The Decoy Effect

"We don't know what we want until we see it in context."

The Decoy Effect (or Asymmetric Dominance Effect) is a cognitive bias where people tend to change their preference between two options when presented with a third option that is "asymmetrically dominated."

The Popcorn Experiment

Imagine you are at the movies:

• Small Popcorn: $3
• Large Popcorn: $7

Most people choose the Small. $7 feels expensive.

Now, add a Decoy:

• Small Popcorn: $3
• Medium Popcorn: $6.50
• Large Popcorn: $7

Suddenly, the Large looks like a steal. "For only 50 cents more than the Medium, I get the Large!" The Medium exists only to make the Large look better. No one is supposed to buy the Medium. It is the decoy.

The Economist Subscription

Dan Ariely famously tested this with an Economist subscription offer:

1. Online Only: $59
2. Print Only: $125
3. Print + Online: $125

Option 2 is the decoy. It is "dominated" by Option 3 (you get more for the same price). When option 2 was present, 84% chose Option 3. When option 2 was removed, 68% chose Option 1 (the cheapest).

Why It Works

Our brains are bad at absolute valuation. We don't know how much a subscription is "worth." But we are great at comparative valuation. We know that "Print + Online" is definitely better than "Print Only" for the same price. The decoy gives us an easy comparison, a "no-brainer" win, which makes us feel smart for choosing the "best value" (even if it's the most expensive).

Conclusion

When you are offered three choices, look for the decoy. It's the one that is slightly worse or slightly more expensive than the "target" option. If you find it, realize that your choice is being architected. Realize you probably just wanted the small popcorn.*