large price difference, and you aren’t that hungry to begin with. However, through the addition of a third ‘decoy’ option, you were influenced to spend more money.

Asymmetrically dominated choice involves a decoy being used to push consumers towards a “target” product. The product that usually competes with the target is known as the “competitor.” The “decoy” is meant to make the target option much more attractive, usually by making it appear like a really good deal.1

The decoy makes our choice seem obvious, but it was purposefully placed to push us towards a target option. Since the asymmetrically dominated choice uses a decoy to sway people’s decisions, it is commonly referred to as the decoy effect.

The presence of an irrelevant alternative can change how you view your choices. It has been exploited by marketing experts for decades.

– British mathematician Hannah Fry.2

History

A diverse range of studies has shown that choices occur relative to what options are on offer rather than based on absolute preferences. 3Choice architecture, the idea that the way choices are presented to us influences our decision-making, has long been applied by producers to nudge us towards target options.

Marketing strategists have long been aware that available choices impact decisions. However, prior to the discovery of asymmetrically dominated choice, they believed that adding another brand option to the market would pull some consumers from the other brands. This assumption followed the regularity principle, which is itself based on another assumption – that humans are rational decision-makers. The regularity principle states that “the addition of an option to a choice set should never increase the probability of selecting an option from the original set.” 4 Put simply: adding more choices should not make us likelier to choose from fewer options.

Another popular theory called the similarity hypothesis, proposed by Amos Tversky, suggested that when a new product or brand enters the market, it will disproportionately pull consumers from products/brands similar to it. Again, this theory did not consider whether additional choices could cause a pre-existing choice to become more popular.1

In 1982, Joel Huber, John W. Payne, and Christopher Puto conducted research that demonstrated contrasting results to common marketing assumptions like the regularity principle and the similarity hypothesis. These consumer behavior psychologists first asked participants to make choices across six different product categories: cars, beers, restaurants, film, lotteries, and television sets. In the control environment, participants saw just two options. Then, to test the decoy effect, an extra option was added. Participants saw three options: a target, a competitor, and a decoy, to set up an asymmetrically dominated choice in each category. For the decoy to lead to an asymmetrically dominated choice, it must be dominated by the target (i.e., the target is seen as the better choice) but not dominated by the competitor. The fact that the decoy is still inferior to the target ensures that people do not choose the decoy itself.5

Huber, Payne, and Puto hypothesized that the addition of the decoy would increase the percentage of people who chose the target. They found that for all categories except lottery tickets, asymmetrically dominated choices pushed people towards the intended target. The team of psychologists had found evidence against the regularity principle and the similarity hypothesis: adding another choice boosted the popularity of an existing option, especially if that existing option was similar to the decoy. 5

In 1996, psychologists Douglas Wedell and Jonathan Pettibone conducted further experiments involving asymmetrically dominated choices to try and understand why the decoy effect occurred. They put forward two potential causes: (i) a value shift-based mechanism, where the decoy makes the target seem more attractive irrespective of the objective values of existing options; or (ii) a value-added mechanism, which makes the target appear like the safer choice by raising its value compared to the competitor.6 Instead of concluding that one cause was the accurate one, they found that it depended on the situation, which means the exact mechanism of asymmetrically dominated choice is still unverified.

Consequences

The decoy effect prevents us from being rational decision-makers: it leads us to asymmetrically dominated choices, where we choose something we didn’t really want in the first place. So, knowing about it is essential to making sure we don’t always fall for it.

Producers and companies know that people are influenced by asymmetrically dominated choice and exploit it for their own benefit. If you’ve ever wondered why the price difference between a medium popcorn and a large popcorn at the movie theatre is so small, now you know why. While the medium popcorn is probably all you need, you’ll spend the extra 50 cents on the large popcorn because it seems to ‘make more sense.’ (In fact, it makes less sense: why pay more for something you don’t even want?) The fact that asymmetrically dominated choice disguises the target option as the rational decision is what makes the phenomenon so scary and hard to avoid – but knowledge is power!

While it might not seem like a big deal when it comes to inexpensive things like hot dogs and popcorn, companies can add decoy options to any product category to influence our decisions. Over time, that can really hurt our wallets.

For instance, one study in 1989 found that asymmetrically dominated choice impacts our decision on which apartment to rent.3 In the control condition, a real estate agent showed participants only two options: Option A, which goes above and beyond their wish list but was over their budget; and Option B, which ticks off some things on their wish list and was within your budget. Most participants chose Option B. However, when presented with another option with a similar price to A, but with way fewer features and amenities, participants were more likely to choose A–they felt they were getting a bigger bang for their buck.7 This study shows that even expensive purchases can be manipulated by asymmetrically dominated choices.

Controversies

While the regularity principle assumes that consumers are rational decision-makers, an ideal commonly debunked by behavioral scientists, there are other cognitive biases that find conflicting results to asymmetrically dominated choice. Tversky’s similarity hypothesis is one of them. Another is choice overload bias.

The choice overload bias claims that people have a harder time choosing when there are too many options available, because they feel overwhelmed. Having more options means we’re more likely to find something we like; but too many options can be too much for our brain to handle. Yet, asymmetrically dominated choice suggests that adding an extra choice makes it easier to decide. It suggests we make comparisons between the decoy, the target and the competitor and conclude that the target is evidently superior to the decoy; and that we quickly and confidently make that decision.

