Decoy effect

In marketing, the decoy effect (or attraction effect or asymmetric dominance effect) is a phenomenon in consumer decision-making in which the inclusion of unattractive third option can change the perceived preference between the other two. This third 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 preferences, it is completely dominated by (i.e., inferior to) 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. The asymmetrically dominated option is therefore a decoy serving to increase preference for the dominating option. The decoy effect is also an example of the violation of the independence of irrelevant alternatives axiom of decision theory. The decoy effect is considered particularly important in choice theory because it is a violation of the assumption of "regularity" present in all axiomatic choice models, for example in a Luce model of choice. Regularity means that it should not be possible for the market share of any alternative to increase when another alternative is added to the choice set. The new alternative should reduce, or at best leave unchanged, the choice share of existing alternatives. Regularity is violated in the example shown below where a new alternative C not only changes the relative shares of A and B but actually increases the share of A in absolute terms. Similarly, the introduction of a new alternative D increases the share of B in absolute terms.