We, humans, fall for so many psychological traps over the course of 24 hours. Some are very difficult to find; others are quite simple. The Decoy Effect is one of the latter ones; it’s very easy to see, some people can overcome it, but most people fall for it.
The Decoy Effect, also known as the Asymmetric Dominance Effect, is a psychological trick that alters our perception of choices by strategically designed third option. It was coined by three people: Joel Huber, John Payne and Christopher Puto. Let’s not get into the experiment right now. Let’s instead dive into a similar, basic example. Let’s say you are going to the movies. You want to buy popcorn there. You see two options: small popcorn for $3 and large for $7.Which one would you pick? Depending on your eating capabilities and affinity for popcorn, you could go for either one. However, if I added a medium option for $6.50, most people lean towards the large popcorn. What prompted that change in decision? A decoy, the middle option. The fact is that the medium option is never meant to be chosen, but to make the large popcorn look like the best value for money.
The decoy effect works because our brains prefer to make relative comparisons rather than absolute judgments. We focus on what looks better in context rather than asking, “Do I actually need this?” Where is this trick used? Apart from the theatre example (which is, in most cases, completely true), digital media platforms, restaurant menus, and many other industries use this. Let’s do a simple analysis example. I’m going to use Apple’s typical price ladder trick (sorry, Tim!). The normal iPad base model costs $349. The problem is, its 64 GB and in 2025, that’s not enough for 80% of the population. So, you upgrade storage. The only option is 256GB and at that point, it’s $499 and the iPad mini costs just the same. It’s also more powerful, so why not get that? So, that is not worth it. Let’s get the iPad mini. But that’s too small, and the iPad air’s just $1oo extra; it seems worth the money, right? See how I walked you up from $349 to $599? Every iPad starts at 128GB, except the base model $349 iPad. Now, if Apple were to make the base model iPad 128GB, or remove the 256GB option, I can guarantee there will be an increase in people just buying the base model iPad, even if it may have shortcomings. The upgradable option is what tempts us to a more expensive device.
To overcome this, do two things before making a purchase. First, realize they are utilising the Decoy Effect. Secondly, take a step back and understand your needs. Understand what you came for. This will help you save a lot of money.
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