Since the choice overload bias suggests more choice negatively impacts decision-making, the fact that adding a decoy pushes people towards a target might have more to do with our inclination towards a good deal. It might depend on exactly what the optimum number of choices is, which is hard to pinpoint. Adding a decoy as a third option might not cause the choice overload bias, but adding it as a fifth or sixth option could. The anchoring effect suggests that if we perceive an option to be a great deal, we are more likely to choose it. But, another option isn’t necessary – sales and discounts also create the same perceptions.

Another bias that pushes us in the opposite direction of the decoy effect is the less-is-better effect. When we have multiple options, we can compare them to one another because we use alternatives as reference points. In an asymmetrically dominated choice, the decoy pushes people towards the target. But, when we only have one option available to us, we have to take it, so it seems better to us by default. The less-is-better effect describes the fact that we tend to overestimate the value of choices presented alone, rather than when there are multiple choices (including a decoy) available.

Optimal Value of the Decoy

The practicality of asymmetrically dominated choice has been questioned by many, since the decoy effect sometimes is not found in real-life scenarios, despite its prominence in psychological studies. Wanting to restore the practical application of the phenomenon, data scientist Maurits Kaptein and his colleagues conducted a study with a more realistic value comparison of the decoy option.6

Kaptein et al believed that what mattered when it came to asymmetrically dominated choice was how valuable the decoy was relative to the target and the competitor. If the decoy is too similar to the target, the two products will seem almost identical and the decoy will have no effect on choice. Similarly, if the decoy is superior to the target, people will choose it instead. To help understand how relative value matters, we can examine the first range of products Kaptein et al. asked participants to make choices from.6

The team’s first experiment asked participants to make choices between different laptops. The target was a laptop with a better battery but less memory than the competitor. When the decoy laptop was of almost the same quality as the competitor, individuals chose between the competitor and the decoy – not the target. When the decoy was of almost the same quality as the target, individuals chose between the decoy and the target – not the competitor.

Kaptein et al. then showed participants four additional decoy tasks alongside the laptop decoy task, where there were different preferable features in the competitor and the target options. These tasks included a hotel room scenario (choosing between walking distance and price), a magazine subscription scenario (choosing between delivery format and price), and a six-pack of beer/frozen orange juice scenario (choosing from quality rating and price).6

The results of the experiment showed that how valuable the decoy was relative to the competitor and the target mattered a great deal – it had to be similar to the target, but have an obviously worse component. It also had to have an obvious better appeal to the competitor. Kaptein et al. concluded that the reason the decoy effect had not been replicated in multiple previous studies was because the relative value of the decoy was not optimal.6

They also speculated that asymmetrically dominated choice was a particularly useful tool for online sales. In online sales, companies don’t need to actually produce a decoy product. Instead, they can just provide a hypothetical decoy, and provide information surrounding its quality rating and price. This no-cost tactic could help digital companies push more consumers towards their target products.6 However, using fake information to increase sales seems ethically questionable, at the very least.

Related TDL Content

Dancing to the Tunes of a Choice Architect

One of the core insights of behavioral economics is that very few of our consumer choices are unbiased. Most of the time, when we are in a position to make a choice between products, the way options have been presented to us influences what we end up choosing. n. Sometimes, choice architecture is used to the benefit of the consumer – e.g., when we are nudged towards healthier food options – but oftentimes, choice architecture benefits companies. In this article, our contributor Poorvi Iyer highlights how entrenched choice architecture is in our daily lives, explores how policymakers and producers manipulate our choice architecture, and give us advice on how to avoid being influenced by them.

The Stages of Change: How to Motivate, Facilitate, and Reinforce Desired Behavior

While we tend to talk about choice architecture as a phenomenon that negatively impacts consumers by influencing them to spend more or unnecessarily, there are ways that choice architecture can be implemented to benefit us. We are often stuck in our habits, and find it difficult to break them. So, we often need a nudge from an external source to break the cycle. In this article, our contributor Karine Lacroix explores how choice architecture helped her lead a healthier lifestyle by nudging her into cycling.

Sources

  1. Decoy effect. (2021, February 26). The Decision Lab. https://thedecisionlab.com/biases/decoy-effect/
  2. Hannah Fry Quotes. (n.d.). Quotefancy. Retrieved July 22, 2021, from https://quotefancy.com/quote/1968100/Hannah-Fry-This-is-known-in-economics-as-the-decoy-effect-What-it-demonstrates-is-that
  3. Decoy effect. (2020, October 5). Behavioral Economics. https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/decoy-effect/
  4. Trimmer, P. C. (2013). Optimal behaviour can violate the principle of regularity. Proceedings of the Royal Society B: Biological Sciences, 280(1763), 20130858. https://doi.org/10.1098/rspb.2013.0858
  5. Huber, J., Payne, J. W., & Puto, C. (1982). Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis. Journal of Consumer Research, 9(1), 90. https://doi.org/10.1086/208899
  6. Kaptein, M. C., Van Emden, R., & Iannuzzi, D. (2016). Tracking the decoy: Maximizing the decoy effect through sequential experimentation. Palgrave Communications, 2(1). https://doi.org/10.1057/palcomms.2016.82
  7. The decoy effect: How you are influenced to choose without really knowing it. (2020, February 8). Property Update. https://propertyupdate.com.au/the-decoy-effect-how-you-are-influenced-to-choose-without-really-knowing-it/

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