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The decoy effect, also known as the asymmetric dominance effect, is a cognitive bias where the presence of a third option, the 'decoy', influences the choice between two primary options. This decoy is designed to make one of the primary options appear more attractive, guiding the decision-maker to favor it.
The decoy effect exploits our tendency to evaluate options in relation to each other. When a decoy option is introduced that is clearly inferior to one of the options but not the other, it makes the superior option seem more attractive, even if no direct comparison was made before. This often results in the majority of consumers opting for the option that appears more advantageous compared to the decoy.
In the world of product pricing, let's say a company offers two products: A and B. Product A is priced at $50, and Product B is priced at $100 but offers better features. A decoy product, C, is introduced at $90 with features similar but fewer than Product B. Consequently, consumers perceive Product B as a better deal relative to Product C, even though Product A might have been a strong contender originally.
While the decoy effect can be used strategically in marketing and sales to increase revenue, it may also lead to consumer dissatisfaction if they later realize their choice was heavily influenced by an irrelevant option. This can impact trust and loyalty towards a brand. In decision-making, reliance on the decoy effect can skew perceptions and lead to less rational choices.
To counteract the decoy effect, individuals can focus on their priorities and requirements, rather than comparisons that the options invite. Awareness and education about cognitive biases can empower consumers to recognize such manipulation. Establishing clear criteria for decision-making beforehand can also mitigate the effect.
Critics of the decoy effect argue that while it highlights irrationalities in human decision-making, it oversimplifies complex contexts where other biases and situational factors play a role. Moreover, in real-world scenarios, the impact of a decoy might not be as strong or consistent as laboratory studies suggest.
Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis
Huber, J., Payne, J. W., & Puto, C. (1982)
Predictably Irrational: The Hidden Forces That Shape Our Decisions
Ariely, D. (2008)