The decoy effect, also called asymmetric dominance, describes how adding a strategically inferior third option changes preferences between two existing options. The decoy is designed to make one option (the target) look better by comparison, increasing its selection rate.
How Decoys Work
A decoy is asymmetrically dominated: completely inferior to one option but only partially inferior to another. This asymmetry creates a clear comparison that favors the target option.
Huber, Payne, and Puto first documented this effect in 1981. Their research challenged the assumption that adding options could never increase preference for existing choices. The decoy effect proves that context shapes preferences.
Classic Pricing Examples
Popcorn pricing: Small $3, Medium $6.50, Large $7. The medium serves as a decoy making the large appear as excellent value. Few choose the medium, but its presence increases large sales.
The Economist study: Dan Ariely tested subscription pricing. Web-only $59 vs Print-and-Web $125 split 68/32. Adding Print-only at $125 (the decoy) shifted preferences to 16/84, dramatically increasing expensive option selection.
Designing Effective Decoys
The decoy should be clearly inferior to your target option in ways customers can easily see. It should be priced near the target to create obvious comparison. The decoy needs enough appeal that customers consider it, making the target look better when they do.
Ecommerce Applications
Subscription tiers: Middle tiers can serve as decoys for premium options by offering less value at similar prices.
: A less attractive bundle can make a better bundle appear as obvious value.
Pricing tables: Position plans so the target option clearly dominates one alternative while comparing favorably to another.
