What is the Decoy Effect?
The decoy effect describes how, when we are choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices. Decoys are “asymmetrically dominated”: they are completely inferior to one option (the target) but only partially inferior to the other (the competitor). For this reason, the decoy effect is sometimes called the “asymmetric dominance effect.”
Where this bias occurs
Imagine you’re lining up at a movie theatre to buy some popcorn. You’re pretty hungry, so you think you’ll get a medium-sized bag. When you get to the concession stand, you see the small costs $3; the medium is $6.50; and the large is $7. You don’t really need a whole large popcorn, but you end up buying it anyway, because it’s a much better deal than the medium.
The decoy effect can cause us to spend and consume more than we really need. When a decoy option is present, we tend to make decisions based less on which option will best suit our purposes, and based more on what feels like the most advantageous choice.
Unfortunately, following our intuition doesn’t always mean we’re making the smartest choice. Most of the time, the decoy effect leads us to pick a more costly alternative than we would have otherwise.
Decoys are a commonly used tool by businesses and corporations, to “nudge” us into buying more than we really need. Over time, this can add up to a big hit on our finances — and also on our health. Many products commonly pushed with decoys are unhealthy foods, such as soft drinks, the overconsumption of which can have serious health consequences. Sugary beverages in particular have been linked to an increased risk of type 2 diabetes, heart disease, and other chronic conditions, but they are far from the only product that often uses decoys to upsell larger portion sizes.
Why it happens
Before getting into the reasons why the decoy effect is so effective, we need to explain the concept of “asymmetric domination” more thoroughly. In an ideal decoy situation, there are three choices available:
The target is the choice someone else (for example, a business) wants you to make.
The competitor is the option competing with the target.
The decoy is the option that is added to nudge you towards the target.
The crux of the decoy effect is the fact that the decoy must be asymmetrically dominated by the target and the competitor, with respect to at least two properties—let’s call these A and B. This means that the target is rated better than the decoy on both A and B, while the competitor might be better on A but worse on B.
Let’s revisit the popcorn example from above. In this scenario, you, the customer, are evaluating your options based on two factors: size and price. The large popcorn is the target, and the small is the competitor. The medium popcorn works as a decoy because it is asymmetrically dominated by the other two. Although it is bigger than the small, it is also more expensive, making it only partially superior. The large, however, contains more popcorn and is only slightly more expensive than the medium, making it less expensive per unit.
This situation was actually used in an informal experiment by National Geographic. Although very few people purchased the large popcorn when their only other option was the small, once the medium was added as a decoy, the large became “irresistible.”
Decoys work subconsciously
The decoy effect is an example of a behavioral nudge—a type of intervention that “steers” individuals towards making a certain choice. Nudges do not manipulate behavior by providing large incentives to behave a certain way, or threatening some form of punishment for failing to do so. Instead, they involve very subtle changes to an environment or situation, leveraging some aspect of human behavior to push us in the desired direction.3
As with all nudges, the decoy effect does not technically violate our free will, because it doesn’t impose any restrictions on us. Usually, decoys affect us without us even realizing it; whatever we ultimately choose, we believe that we are doing so independently. This invisibility is part of what makes the decoy effect so powerful.
The idea that our decision making can be influenced by factors outside of our awareness may be hard to believe. However, research has shown that in general, we are not very good at determining the reasons for our own behavior. Even though we believe that we make all of our decisions consciously and deliberately, in reality, we are often unaware of factors that have influenced their choices, nor how they have affected us.
In one study, researchers had participants memorize pairs of words. After doing so, they completed a word association task, where they were asked to name examples of a certain type of object. Some of the word pairs were designed to elicit specific answers during the association task. For example, the pair “ocean–moon” was intended to prime participants to say “Tide” when asked to name a type of detergent.
The word pair cues worked as intended: individuals who were exposed to a given prime were twice as likely to name the target word. However, when asked why they had responded the way they did, very few participants mentioned the word pairs. Instead, their explanations focused on some defining feature of the target (“Tide is the best-known detergent”), or personal meaning associated with it (“I use Tide at home”; “I like the Tide box”, etc.).
Decoys provide a justification for our choice
In the Tide study, people’s choice of words was influenced by factors outside their awareness—but that didn’t stop them from readily providing explanations for why they responded the way they did.
This leads us to an interesting point: when people make decisions, their goal is not to pick the correct option. Instead, the goal is to justify the outcome of a choice they’ve already made.
