How does the decoy effect lead us to spend more money? Discover more in this interesting article by Jeff Haden!
Jeff Haden, Inc. 12 January 2021
When I was a wedding photographer (because no one should be just one thing), my wife persuaded me to add an extremely expensive option to our list of wedding packages.
I figured it was a waste of time since no couple would ever choose it.
Turns out – as with countless instances where my wife’s better judgment is concerned – I was wrong. Some couples did choose that package. Even if we didn’t include that package in the calculation, our average sale price went up.
Possibly, because to some, “expensive” is a proxy for “excellent.”
But mostly because of what Dan Ariely, Duke professor and author of books like the excellent Predictably Irrationally, calls the decoy effect.
If you aren’t familiar, here’s how the decoy effect works. Some years ago, the magazine The Economist offered a digital subscription for $59 and a print subscription for $125.
Then they decided to offer a third option: A combined digital and print subscription for $125.
When two options were available, most people chose the digital subscription. It was cheaper.
But when the third option was available, people were more than 50 percent more likely to choose the digital/print offer.
The prices didn’t change. The only thing that changed was the addition of a decoy.
Another use of the decoy effect involves the number of choices offered. If there are two options, more people tend to choose the cheaper. If there are three, more people tend to choose the middle one. Partly that’s due to something called the center stage effect, a natural bias toward whatever is physically in the middle.
And also because people tend to not buy the least expensive, because that feels “cheap,” yet also not the most expensive, since that feels indulgent. Or wasteful. (Or something.)
But add a fourth option, and people tend to go for the second-most expensive, not the third-most expensive, even though both are kind of in the middle.
Which turned out to be true with wedding photography. Significantly more people chose the second-most expensive package out of four, especially when we made the most expensive package really expensive: by comparison, that package seemed like a bargain.
Granted, no amount of pricing strategy can overcome a poor price-to-value proposition.
But if your products or services are competitive and provide genuine value — which ours definitely were, and definitely did, otherwise we wouldn’t have had a business, much less a successful one — then a little tweaking can pay significant revenue dividends.
Especially with men: Research shows that people with higher levels of testosterone (read: males) tend to make less consistent choices and more “target” (decoy effect intended) choices.
(Yet more proof that men really aren’t more rational than women.)
Thinking Beyond Price
The decoy effect can play a role beyond purchasing decisions. Research shows the decoy effect can influence how employees decide between benefit plans. Other research shows the decoy effect can influence health care decisions.
Or say you want to encourage your employees to save for retirement. If you offer them the options of opting out or getting some sort of match if they put aside 5 percent of their pay, some may see 5 percent as too high a bar and opt out.
But if you offer a third option – a lesser match after employees contribute, say, 2 percent of their pay – then more people are likely to opt in.
And more people are likely to go for the 5 percent option, since getting a 5 percent match seems a lot better than 2.
Even though 5 percent is a lot better than 0 percent.
So if you want to be more persuasive – and hopefully use your powers for good – consider how you frame the options you provide. A little tweaking can make one option seem more attractive. A little tweaking can make one option seem less burdensome.
Add a relatively unattractive option and you might just find that what you hope will occur is much more likely to occur.
Behavioral science says so.