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The decoy effect: how you are influenced to choose without really knowing it

How decoys work

When consumers are faced with many alternatives, they often experience choice overload that increases anxiety and hinders decision-making.

Consumers try to reduce this anxiety by selecting only a couple of criteria (say price and quantity) to determine the best value for money.

A decoy steers you in a particular direction while giving you the impression that you are making a rational, informed choice.

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IDEA EXTRACTED FROM:

The decoy effect: how you are influenced to choose without really knowing it

The decoy effect: how you are influenced to choose without really knowing it

http://theconversation.com/the-decoy-effect-how-you-are-influenced-to-choose-without-really-knowing-it-111259

theconversation.com

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Key Ideas

The decoy effect

It happens when consumers change their preference between two options when presented with a third option, or decoy.

The decoy is priced to make one of the other options much more attractive. The decoy is not intended to sell, just to nudge consumers away from the competitor and towards the target.

How decoys work

When consumers are faced with many alternatives, they often experience choice overload that increases anxiety and hinders decision-making.

Consumers try to reduce this anxiety by selecting only a couple of criteria (say price and quantity) to determine the best value for money.

A decoy steers you in a particular direction while giving you the impression that you are making a rational, informed choice.

Decoy example in the market

Consider the price of drinks at a well-known juice bar: a small (350 ml) size costs $6.10; the medium (450 ml) $7.10; and the large (610 ml) $7.50. The medium is a slightly better value than the small, and the large better still. The medium is designed to be the decoy, steering you to see the biggest drink as the best value for money.

If you buy the biggest, was it because you made a sensible choice, or have you been manipulated to opt for bigger than intended?

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The Decoy Effect

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The extra-large glass

A well-designed decoy can shift our decision making between two options as much as 40%.

For example, we are more likely to buy the large glass of juice at the counter when we have been provided with a choice in which the smaller glass is priced only slightly less. We tend to opt for the bigger glass (even if we don't need more juice) as it looks like a bargain.

The Unattractive Option
  • The Unattractive Third Option (The Decoy) has no real value in itself and is just placed to sway the decision maker towards the higher-priced option.
  • The Decoy's only purpose is to make the expensive option appear like a bargain.
  • This has also been widely used in subscription options of magazines and in the high-end diamond market.

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Information that matches our beliefs

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The sunk cost fallacy

It plays on this tendency of ours to emphasize loss over gain.

The term sunk cost refers to any cost that has been paid already and cannot be recovered. The reason we can't ignore the cost, even though it's already been paid, is that we're wired to feel loss far more strongly than gain.

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  • On-demand marketplaces established, in the last 10 years, new ways for people to make money - workers could easily monetize their time in specific, narrow services (food delivery, parking, or transportation). 
  • These marketplaces automated the matching of supply and demand, as well as pricing and used platforms that were convenient for both the user and the provider.
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New digital platforms are enabling the 'passion economy', where individuals with certain creative skill sets can earn a livelihood while doing the very thing they are good at. These platforms provide:

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