The Decoy Effect, also known as the attraction effect, is a cognitive bias that occurs when people's preferences between two options change in the presence of a third, less desirable option (the decoy). The decoy is strategically designed to make one of the original options more attractive, influencing people's decision-making.

Here are two simple examples to help you understand the Decoy Effect:

1. Movie snacks: Imagine you're at a movie theater and see two popcorn sizes: a small for $3 and a large for $7. You might be unsure which one to choose. Now, the theater introduces a medium size for $6.50. Suddenly, the large popcorn seems like a better deal compared to the medium, as it's only $0.50 more for a significant size increase. The medium popcorn, which is the decoy, makes the large size more appealing, and you're more likely to choose it now.

2. Subscription plans: Suppose a streaming service offers two plans: a basic plan for $5 per month with limited features and a premium plan for $15 per month with all features. You might be undecided between the two. The company then introduces a third plan, a "standard" plan for $12 per month with only a few extra features compared to the basic plan. This standard plan, which is the decoy, makes the premium plan look more attractive, as it offers significantly more features for just $3 more per month. As a result, you're more likely to opt for the premium plan.

The Decoy Effect can be used in marketing and pricing strategies to influence consumers' choices and encourage them to select a more expensive or profitable option. Being aware of the Decoy Effect can help individuals make more informed decisions by carefully evaluating and comparing the available options.

The Decoy Effect, or attraction effect, is a cognitive bias in decision-making, extensively studied in the fields of behavioral economics, marketing, and consumer psychology. It occurs when individuals' preferences between two options change in the presence of a third, strategically placed, less desirable option (the decoy) that makes one of the original options more attractive by comparison.

The Decoy Effect is related to several other psychological principles, cognitive biases, and scientific fields, including:

1. Context-dependent p## References

The Decoy Effect demonstrates that preferences are not always stable but can be influenced by the context in which options are presented. Context-dependent preferences challenge the assumption of stable preferences in classical economic theory and have significant implications for understanding consumer behavior and decision-making.

2. Assimilation and contrast effects: Assimilation occurs when the presence of a reference point or anchor makes a target stimulus appear more similar to the reference, while contrast occurs when the target stimulus appears more dissimilar. In the Decoy Effect, the decoy option often creates an assimilation effect, making the target option appear more attractive by comparison.

3. Choice overload: A phenomenon in which individuals have difficulty making decisions when faced with too many options. The Decoy Effect can be used as a decision heuristic to simplify complex choices by providing a clear point of comparison that makes one option stand out as more attractive.

The Decoy Effect has practical implications for marketing, pricing strategies, and public policy, as it can be used to influence consumers' choices and encourage the selection of more expensive or socially desirable options. Understanding the Decoy Effect and its underlying psychological mechanisms can help individuals make more informed decisions by recognizing how context and comparison can influence their preferences.

References:

• Huber, J., Payne, J. W., & Puto, C. (1982). Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis. Journal of Consumer Research, 9(1), 90-98.
• Simonson, I. (1989). Choice based on reasons: The case of attraction and compromise effects. Journal of Consumer Research, 16(2), 158-174.
• Tversky, A., & Simonson, I. (1993). Context-dependent preferences. Management Science, 39(10), 1179-1189.
• Iyengar, S. S., & Lepper, M. R. (2000). When choice is demotivating: Can one desire too much of a good thing? Journal of Personality and Social Psychology, 79(6), 995-1006.