What is the decoy effect? How does it influence decision-making?

You're at a movie theater, and you're in line to buy popcorn before the movie starts. There are three options: a small for $3, a medium for $7, and a large for $8. You're not that hungry, but the large is just a dollar more compared to the medium! Why not just get the large? Don't be fooled: this is an example of the decoy effect! What is it, how can it affect your decisions, and how can you avoid this trap?

The decoy effect uses an undesired decoy option to affect the way you perceive the other options. Because the decoy is unlikely to be chosen, it makes other options look better than they actually are.

Example:

You need to choose a subscription plan to watch movies. The streaming service offers three plans:

1. Movies only: $20 per month

2. Movies and sports: $32 per month

3. Movies, sports, and TV shows: $35 per month

You may go for 3 because it looks like a good deal, but is it the best plan for you? This is an example of the decoy effect because the value of each item changed with plans 2 and 3. You only need the movie plan, but the other choices make it feel as though you can get more things for your money. This makes you spend more, even if you don't need it.

With the decoy effect, you are heavily influenced by the first thing that comes to mind. This can affect your decision-making by:

• Shifting the value of each item. Multiple options lead to comparison, and it often leads to one item being more "valuable" even if it is not (ex. if size S is $2, M is $5, and L is $6, the L size looks like the best value).

• Oversimplifying the decision process. This comparison can make one choice look overwhelmingly 'good' and the other incredibly 'bad,' which is often not the case. (ex. M at $5 looks "bad" compared to L at $6, based on price alone).

• Causing you to spend and consume more. You may end up spending more money on things you don't need (ex. based on price, you may go for L even though M is enough).

How can you make smarter choices without letting the decoy effect affect your decisions?

• Prioritize what you need. Decide what's important to you when it comes to buying the item (ex. cost or quality). Focusing on what you value will prevent you from being persuaded by things that don't meet your needs.

• Calculate the value of the item. Determine the price per unit (ex. price per ounce) to clearly see the price comparison. (ex. comparing 10 oz of popcorn at $5 vs. 16 oz of popcorn at $7 gives you $0.50 per oz for the 10 oz and $0.44 for the 16 oz).

• Set a budget. Set a limit and avoid unnecessary add-ons (ex. if you're just thirsty, buy a drink without adding the burger with fries combo).

• Watch for "buzz words." Decoys will try to get your attention! If something says "best value" or "limited time", compare the price and quality to make sure you're getting the most out of your money.

Daniel wants to try a meal delivery service. He has three plan options:

• 3 months for $100 a month

• 6 months for $200 a month

• 1 year for $150 a month (limited time offer!)

He's tempted to get the one-year subscription but realizes the decoy effect is getting to him! What are some signs of the decoy effect happening here?

A. The one-year plan appears to be cheaper than the six-month plan.

B. The plans offer no description of the benefits or perks.

C. He is persuaded to get the year-long deal even though he only wants to try the plan.

D. The phrase "limited time offer" creates a sense of scarcity/urgency.

After a quick gut check, you opt for a small popcorn. You're not that hungry anyway, and with the money you save, you can put it toward a future movie trip! You didn't let the decoy effect fool you this time, and you're ready to head on in for the main feature.

The decoy effect can be sneaky, but with critical thinking and prioritization, you can find the best value and meet your needs. Don't let others tell you what's best for you; you know what's best for you! Make wise decisions by not letting the decoy effect affect you!