The Decoy Effect
The Decoy Effect – Roberto Cicala
Introduction
“A cognitive bias is the human tendency to draw incorrect conclusions in certain circumstances based on cognitive factors rather than evidence.”
Introduced in 1972 by Amos Tversky and Daniel Kahneman, the concept of “cognitive bias” describes the distorting patterns that occur normally in the processes of social interaction and that induce people to make irrational decisions and/or unreasoning judgments. Cognitive biases are not occasional errors but systematic deviations. Even the most balanced and intelligent people are subject to cognitive biases. An analysis of few minutes of the thoughts and speeches of a person would be enough to demonstrate that many cognitive biases have influenced them.
There are hundreds of cognitive biases that, somehow, drive decisions and judgments inherent all aspects of life (economy, social, politics, etc.). This paper will focus on one specific cognitive bias that influences the consumer making decision process: the “decoy effect”. An analysis on how a given demand curve would look different if consumers were fully rational will conclude the report.
The main cognitive biases influencing the choices of the Shopper
Although traditional economic theories “assume” rational behavior, it is now widely recognized that consumers don’t behave rationally. The choice of a given product is most of time motivated by the invisible hand of unconscious cognitive biases. In fact, in most cases, the consumer will decide to buy a good without having conducted an accurate cost benefits analysis. This leading him to buy something he wouldn’t have bought if behaving rationally.
The list of biases is very long and there is often overlap between two or more of them. Consumers’ purchasing decisions are generally influenced by more than one bias only.
The “Decoy effect”
The “Decoy effect”, also known as the “Asymmetric dominance effect”, is the phenomenon whereby consumers will tend to have a
Introduction
“A cognitive bias is the human tendency to draw incorrect conclusions in certain circumstances based on cognitive factors rather than evidence.”
Introduced in 1972 by Amos Tversky and Daniel Kahneman, the concept of “cognitive bias” describes the distorting patterns that occur normally in the processes of social interaction and that induce people to make irrational decisions and/or unreasoning judgments. Cognitive biases are not occasional errors but systematic deviations. Even the most balanced and intelligent people are subject to cognitive biases. An analysis of few minutes of the thoughts and speeches of a person would be enough to demonstrate that many cognitive biases have influenced them.
There are hundreds of cognitive biases that, somehow, drive decisions and judgments inherent all aspects of life (economy, social, politics, etc.). This paper will focus on one specific cognitive bias that influences the consumer making decision process: the “decoy effect”. An analysis on how a given demand curve would look different if consumers were fully rational will conclude the report.
The main cognitive biases influencing the choices of the Shopper
Although traditional economic theories “assume” rational behavior, it is now widely recognized that consumers don’t behave rationally. The choice of a given product is most of time motivated by the invisible hand of unconscious cognitive biases. In fact, in most cases, the consumer will decide to buy a good without having conducted an accurate cost benefits analysis. This leading him to buy something he wouldn’t have bought if behaving rationally.
The list of biases is very long and there is often overlap between two or more of them. Consumers’ purchasing decisions are generally influenced by more than one bias only.
The “Decoy effect”
The “Decoy effect”, also known as the “Asymmetric dominance effect”, is the phenomenon whereby consumers will tend to have a