SpendsplainedThe Decoy Effect: The Option Nobody Buys (That Makes You Buy Something Else)
You’re at the cinema. Small popcorn: cheap. Large popcorn: a bit more. And then there’s the medium — priced so close to the large that buying it feels almost silly. “For a little extra, I might as well get the large.”
Congratulations: you’ve just met a decoy. It’s an option that isn’t really designed to be chosen. Its job is to make another option look brilliant.
Breaking a rule of rational choice
Economists have a principle sometimes called “regularity”: adding a new option to a menu shouldn’t increase the share of people choosing one of the existing options. If you prefer tea over coffee, adding orange juice to the menu shouldn’t make you more likely to pick tea.
In 1982 Joel Huber, John Payne and Christopher Puto showed that people break this rule in a predictable way. When they added a third option that was clearly worse than one existing option on every dimension — but not clearly worse than the other — the option it resembled became more popular. They called this new option an asymmetrically dominated alternative. Everyone else calls it the decoy effect.
Here’s the logic. Choosing between two very different things (say, cheaper-but-smaller versus pricier-but-bigger) is hard. A decoy that’s obviously inferior to one of them gives your brain an easy, satisfying comparison: “Well, this is clearly better than that.” The comparison feels like a reason, and we love having reasons.
The famous magazine subscription
The best-known illustration comes from Dan Ariely’s book Predictably Irrational. He describes an old advert for The Economist offering three subscriptions: web-only for $59, print-only for $125, and print plus web for $125.
Print-only is the decoy: why would anyone pay the same price for less? When Ariely presented these options to 100 students at MIT’s Sloan School of Management, 16 chose web-only, none chose print-only, and 84 chose print plus web. Then he removed the “useless” print-only option and asked another group. This time, 68 chose web-only and only 32 chose print plus web.
Nobody wanted the decoy. But simply having it on the page dramatically changed what people picked. (It’s worth noting this was a classroom demonstration with students, not a large field trial — but it captures the effect beautifully.)
The decoy isn’t there to be sold. It’s there to be compared.
Its cousin: the compromise effect
Itamar Simonson, later working with Amos Tversky, documented a related pattern called the compromise effect: when options are arranged from cheap-and-basic to expensive-and-premium, people disproportionately choose the middle one. The middle feels safe and easy to justify — you’re neither being stingy nor extravagant.
This is one reason many businesses offer three tiers. In line with the research, a very expensive top tier doesn’t need many buyers to be useful to a seller; its presence can make the middle option feel like the sensible choice.
Where decoys hide
- Cinema snacks and coffee sizes: a medium priced just below the large.
- Software pricing pages: a “Pro” plan that’s only a little cheaper than “Business” but missing key features.
- Phone storage options: a small jump in price for double the storage makes the bigger model feel obvious.
- Restaurant wine lists: a pricey bottle that makes the second-most-expensive one look reasonable.
- Bundles: “print only” at the same price as “print + digital”.
The fine print: decoys don’t always work
Good science also tells us where an idea stops working. In 2014 Shane Frederick, Leonard Lee and Ernest Baskin published “The Limits of Attraction”, reporting many studies in which the decoy effect was much weaker — or disappeared — when options were shown in realistic ways, such as pictures or real products rather than neat tables of numbers. When people could judge options by experience or appearance, the clean “A beats decoy” comparison was less obvious.
So the decoy effect is real, but it isn’t magic. It works best when choices are presented as numbers that are easy to compare side by side — which, conveniently, is exactly how most pricing pages and menus are designed.
How to defend yourself
- Cover one option. Mentally delete the option you’d never pick. Would you still choose the same thing between the remaining two?
- Start from your need, not the menu. Decide how much popcorn, storage or features you actually want before looking at prices.
- Look for the “nearly identical but worse” option. If one choice exists only to be beaten, you’ve found the decoy.
- Calculate the extra, not the total. “Only $1 more” is still $1 for something you might not use.
- Accept the middle on purpose. Sometimes the middle option really is the best value. Just make sure you chose it, not the menu.
The business lesson
If you run a business, the decoy effect is a reminder that customers judge prices relative to what’s around them. Used honestly — to make a genuinely good-value option easier to recognise — it can help people decide faster. Used to push people towards things they don’t need, it erodes trust.
And if you’re a customer, it’s a reminder that the menu was designed by someone. Next time an option looks pointless, don’t ignore it. Ask what it’s there to make you do.
Sources
- 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), 90–98. doi:10.1086/208899
- Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins. (Chapter 1, “The Truth about Relativity”.)
- Simonson, I. (1989). “Choice Based on Reasons: The Case of Attraction and Compromise Effects.” Journal of Consumer Research, 16(2), 158–174. doi:10.1086/209205
- Simonson, I. & Tversky, A. (1992). “Choice in Context: Tradeoff Contrast and Extremeness Aversion.” Journal of Marketing Research, 29(3), 281–295. doi:10.1177/002224379202900301
- Frederick, S., Lee, L. & Baskin, E. (2014). “The Limits of Attraction.” Journal of Marketing Research, 51(4), 487–507. doi:10.1509/jmr.12.0061