The decoy effect

A researcher ran a now-famous demonstration using magazine subscription prices. When people were offered a web-only subscription for 59 dollars or a print-and-web bundle for 125 dollars, opinion split, and most chose the cheaper web option. But then he added a third option that seemed pointless: a print-only subscription, also priced at 125 dollars, the same as the bundle. Almost nobody would rationally choose print-only when the print-and-web bundle cost exactly the same and gave more. And almost nobody did choose it. But its mere presence transformed the decision. With the useless print-only option sitting there, the bundle now looked like an obvious deal, the same price as print alone but with the web included, and the large majority switched to the bundle. A third option that no one selected had dramatically shifted which of the other two people picked. It is called the decoy effect.

The options you are shown shape your choice, and a deliberately worse option, one nobody would pick, can be placed there specifically to make another option look like a bargain by comparison. You feel you are choosing freely on the merits, but the set of choices has been arranged to steer you. This is worth knowing in two directions. As someone making decisions, notice when a comparison is making one option feel obviously right, and ask whether a decoy is doing the steering. And understand that people rarely judge things in absolute terms, they judge by comparison, which means the alternatives you place next to something quietly determine how good it looks.

Source: Huber, Payne and Puto, Adding Asymmetrically Dominated Alternatives, Journal of Consumer Research, 1982, the study that established the effect across six product categories. The Economist subscription illustration comes from Ariely, Predictably Irrational, 2008.

Predictably Irrational

Dan Ariely, 2008

On how the arrangement of choices, including useless decoys, quietly steers the decisions we feel we make freely.