The Decoy Effect, first demonstrated in 1982 by Joel Huber and others at Duke University, explains how when a customer is hesitating between two options, presenting them with a third “asymmetrically dominated” option that acts as a decoy will strongly influence which decision they make. An option can be defined as asymmetrically dominated when it is completely dominated by (i. e. definitely inferior to) one option and only partially dominated (i. e. inferior in some aspects) by the other. The asymmetrically dominated option is a decoy serving to increase preference for the dominating option – the one we really want the consumer to choose.
For example, imagine you want to buy a car and the seller shows you two models: car A that has relatively less features but a low price and car B that, on the other hand, has more features but is therefore more expensive. The Decoy Effect will come in to play if the seller now shows you a third car: car C has more features than car A but still a lot less than B and is only marginally less expensive than car B. With these comparisons in mind, car B will stand out as being by far the superior option and deal.
This cognitive bias takes place because our brains don’t evaluate things based on absolute values but instead through inter-group comparisons. When a customer has to choose between just two products, it can make for a difficult decision. In the aforementioned situation for example, the two initial cars on offer really had nothing in common in terms of price, quality or features offered which makes it difficult to draw an effective comparison.
The customer can’t clearly see which is the “better” offer because they are offering totally different benefits: one a good price but one better quality. By introducing the third option though, a more relevant point of comparison is offered (even if it is distorted in order to sway the decision making process a certain way). The fact that the third option offers a lot less for a small difference in price suddenly made car B seem like the outstanding option in terms of value for money.
This theory has vast applications in sales and web marketing and can be applied to anything from pricing in your ads to pricing on your sales page or to determine which products should be shown together on your main products page.