Background of the study

The “decoy effect” is a longstanding marketing principle that was first demonstrated in
1982 by Joel Huber and others at Duke University and then expanded upon by Stanford GSB
Professor Itamar Simonson. The premise is that a product is perceived as more valuable to a
buyer if he or she can compare it to another less-desirable model. The decoy effect has
become “common knowledge” over the years, says Simonson, citing the popular 2008 book
Predictably Irrational written by Duke University psychology and behavioral economics
professor Dan Ariely. https://www.gsb.stanford.edu/insights/itamar-simonson-what-influences-
shoppers December 10, 2014|by Louise Lee

Research by Huber, Payne, and Puto (1982) revealed that the addition of a third
alternative to a choice set can lead to a redistribution of the choice probabilities for the two
existing alternatives, such that one alternative that had not previously been preferred over the
other becomes the favored alternative. It also introducing a third decoy option make you more
likely to choose the option, and that is so unambiguously superior to its one or more alternatives
that it renders them non-admissible. Therefore, those alternatives should be removed from
further consideration. The decoy effect, in which adding a decoy option (inferior option) to a set
of original options often increases the individual’s preference for two option over the other
original option. Despite the prevalence of this effect, little is known about its developmental
origins. . DECOY EFFECTS IN A CONSUMER SEARCH TASK Beth M Hartzler A Dissertation
Submitted to the Graduate College of Bowling Green State University in partial fulfillment of
the requirements for the degree of DOCTOR OF PHILOSPHY May 2012

Consumers will tend to have a specific change in preference between two options when
also presented with a third option that is asymmetrically dominated. An option is asymmetrically
dominated when it is inferior in all respects to one option; but, in comparison to the other option,
it is inferior in some respects and superior in others. In other words, in terms of specific
attributes determining preferability, it is completely dominated by one option and only partially
dominated by the other. When the asymmetrically dominated option is present, a higher
percentage of consumers will prefer the dominating option than when the asymmetrically
dominated is absent. The asymmetrically dominated option is therefore a decoy serving to
increase preference for the dominating option. For example, two products that are comparable
in features, price, and quality rating will tend to have a roughly equal choice share. However,
it has determined that this choice share can be manipulated by adding an inferior alternative,
a phenomenon known as the decoy effect.

https://www.thesimpledollar.com/using-the-decoy-effect-to-your-advantage/ Updated on
07.24.13 by Trent Hamm

DECOY EFFECTS IN A CONSUMER SEARCH TASK Beth M Hartzler A Dissertation

Submitted to the Graduate College of Bowling Green State University in partial fulfillment of
the requirements for the degree of DOCTOR OF PHILOSPHY May 2012
 SIGNIFICANCE OF THE STUDY

The decoy effect is subtle, yet powerful. Once you begin to understand how it works, you
start to see it everywhere. It affects the way you buy groceries, choose a house, pick a restaurant,
and purchase periodical subscriptions. (https://www.jeremysaid.com/blog/how-to-use-the-decoy-
effect/) Jeremy Smith. The Decoy effect is an example of the imperfect rationality of the decision
maker; in particular, it violates the independence from irrelevant alternatives axiom. The decoy
effect occurs when the addiction of an inferior alternative changes or influences the choice
preferences among the other alternatives in the set. It's been observed in real context like
purchasing or voting choices.

This research examines whether the act of searching for an additional alternative leads to
a preference shift in comparison to participant preferences when all alternatives concurrently
available. This also includes experiments and theoretical models that are designed to further the
understanding of the decision-making behaviors of consumers, and that may enable
manufacturing and marketing companies alike to take advantage of such tendencies. This work
is to identify factors that increase the choice share, or the rate at which one alternative is preferred
over another, for a given product (Pan, O’Curry, & Pitts, 1995; Simonson, 1989).
Factors affecting purchasing decision

Consumer’s interest to purchase a product or service always depends on the willingness

to buy and at the same time ability to pay for the product. Though they are willingness and ability
to pay then also the consumers change their buying decisions because of the influence of various
factors such as psychological factors, personal factors, cultural factors, social factors, the
influence of family members, economic factors and social media, etc.

An individual who purchases products or services for the purpose of using for
himself/herself is known as an end user or consumer or the end user of the product or services is
termed as a consumer. Consumer buying behavior always reflects why do consumers buy
products with an interest? What are the factors influencing them? How do they take purchase
decisions? Why should marketers know about status of consumption and impact of external
environment on buyer’s decision, etc. . Consumer Behavior and Purchase Decisions .By Jane
Spark - December 10, 2016] http://myventurepad.com/consumer-behavior-purchase-
decisions/

The decoy effect is just one factor that can influence a shopper’s choices, and it sometimes
doesn’t come into play at all, since consumers are also influenced by other factors, such as the
nature of the product or other motivations they might have.

