Decoy Effect

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Decoy Effect

I first heard about the decoy effect in a book called The Economic Naturalist by Robert Frank. A customer goes into a café and asks the waiter what sandwiches have you got. The waiter says we’ve got chicken salad and roast beef. The customer says, OK, I’ll have roast beef then please. The waiter says. Oh sorry, I forgot, we also have tuna. The customer says Oh, right. In that case, I’ll have the chicken salad. What is going on here is that the very existence of the tuna sandwich flips the customer’s preferences. Chicken salad doesn’t sound like a great sandwich in its own right, but by comparison to tuna, it sounds pretty good (at least for this customer).

Now this all sounds pretty silly when we’re talking about sandwiches. And in fairness, this particular example is probably made up. But these types of decoy effects and preference reversals have been studied extensively by psychologists and economists, and they are a real and important phenomenon. In fact, they were first documented by Joel Huber and his colleagues at Duke University as far back as 1982. More recently, they’ve been brought to a wider audience by Dan Ariely, who’s also at Duke, and has a great TED talk on this stuff. Ariely noticed an example of this on the Economist’s subscription site. You could buy an online subscription only for $59, an online AND print subscription for $125 Or a print-only subscription ALSO for $125 dollars. Of course, that last option is crazy, and absolutely no one goes for it. But there not supposed to – it’s just a decoy option. It’s designed to drive people away from the web-only option, and it works.  Ariely set up his own study designed along these lines and the results were amazing. If you just offer two options – the online version for $59 and the print version for $125, almost 70% of people go for the cheaper web option. But once you add the decoy print option – like The Economist actually did — it totally flips, and now more than 80% of people go for the more expensive web+print option. (As I said, nobody goes for the print-only option).

More recently some sites have taken this even further. So sometimes you see 3 or 4 options, and an arrow or a star on one of them saying “Best Value Option” – and it’s not normally the most expensive. They’re almost telling you here “Look, the most expensive one is just a decoy designed to make our standard package look better”. You can also put the decoy effect into practice with your “You may also like…” recommendations. People tend to think about these mainly as a way to get extra sales, but if you employ strategic decoy options here, you can also use them to nudge the customer in the direction of the product they’re looking at – the one you actually want them to buy.

So you need to try to make this work for your own site. If you have a product or package that nobody is picking, it’s not necessarily a failure –maybe it’s driving people towards options that are actually better for you. And if you don’t have a decoy option, think about adding one.

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