What is... | June 21, 2017

What is the decoy effect?

Do you ever spend more than you intend? Natural habits of thought can make us sitting ducks for a clever offer.

Assume you’ve taken up photography and are shopping for a basic camera. In the shop, you’re presented with a low-resolution £69 camera, and a higher-resolution £175 camera with more specs. At first, you decide on the £69 camera. Then you see a £300 camera with a slightly higher resolution than the £175 camera and similar features.

Believe it or not, research suggests you are now more likely to abandon the cheap option for the £175 camera. This is what’s called the decoy effect.

Skewing your solution
The decoy effect can happen when people are presented with what researchers call an “asymmetrically dominated option”. This is essentially a bad deal. In the above example, seeing the £300 camera tempts you to reassess the £175 camera – making it seem like a great deal, and much more attractive than the basic £69 camera you thought you’d decided on and were about to buy.

The decoy effect happens because we tend to decide what items are worth by comparing them to each other, as this Duke University paper explains.

For example, when US luxury store Williams-Sonoma introduced $275 bread makers, almost no one bought them. A marketing firm recommended offering a slightly better bread maker as well – at almost twice the price ($415).

This time sales of the $275 product began to rise. When people can compare two versions of the same thing, it is easier to estimate each product’s value and make a choice between them. The decoy effect works by shifting the reference point by which we judge the item in question.

Best out of three?
Behavioural economist Dan Ariely writes in his book Predictably Irrational about an experiment based on subscription offers for The Economist magazine. People could choose a $59 digital subscription, a $125 print subscription, or a combined print and digital offer, also costing $125. MIT students were asked to choose between all three options. Most chose the combined offer.

Yet when Ariely asked them to choose either the combined offer or the digital-only subscription, most reversed their decision and plumped for the digital subscription. This is one of five common “framing” traps covered in this eZonomics article.

Another reason for the decoy effect is that we typically prefer to choose simpler routes to solving problems. Our brains tend to make decisions by “boiling down” or simplifying a situation . This means we’ll generally avoid using harder criteria to make choices.

In the example above, the £175 and the £300 cameras have similar capabilities and good resolution, so we can more easily use those factors to compare the products on offer, immediately eliminating the £69 camera, which does not have those same features.

The decoy effect isn’t just about shopping. Preliminary research suggests people tend to donate more money when decoy rewards are offered in crowdfunding campaigns.

Getting choosy at work
The decoy effect has also been found to influence hiring decisions.  In one experiment, students were asked to choose hires based on candidate assessment scores and promotion potential. Students chose differently, opting for a different candidate, if an additional candidate was introduced into the process as a decoy.

When there was no decoy, the students were more likely to choose a candidate who seemed to have a high chance of promotion but only an average assessment score. However, they reversed their decision and chose a candidate with high assessment scores and low promotability when a decoy candidate who also had a high assessment score and much lower promotability was presented.

You can read more about how unconscious biases and natural thinking traps can affect recruitment here and here.

Shifting perceptions
Even though the students never actually chose the decoy candidate, the very existence of a decoy changed their views on who should be ultimately hired. The decoy effect, therefore, can have a big effect on people’s lives. While the decoy effect is not always a bad thing, it might pay to keep an eye out for it when making decisions – especially about personal finance. When out shopping, for example, perhaps decide how much you’d like to spend, before you start evaluating the items up for sale.

That way, you may be less likely to overspend, for example. If you decide only want and need a basic camera before going out to buy one, for instance, the science suggests you’re more likely to stick with your original decision and purchase a £69 camera instead of being tempted by an expensive alternative.


eZonomics team
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