A number of theories describe the steps by which a choice is made. One example is
Tversky’s (1972) elimination by aspects theory, which asserted that decision-makers think of each
option as a collection of traits. A decision maker first decides which traits are most important and
then removes from consideration any option that does not have those traits. Thus, a consumer
considering what car to buy might first exclude any models that do not have air conditioning and
power steering, followed by those lacking cruise control. One explanation for this method of
decision making is that it is easy for the decision maker to justify his or her final 2 choice. A series
of studies conducted by Slovic (1975) supported Tversky’s theory of elimination by aspects,
revealing that participants expressed priorities in their decision making. There is also research
examining how the decision making processes can be manipulated. For instance, Slaughter,
Sinar, and Highhouse (1999) explain that salespeople may understand the benefit of showing
customers an inferior product alternative, and that this may account for why salespeople seldom
present customers with only one example of a particular product. Further, research from
Simonson, Carmon, and O’Curry (1994) revealed that the addition of a feature or premium to a
brand-name product, such as the opportunity to buy a collector’s edition plate, can actually reduce
the choice share for that product. Conversely, pointing out a minor defect on another product,
such as a small scratch on the side panel of a television that is being sold at a reduced cost, may
actually increase the choice share for the defective product at the expense of similar non-
damaged products. From these findings, the authors concluded that consumers may actually be
dissuaded from purchasing a product when the product is accompanied by a bonus feature that
was intended to increase sales, whereas a product with a slight defect that does not impact the
functional quality of the product might actually see an increase in market share.

DECOY EFFECTS IN A CONSUMER SEARCH TASK Beth M Hartzler A Dissertation

Submitted to the Graduate College of Bowling Green State University in partial fulfillment of
the requirements for the degree of DOCTOR OF PHILOSPHY May 2012
Effect of Decoys on Decision Making

There have been empirical studies about how additional alternative leads to the
participant’s preferences. Many such empirical studies have made use of dominated decoy
alternatives. When added to an existing choice set (also referred to as the core set) the decoy is
the alternative that is dominated by at least one of the existing alternatives and is consequently
not expected to gain much if any of the choice share, yet influences the choice share of the
existing alternatives. Specifically, the decoy alternative typically leads to a greater choice share
for the alternative to which the decoy is closest or most similar, taking from the choice share of
the remaining alternatives. This shift in preference is a violation of Luce’s independence from
irrelevant alternatives (1959), as well as regularity and similarity. The inferior, decoy alternative
may either be dominated by one or more of the other available alternatives, or non-dominated.
As used in this research, the term "dominance" refers to the relative superiority of one
alternative over another. For example, if two alternatives are described in terms of each
alternative’s list price and the mean user rating, a dominating alternative will have a higher
mean user rating and a lower price. In this usage, one alternative only dominates another if it is
superior to that other alterative on all available dimensions. Conversely, a non-dominating
alternative is an alternative that is not superior to any of the other alternatives in the choice set
on all of the described dimensions or attributes. Thus, if two alternatives are both non-
dominating, one alternative may have the lowest price among alternatives in the choice set, but
the other alternative may have the highest mean user rating.

Three different types of dominated and non-dominated decoy alternatives have been
described in the available literature. The first of these is the asymmetrically dominated decoy, it
is a phenomenon observed in Decision Theory. The asymmetric dominance effect (also called
the decoy effect) is a phenomenon where consumers tend to have a change in preference
between two options when presented with a third option that is asymmetrically dominated. An
option is said to be asymmetrically dominated when it is inferior in all aspects with respect to
one option but inferior in some aspects and superior in other aspects with respect to the other
option. This makes it look like an even balance with respect to the other product. The decoy is
completely dominated by one option and only partially dominated by the other. When the
asymmetrically dominated option is present, a higher percentage of consumers will prefer the
dominating option than when the asymmetrically dominated option is absent. (Perpetual
Enigma) Posted February 21,2013 https://prateekvjoshi.com/2013/02/21/asymmetric-
dominance/
 The second type of dominated decoy is the symmetrically dominated alternative an
alternative that is dominated by all other alternatives in the choice set. For example, a
symmetrically dominated alternative would have the highest price and the lowest user rating
among all alternatives in a choice set. Additionally, like the asymmetrically dominated decoy, the
symmetrically dominated decoy would be expected to receive little to none of the choice share
when included in a choice set because it is inferior to all other alternatives available.

The third type is referred to as a viable decoy, it is not dominated by any of the other
alternatives and thus may receive some of the market share, but is likely still perceived by the
participant as being inferior to at least one of the other alternatives. For example, a viable decoy
may have a slightly lower price than one of the other alternatives in the choice set, but a much
lower mean user rating. Thus, because the viable decoy has a lower price than the other
alternative, it is not dominated, but because it also has a lower user rating it is not expected to
receive much of the choice share. (Hartzler,2012)

DECOY EFFECTS IN A CONSUMER SEARCH TASK Beth M Hartzler A Dissertation

Submitted to the Graduate College of Bowling Green State University in partial fulfillment of
the requirements for the degree of DOCTOR OF PHILOSPHY May 2012