Beware of a 3rd option!

What is it?

Imagine you have two options to choose from. The decoy effect changes our perception of these two options by adding a third, less attractive one – the so-called decoy. Applying this effect, you can even tell which of the former two choices is more likely to be taken now.

I came across this bias in the great book of Dan Ariely “Predictably Irrational” where he describes this effect in detail. Dan found in a newspaper an advertisement for a subscription to The Economist, where subscribers had three options:

1.?????The online version for $59

2.?????A printed only version for $129, and

3.?????Printed + online for the same amount of $129.

Inspired by this ad he presented the same scenario to his students and asked which option they would choose: 16% of the students picked option 1, the online subscription, 84% chose option 2, the print & web subscription, and nobody took option 3, the $129 print-only subscription. This was not surprising, as it makes no sense to pay for printed only if you can get the online version for free on top.

Ariely then deleted this third option which nobody had chosen. Now, having only two choices, 68% of the students picked the cheaper online $59 online subscription, and only 32% picked the expensive printed + online version. Pretty much the opposite result!

And here comes the magic: You read this experiment backwards. You start with two options (here “online” and “online + print”) and add a third one, the decoy. This can even be something nobody really wants (the “print only”). And by doing so, you turn the initial decision around!

The only thing that you need is a working decoy. How to construct one? Just continue reading.

Why does it happen?

The decoy effect replaces a difficult-to-make decision between two options A and B – where A and B seem equally attractive or unattractive – with an easier one: the decision between A and a bad version of A. Let’s call this one A-. The third option B gets now easily out of sight, as our brain likes the easy answer “take A, not A-” instead of dealing with another level of complexity, considering B as well.

Let’s look at an example. You go to the cinema and decide to buy some popcorn. At the concession stand you have two options: a large bag for $7 (option A) and a small one for $3 (option B). You are not extremely hungry and 7$ look like a lot, so you may tend to go for the small one – on the other hand, the small bag looks really small… ?Imagine now, that the popcorn vendor adds another option: a medium bag for $6,50 (option A-). While this may look like the perfect portion (remember, you are not that hungry), you realize that for just 50 cent more you get the large one – a true bargain! So, your decision will be nudged towards option A, and you buy the large bag. This works the other way round as well: adding a more expensive “high end” product to your price list, which has only very few benefits compared to the second most expensive one will boost the sale of the latter. ?

Decoys provide an easy rationale for us to justify our decisions. They emphasize the benefits of choosing option A and the disadvantages of choosing option A-. We simply feel much better with this “very logical” decision to go with A.

How can we avoid it?

To be honest: this is not easy. Being aware of the existence of the effect is probably not enough to avoid it. This bias works so well because it creates the illusion of rationality.

One thing that should trigger your bias “smoke sensor” is when you are confronted with sets of three. If you realize that two of the three options are pretty similar, the decision scenario may have been deliberately constructed to nudge you into a particular direction.

Another thing you can do is to basically play the same game. Can you construct another option B-? What would A+ look like? By doing so you can escape the trap of A vs. A- and create additional possibilities for follow-up negotiations (either with other parties or with yourself).

What’s your thinking around that?

Does this sound familiar to you? Any own experiences or stories you would like to share? Please start a conversation in the comments section!

#decisionmaking #bias