Latest / Marketing Psychology with Fexingo: Behavioral Triggers, Persuasion, and Consumer Behavior / Why Brands Use the Decoy Effect Without You Noticing
Transcript
- Lucas: So Luna, I want to start with a movie theater popcorn question. You walk up to the counter, and there are three sizes: small for $3, medium for $6.50, and large for $7. Luna: Right, and I'm pretty sure I've never bought the medium in my life. That large is only fifty cents more. Lucas: Exactly. And that's the point. The medium isn't really a serious option — it's a decoy. Its only job is to make the large look like a no-brainer. This is the decoy effect, also called the asymmetric dominance effect, and it's one of the most quietly powerful tools in pricing psychology. Luna: And it works because we don't evaluate options in a vacuum. We compare them. Lucas: Right. Put just a small and a large in front of someone — $3 versus $7 — and a lot of people might go small because the jump feels big. But insert that medium at $6.50, and suddenly the large dominates it on every dimension. More popcorn for fifty cents more. The medium becomes a reference point that makes the large look generous. Luna: The classic academic example is the subscription pricing experiment from The Economist. Dan Ariely wrote about it in 'Predictably Irrational.' Lucas: Yes, that's the perfect case study. In his experiment, Ariely showed people three options: a web-only subscription for $59, a print-only subscription for $125, and a print plus web subscription for $125. Luna: That print-only option at $125 — it's the decoy. No one in their right mind would choose it when the bundle costs the same. Lucas: Exactly. And when Ariely tested it, the majority chose the print plus web bundle. But then he ran another group with just two options: web-only for $59 and print plus web for $125. Without the decoy, most people chose the cheaper web-only option. Luna: So adding an inferior option at the same price as the premium one actually shifted demand toward the premium. Lucas: That's the decoy effect in a nutshell. The decoy isn't meant to be chosen. It's meant to make another option — the target — look better by comparison. And it works because it exploits our tendency to make relative rather than absolute judgments. Luna: And you see it everywhere once you start looking. Subscription tiers on streaming services, phone plans, even coffee sizes. Lucas: Let's talk about the math behind the magic. The decoy has to be asymmetrically dominated. That means the target dominates it on the most important attribute — like price per ounce or value — but the decoy is not dominated by the other option. In the popcorn case, the medium is worse than the large on both price and quantity. But the small is worse on quantity but better on price. Luna: So the medium is dominated only by the large, not by the small. That's what makes it an effective decoy. Lucas: Right. If the medium were dominated by both, it wouldn't shift preference. The trick is the asymmetry. And research shows the effect is robust across many categories. A meta-analysis from 2016 found that decoys increase choice share of the target by about 30 to 40 percent on average. Luna: But is there a risk? If customers catch on, do they resent the manipulation? Lucas: That's a good question. The literature suggests that the decoy effect operates largely unconsciously. People don't realize they're being nudged. But if the decoy is too transparent — like a clearly fake option that exists solely to be a decoy — it can backfire. You need the decoy to seem plausible. Luna: So the medium popcorn at $6.50 seems plausible because it's between the other two. It's not obviously a fake. Lucas: Exactly. And one fascinating study from 2019 showed that the decoy effect actually gets stronger when people are under cognitive load — when they're distracted or busy. Which describes pretty much every customer in a movie theater lobby. Luna: So it's especially effective in high-distraction environments. That makes sense. Lucas: Now, decoys aren't limited to pricing. They can work on any attribute. Think about a mattress store. You see a firm mattress for $800, a plush mattress for $1,200, and a medium-firm mattress for $1,100. The medium-firm is the decoy — it's dominated by the plush on price but not on comfort. Luna: And the goal is to steer you toward the plush, which has a higher margin. Lucas: Exactly. The decoy is always placed near the target to create a clear comparison. And the target is usually the higher-margin option the seller wants you to buy. Luna: So if I'm a consumer who knows about the decoy effect, can I resist it? Lucas: Partially. Awareness helps, but it's not a silver bullet. Even when people are told about the effect, studies show they still fall for it — just at slightly lower rates. The best defense is to force yourself to compare options in absolute terms. Ask: do I actually want the large popcorn, or am I just comparing it to the medium? Luna: So step back and evaluate each option on its own merits, not just relative to the others. Lucas: Right. And marketers should know that decoys work best when the product set is unfamiliar. If you're a regular who always buys the small popcorn, the decoy won't shift you. It's most powerful for new or occasional customers. Luna: That aligns with the idea that novices are more susceptible to framing effects in general. Lucas: Exactly. So the decoy effect is a reminder that choice is never neutral. The options you present shape the decision as much as the options themselves. Luna: And if you're designing a pricing page, you're essentially designing a decision. Lucas: Speaking of designing decisions — if these marketing conversations have sparked something you've actually used, like a pricing tweak or a new way to think about customer choice, honestly, if today was worth a coffee to you, that's the link. Buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep this show ad-free and independent. We don't do sponsors, so listener support is what keeps us going. Lucas: Totally. And it's genuinely appreciated. So back to decoys — one more thing worth noting: the decoy effect isn't just for pricing. It's also used in product design, feature comparisons, even in political choice architecture. Luna: Any real-world brand that uses it really well right now? Lucas: I'd point to the subscription tiers on a lot of SaaS products. You'll often see a Basic plan at $10, a Pro plan at $25, and a Premium plan at $30. The Pro plan is the decoy — it's dominated by Premium on features but not by Basic. And they want you on Premium. Luna: So next time I see three options, I'll look for the one that's clearly not meant for me. Lucas: And that's the takeaway. Once you see the decoy, you can't unsee it. And that's actually the point — awareness gives you a sliver of control back.