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The Decoy Effect: Is Your Brain Messed Up Like Mine?

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I've always known that I think a little differently than most people. My brain craves math. It needs math. If necessary it will make something mathematical that really doesn't need it.

The result is that I've laughed off behavioral finance for the most part. I tend to ignore the experts that say people spend more money with credit cards because they don't feel the pinch of losing real money. While I know it is statistically true, and hence I shouldn't ignore it, my mind says, "Money is money." I would think credit cards would keep spending in-check, because you can get a report at the end of the month of where your money went. You spend cash and there's no "paying the piper" later on.

Last week, I was watching an episode of Mind Games on ABC. I'm thought it would be interesting and fill the hole in my nerdy self that was left when Numbers went off the air. The premise of the show is that a group of smart people use psychology to help people achieve their goals. That description made it sound like the world's least interesting show, but it wouldn't make ABC's PrimeTime line-up if it was that bad.

The particular episode that I was watching focused or a marketing phenomenon called the asymmetric dominance effect or the Decoy Effect. Here's a screenshot of the page so you can see the charts and get an understanding for what it is. Trust me, Wikipedia does a better job explaining it than I could:

When the decoy is added in Consideration Set 2, one is supposed to prefer Product A to Product B, because it is better in terms of price and storage. My mind does the exact opposite than what is expected. I much prefer Product B over Product A. I look at the prices and think, "I can save 50% by going with B over C, and I only sacrifice 25% of the storage."

The thought process is, I save a lot of money and give up a little storage... this seems to be the better bargain.

And when the decoy is added in Consideration Set 3, I'm supposed to prefer Product B to Product A. However, I now prefer Product A. The thinking is similar, "I can get 100% more storage for just $50." Clearly that's the better bargain, right? I don't have as strong as a preference as I did in Consideration Set 2, but that's probably because I'm more inclined to be frugal and take the $300 option funneling the $100 savings towards another technology gadget.

I don't know what this all means. I wish I had some grand conclusion. I will settle with sharing an interesting marketing phenomenon and a little insight into how my frugal mind thinks.

Last updated on March 19, 2014.

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Behavioral Finance

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3 Responses to “The Decoy Effect: Is Your Brain Messed Up Like Mine?”

  1. Traciatim says:

    Of course, reasonable people would buy the one with the replacable standard battery and the microSD slot so that there is no need to care about storage. Look how well that turns out in reality.

    • Lazy Man says:

      Ahh my precious Handspring Treo 600, nearly ten years old had both (well SD instead of microSD)… it is sad when technology goes backwards. One of my favorite things is that people fight to have the thinnest phone (giving up the replaceable battery) just to put a big bulky case on it.

  2. Big-D says:

    I can answer this for you … the take away from the decoy effect is that you place an item that typically is not wanted (or not in the same product target demographic/market) and make it a 3 way race for the buyers money. When people add their own bias to the decision making process, it creates a situation where the obvious answer can be seen. Another example of this would be placing the Hyundai Equus, Jaguar E-Type, and Mercedes SLK in a comparison. They are all “Luxury” vehicles but as Sesame Street taught us, “One of these things is not like the other”, and your brain then places your bias on it for which feature you wish to focus on.

    By adding a fourth or fifth option, then the decoy effect goes away. Typically the decoy effect is used in marketing from a print or media standpoint because the lasting impressions stay with you, even through the buying phase even if it is months away. Psychology and Marketing can be fun … :)

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