In another study that specifically looked at the decoy effect, researchers asked participants to pick from sets of various products. As expected, when there was a decoy option present, people were more likely to pick the target. However, this effect was stronger if participants were told they would have to justify their selection to other people afterwards. Why? Decoys provide an easy rationale for people to choose the target: they emphasize the pros of choosing the target and the cons of choosing the competitor. They make us feel comfortable in our choice by handing us a ready-made justification for it.
Decoys make the choice feel less overwhelming
Decoys serve to de-stress the decision making process in more ways than just providing a nice-sounding explanation — they also calm down the anxiety of having too many options to choose from.
The “paradox of choice” is a concept that describes how, the more options we have, the more difficulty we have making a decision. Although you would think having a broader selection would simplify the process, in reality, we get overwhelmed when we have too many choices, and experience more regret over making the “wrong” choice.
There are a few reasons for this, but one that is relevant to the decoy effect is the idea of preference uncertainty. In any given situation, there are numerous factors that an individual could take into account in order to make a decision; the less certain they are about which ones should be prioritized, the more difficult it will be to choose.
In order to avoid preference uncertainty, people typically pick a small number of factors to focus on in order to judge their options—for example, price and quantity. The decoy effect capitalizes on this by manipulating the factors of interest. Preference uncertainty also make it more likely that we will make a reasons-based choice—i.e., choose the option with the nicest-sound rationale attached to it.
Decoys capitalize on loss aversion
As humans, we hate losing more than we like winning. Loss aversion describes how, for most people, it is more unpleasant to lose a given amount than it is pleasant to gain an equivalent sum.9 Finding $20 on the street will probably brighten your mood for a short while, but losing $20 out of your wallet may well ruin your whole day.
However, what qualifies as a “loss” is not set in stone; instead, losses and gains are defined relative to some reference point. Decoys partially function by manipulating where our reference point is. Compared to the decoy, the competitor option (i.e. the option we are not being nudged towards) is advantageous in some ways and disadvantageous in others. However, loss aversion causes us to direct more focus towards the disadvantages when making our decision. As a result, we are more likely to pick the target.
Research has also shown that people are more averse to lower quality than we are to higher prices. This is another feature that decoys exploit, as they are typically designed to push us towards a target that is of higher quality and higher price.
Why it is important
To illustrate how the decoy effect can influence decision making, consider this experiment conducted by psychologist Dan Ariely. Ariely had become interested in the three options available for subscriptions to The Economist: $59 for an online subscription, $125 for a print-only subscription, and finally, $125 for both print and online access. He presented these options to his students and asked them all to pick one. 16% of the students chose the cheaper online subscription, 84% chose the print & web subscription, and nobody chose the $125 print-only subscription.
Next, Ariely removed the option nobody wanted—the $125 print subscription—and asked another group of students to pick from the remaining two. This time, 68% picked the $59 online subscription, and only 32% picked the print & web subscription. In Ariely’s words, “The most popular option became the least popular, and the least popular became the most popular.” In other words, even though the majority of the class would ordinarily be content with an online-only subscription, simply adding a decoy nudged them to spend almost $70 more on something they didn’t really need.
By adding a decoy to an array of products, companies can influence our decisions more than we realize—and this influence adds up over time.
From relatively inexpensive things like popcorn, to bigger purchases like airline tickets,5 decoys are everywhere. The decoy effect is made all the more pernicious by the fact that we do not realize we are being manipulated, instead feeling like we are making the logical choice.
How to avoid it
Another tricky thing about the decoy effect: being aware of its existence probably is not enough to avoid it. After all, part of why this bias works so well is precisely because it feels rational. When we try to carefully examine our selection, we might just end up doubling down on our choice. That said, there are a few strategies out there to avoid falling into the trap of asymmetric dominance.
Figure out your preferences ahead of time
As discussed above, not knowing what factors to prioritize when making a decision makes us more likely to fall for the decoy effect.10 So when you need to buy something, before browsing through your options, take some time to figure out what qualities you value the most, with respect to whatever it is you’re shopping for. For example, maybe you are buying a new car, and you decide that gas mileage is more important to you than getting a low price. Having these preferences clearly established beforehand is good protection.
Only buy what you really need
The decoy effect doesn’t necessarily always push us into baking a “bad” decision. In some cases, opting for a larger size or a higher-quality version of a given product might be more cost-effective in the long run. Other times, however, buying the more expensive target option will not satisfy our needs any better than a competitor would. Some good examples of this include the fancy Economist subscription described above, or unhealthy items such as fast food meals or extra-large cups of soda.
