The Decoy Effect

Last week I talked about the paradox of choice, where the more choices people are faced with the more likely they are to be overwhelmed with making a decision. However, there is one instance where adding an extra pledge level might be a benefit to your campaign instead of a detriment. The aim of this extra pledge is not to give consumers more choice but instead to guide them towards pledging for a more expensive level. This is known as the decoy effect.

The Decoy effect focuses on the tendency of consumers to change their preference between two options when they are then presented with a third option. The third option is a decoy designed to nudge consumers towards the more profitable option. The decoy, does this by being “asymmetrically dominated” by the other options. This is where it is completely inferior to one option but only partially inferior to the other option.

Imagine it is a hot day and you want to get some ice cream, when you get to the shop there are two options; a small which costs €2 or a large which costs €6. Which option do you take? Maybe you don’t want much so you pick the small ice cream. Now imagine there is a third option, a medium ice cream and it costs €5, which option do you take now? Most people will now see the large option of €6 as better value when they compare it to the medium and take it instead, whereas before they were only comparing it to the small.

So how does it work? When faced with making a decision to reduce any anxiety people will tend to simplify their decision making to only a small set of criteria. When you were faced with two options your criteria is more likely going to be what suits your needs best in the moment. In the ice cream example it could be as simple as do you want lots of ice cream or just a small amount. However, when the decoy is introduced we have a tendency to change our criteria to include value for money as well as quantity, so we shift our focus towards getting the best perceived value. The large ice cream now looks more appealing because it is only slightly more expensive than the medium but is bigger than both other options.

The decoy effect can be very subtle but quite influential on our purchasing habits. There has been research conducted saying that the decoy effect can be used for crowdfunding to reach higher funding goals. However, there is a debate whether such forms of behavior manipulation is ethical or if the ends (making more profit) justify the means. Personally I believe the goal of crowdfunding a board game is to share the game and not to maximize profits. I think what is most important to note is that from a consumer’s perspective we should be careful not to fall into this trap. The best way to do this is to know what you want before you look at the options, this way you are more likely to buy what you need and beware of things that come in threes.