Comments on Decoy Effect and how it influences our decisions in an irrational manner
Every year Apple launches the iPhone and the Apple Watch line during the ‘September Event.’ On September 12, 2017, unlike previous events, Apple launched two iPhone variants, iPhone 8 (with different variants) and the iPhone X. Logically, iPhone 8 was supposed to be the next launch in the series of iPhones, and iPhone X was launched because it was the 10th anniversary of iPhones (the first iPhone was unveiled in 2007)
At the time of launch, it sounded like a ridiculous idea to me. iPhone 8 was quite similar to the iPhone 7, with some changes in battery and camera performance. On the other hand, the iPhone X stood out with some major improvements. Why would you launch two premium products at the same time, with one having attributable superiority in features compared to the others?
The answer lies in human psychology and biases.
In consumer decision making, the decoy effect is a phenomenon whereby consumers tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically (lacking symmetry) dominated. Let’s explain it through iPhones. iPhone 8 and 8 Plus priced at $699 and $799 were marginally better than 7, and their existence makes iPhone 10 looks like a rational upgrade at $999 with $200 extra. But while seen in comparison with iPhone 7, iPhone 10 seems to be quite expensive at almost double the price. Many believe that to make the consumer shell out 1000 bucks for a mobile, Apple first introduced iPhone 8 as a decoy.
Companies manipulate choice attributes to direct consumer choices in a particular direction that they desire. You might feel that you are making an informed choice, but in fact, they have used decoy as a Nudge (introduced by Richard Thaler and Cass Sunstein) to form your choice.
For people who never really cared for an iPhone, I have a very simple situation for you. COVID is over, theatres are open, and your favourite star’s movie is up. You wish to buy a coke before entering the screen and have three options – Regular at 50, Medium at 80, and Large 100. What would you choose?
If you are like most of us, you will go with the Large one. But ask yourself this: if there was no medium? Would you still choose large? That’s a little unlikely.
Why would a company keep an option that obviously no one would take? They should probably just get away with it. But they do it to create an asymmetry in the offering. The medium glass is asymmetrically dominated by the larger glass. Put simply; it is a decoy. It is purposefully kept there to help you choose the more profitable glass. When deciding between two options, an unattractive third option can change the perceived preference between the other two.
The concept of decoy effect was publicized by Dan Ariely, an MIT professor, and behavioral economist who conducted an experiment with 100 of his students by asking them to choose between The Economist magazine’s two offers: Web Subscription, and Print & Web subscription.
Out of 100, 68 chose Web subscription, and 32 opted for Print & Web Subscription. Now, consider the following where he gives the option between Web Subscription, Print subscription, and Print & Web subscription (this is the original ad).
This time 84 of the students chose Print and Web Subscription, 16 chose Web-only, and zero Print only. Adding a simple decoy increased the sales for the more profitable product.
In his TED talk, Ariely describes what happened:
“The option that was useless was useless in the sense that nobody wanted it. But it wasn’t useless in the sense that it helped people figure out what they wanted. We actually don’t know our preferences that well, and because we don’t know our preferences that well, we’re susceptible to all the influences from external forces.”
Decoys in social choices
If you think in terms of price choices, you will trace decoys almost daily. Netflix subscription, flight prices, Bodyshop lotions. It is interesting to understand how they could also impact your social choices.
On the new year eve last year, I went out with a bunch of my friends for dinner to celebrate the coming year (Oh, I was hopeful about the year back then) There were two options
Restaurant A: Zomato rating 3.2, 6 km far
Restaurant B: Zomato rating 4.8, 13 km far
The dilemma was between quality vs. convenience.
At this point, we were all guy friends deciding. Then, my friend’s girlfriend joined us, and we decided that choices would be presented to her, and whatever she chooses is final. This time I showed her a third choice as well: Zomato rating 4.2, 16 km far. At once, she chose restaurant B. I wanted her to. So, what did I do there?
The 4.2 rated restaurant (C) was asymmetrically dominated by the 4.8 rated restaurant (B) in both food rating and distance. The decoy effect made option B looks particularly attractive and made her see take that.
Put simply; there are three elements here – target (the choice I wanted her to make, option B), competition (option competing the target, option A), and a decoy (additional option to change preferences, option C).
Decoy makes you less likely to evaluate the competitor against the other two options, and more likely to evaluate the target against the decoy. And if you evaluate the target against the decoy, making you choose the target
How to remove biases and detect the Decoy?
Decoys are strategically placed for you to reform the context of choice made. They are there to make our decisions simpler and more often than not irrationally. Removing these biases at once is difficult. But to avoid falling in the traps, the first step is understating and admitting that there’s a decoy. Additionally, look out for
1. Set of three: Decoys are largely placed in a set of three. Too few choices, and you’ll be worried you’re missing something. Too many choices and you risk suffering from decision fatigue.
2. Decide and calculate how much you need beforehand
If you would like to read more about such concepts on behavioral economics, I highly recommend that you read Dan Ariely’s book Predictably Irrationally.