Thinking of buying something and edging towards the slightly-more-expensive-but-has-more options choice? Be careful: you might be falling for the decoy effect.
The decoy effect is not a new concept, but I was reminded of it during the very entertaining keynote by Paul Fenwick at Linux.conf.au today. Fenwick noted that research consistently suggests that consumers offered a choice between (for example) a $59 Internet-only subscription and a $125 print subscription will generally opt for the Internet-only option. If, however, there’s a choice between a $59 Internet-only, a $125 print-only, and a $129 print and Internet combined, more people will choose the priciest option. The $125 middle ground exists to make the $129 deal look cheaper by comparison, not as a serious choice.
How can you use this in practice? If you’re presented with a range of pricing options, examine them carefully and don’t make speedy decisions. A practical example: if you buy an iPhone 4S outright, you can choose between a 16GB model ($799), a 32GB model ($899) and a 64GB model ($999).
64GB iPhones have often been the first to sell out at launch. Some of that might reflect a genuine need for lots of media storage, but some of it reflects the decoy effect: people figure that the extra memory on the 64GB model is a bargain, compared to the different between the 16GB and 32GB models. In practice, I bet Apple is not paying anywhere near that amount for the extra storage — but it is successfully persuading more people to buy a $999 phone rather than a $799 one.