All Notes

Decoy effects

Several years ago, The Economist offered these subscriptions1:

economist subscriptions pricing
The Economist pricing options

Or in table form:

Print Print + Digital Digital
Price $125 $125 $59
Scenario 1

Why is the price for Print and Print + Digital the same? You might think that The Economist could have equivalently just offered these two options:

Print + Digital Digital
Price $125 $59
Scenario 2

But the existence of the third option, Print, plays an important role.

”[…] humans rarely choose things in absolute terms. We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.”
– Dan Ariely in Predictably Irrational

By adding Print as an option, Print + Digital becomes more attractive, because it has a clear relative advantage over Print. That there is no absolute advantage does not matter. When, as in Scenario 1, all three options are presented, choosing the more expensive Print + Digital becomes more likely (than in Scenario 2). This is known as the decoy effect and is one of the ways a consumer’s decision can be influenced.

Decoy effects

The decoy effect occurs when a consumer’s preference between to options is altered when a third option is added.2 Three different types of decoy effects can be seen in the diagram below: asymmetric dominance effect, attration-effect and compromise effect. When the decoy product is placed in the marked areas, the target product becomes more attractive.3

decoy effects
Decoy effects

The example for all thee effects will be that of a mobile phone plan where the quality (y-axis) is measured in volume of high-speed data.

In the table below is the relevant information for our target product (the one we want to sell) and its competitor. We will try three different decoy products and describe the associated effect.

Target Competitor
Price 30€ 20€
# GB 10 6
Target and competitor product

Asymmetric dominance effect

In our example the asymmetric dominance effect applies when the decoy has a higher price and worse quality than the target.

Target Competitor Decoy
Price 30€ 20€ 35€
# GB 10 6 9

Attraction effect

In our example the attraction effect applies when the decoy has a slightly lower price than the target and the quality is between competitor and target.

Target Competitor Decoy
Price 30€ 20€ 28€
# GB 10 6 7

Compromise effect

In our example the compromise effect applies when the decoy has a higher price than the target but its quality is not higher than that of the target (and not lower than the competitor).

Target Competitor Decoy
Price 30€ 20€ 50€
# GB 10 6 12

The decoy effect seen in the Economist example lies on the axis separating attraction and asymmetric dominance effect. The competitor product is Digital with a lower price and (comparatively lower “quality”, since it is only digital and not printed), the target product is Print + Digital with a higher price (but comparatively higher “quality” since it includes print as well as digital access). Positioning a subscription at the same price but lesser “quality” (only print) than Print + Digital will make Print + Digital more attractive. The Print offering of the Economist lies on the axis between attraction and asymmetric dominance effect.

Acknowledgement: Based on lecture notes from the winter term 2017/18 lecture Digital Communities at TU Berlin.

  1. This is the example with which Dan Ariely starts his book Predictably Irrational.

  2. Decoy effect

  3. There are also other ways of influencing decisions. Notably the primacy/recency effects, framing effect and priming effect.