In cases like these, it is helpful to focus on the reason for buying something in the first place, and to ask whether a larger/higher-quality/more expensive version of a product will really satisfy that need any better than a cheaper alternative would. Sometimes the answer may well be “yes,” but a lot of the time, it will probably be a “no.”
Beware of sets of three
The decoy effect is most effective when there are only three options in play: target, competitor, and decoy. Whether you’re out shopping, or you’re evaluating political candidates, try to notice when things crop up in groups of three—there may be a decoy in the mix.
Don’t trust your gut
Your individual thinking style plays a role in how likely you are to be affected by the decoy effect. One study, which involved more than 600 participants, found that the people most influenced by a decoy were the ones who tended to rely on intuitive reasoning.
The researchers behind this study used a questionnaire called the Rational-Experiential Inventory (REI) to gauge whether people were more rational or more intuitive in their decision making. If you know how to score a psychological inventory, you can fill in the REI yourself! Otherwise, simply ask yourself questions about how you normally solve problems. Do you believe in trusting hunches? Do you avoid thinking in depth about problems? If your answer to questions like these is “yes,” you might be an intuitive thinker. There’s nothing wrong with that—but if you’re looking to avoid the decoy effect, consider employing some of the strategies above.
How it all started
The concept of asymmetric dominance was coined by Joel Huber, John Payne, and Chris Puto. Before this point, dominant models of how people make decisions all shared a common assumption: the regularity principle, or the idea that adding a new alternative to a set of options cannot increase the likelihood of choosing a member of the original set. In other words, psychologists and economists specifically believed that something like the decoy effect would be impossible, because it violates the regularity condition.
Huber, Payne, and Puto ran an experiment where they asked participants to choose between a number of hypothetical alternatives. The decisions involved beer, cars, restaurants, lottery tickets, camera film, and television sets. For every scenario except the one involving lottery tickets, the presence of a decoy increased the percentage of people who said they would pick the target.
These results challenged the regularity condition, as well as something called the similarity hypothesis. Proposed by Amos Tversky, the similarity hypothesis states that, when a new product enters the market, it will disproportionately “cannibalize” the market share of items that are most similar to it. Put more simply, consumers will be split between the new product and older ones that have a lot in common with it. In the decoy effect, however, this is not what happens. Instead, decoys can boost the popularity of the alternative that it is closest to: the target.
Example 1 – Dating apps
The decoy effect does not only apply to products on a store shelf; it can also affect how you perceive your options in the marketplace of love. Dan Ariely, who ran the Economist experiment above, has found that we tend to be more interested in people if we see them alongside a similar looking, but slightly less attractive, decoy.
This effect is likely to be most relevant for people who use dating apps, such as Tinder or Bumble. When we are presented with a long stream of potential partners, there is a good chance that our decisions will be affected by the faces we have seen previously.
Example 2 – Politics
The decoy effect may also play a role in politics, specifically in political races where there are two frontrunners. Some psychologists have even argued that the decoy effect played a major role in the 2000 US presidential election, through independent Ralph Nader. Rather than take votes away from the democratic candidate Al Gore, as is commonly believed, Nader’s presence may actually have increased the number of votes cast for the candidate he more closely resembled: George W. Bush.
What it is
The decoy effect describes how people’s preferences when picking between two options is altered by the addition of a third, relatively unattractive “decoy” option. The decoy is asymmetrically dominated, meaning that it is completely inferior to one option (the target) and somewhat inferior to the other (the competitor).
Why it happens
Decoys are a type of behavioral nudge, an unobtrusive type of intervention that can subconsciously alter the way we make decisions. Decoys capitalize on a number of weaknesses of our decision making processes: they make it easier to rationalize our intuitive choices, they make us feel less overwhelmed by choice overload, and they prey upon our dislike of losing out.
Example #1 – How the decoy effect influences your Tinder swipes
The decoy effect can affect how we behave when dating. We might be more likely to fall for somebody if we are exposed to a similar looking, but slightly less attractive, person beforehand.
Example #2 – How the decoy effect might influence politics
The decoy effect may have played a role in the 2000 US presidential election. Some psychologists view Ralph Nader as a “decoy” for the candidate he was most similar to: George W. Bush.
How to avoid it
To avoid the decoy effect, focus on only buying as much as you really need of something, and clarify ahead of time what characteristics are most important to you. People who are intuitive thinkers might be more prone to the decoy effect.