Decoy Effect

Nov 8, 2022

In 2009, The Economist magazine ran an online pricing page with three options:

  • Option A: Web  – $59 for a one-year subscription to economist.com, online access only.
  • Option B: Print  – $125 for a one-year subscription to the print edition of The Economist.
  • Option C: Web & Print – $125 for both a one-year subscription to the print edition and online access to economist.com.

Dan Ariely, a professor of behavioral economics, ran a study that showed that 16% chose Option A, 0% chose Option B, and 84% chose Option C.

When the second option was removed, the outcomes were reversed – 68% chose Option A, and only 32% chose Option C.

The phenomenon is called the Decoy Effect.

The Decoy Effect is a cognitive bias that occurs when people are presented with two options, and one of the options is clearly inferior to the other. The inferior option acts as a decoy, and people are more likely to choose the superior option if it is presented alongside the inferior option.

It’s why movie theaters offer a “Large” popcorn that’s marginally more expensive than a medium — it would be a no-brainer to upgrade. Or a large coffee that’s only $0.10 more than a medium.

SaaS companies sometimes use the decoy effect for pricing plans. You can see this mostly in startups that are still targeting SMBs. Wix has plans that are $16GB “Combo” for 2 GB storage, $22 “Unlimited” for 5GB, $27 “Pro” for 50GB, and $45 “VIP” for 100GB. For $5 extra, you get ten times the storage between Unlimited and Pro. Their business plans are structured similarly.

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