The Decoy Effect: Why the Option Nobody Wants Can Change What You Buy

Put three bottles of wine on a shelf at £8, £16 and £45 and something interesting happens before anybody has taken a sip.

The £16 bottle no longer exists on its own. It sits between something clearly cheaper and something conspicuously more expensive. For some customers, that makes it feel reassuringly sensible: not the cheapest, certainly not the most extravagant, and therefore — perhaps — the sort of thing a reasonable adult might buy while pretending not to be influenced by the other two bottles.

Is the £45 bottle a decoy?

Not necessarily.

This is where marketing discussions about the decoy effect often become muddled. A premium product can change the way a cheaper product feels. A middle option can become more attractive because it is the compromise. A crossed-out price can create a reference point. A good/better/best product range can help people understand what they are buying.

None of those things automatically makes one option a decoy.

That distinction matters because I have seen versions of this effect throughout my career — but I would be uncomfortable describing most of them as deliberate decoys. There is a difference between giving customers a useful frame of reference and constructing an option mainly to push them somewhere else.

What a True Decoy Actually Is

The foundational research is usually traced to a 1982 paper by Joel Huber, John Payne and Christopher Puto in the Journal of Consumer Research. Their finding was counterintuitive: adding an option that was clearly inferior to one existing choice could increase preference for the option that dominated it.

In rational-choice terms, that is awkward. If you already prefer A to B, adding a third option C that you do not want should not make A more attractive. C is irrelevant.

Human beings are apparently less respectful of tidy economic assumptions.

A classic example is The Economist subscription choice popularised by Dan Ariely. The options were:

The print-only choice is not simply expensive. It is dominated by print + web: the customer gets strictly more for the same money.

In the experiment reported by Ariely, 84% chose the combined print-and-web option when the decoy was present. Remove the print-only option and preference for the expensive combined package fell to 32%.

That is a genuine decoy structure. The apparently pointless option makes another option easier to evaluate and easier to defend.

Which is why I think the word decoy should be used carefully. If the third product genuinely serves a different customer, performs a different job or represents a meaningful premium choice, it is not obviously a decoy just because the middle option sells more.

Watch

Dan Ariely’s Economist example

Ariely’s well-known talk includes the Economist subscription example discussed in this article. It is a useful demonstration of asymmetric dominance — and also a reminder not to use “decoy effect” as a label for every three-option price list.

Wine Is Almost the Perfect Category for This

Wine is a lovely product for pricing psychology because most of us are dealing with incomplete information.

Unless you know the producer, vintage, region and style particularly well, price becomes one of the clues. The bottle, label, shelf position, recommendation and neighbouring products all help construct an expectation before the cork is pulled.

In 2025, researchers were able to test the attraction effect using something much better than a hypothetical laboratory menu: 3.6 million UK supermarket wine purchases made by 755,158 customers.

The study found that when one wine dominated inferior alternatives on both price and quality, the presence of those decoys increased the likelihood that consumers selected the dominating wine. So the effect does appear in messy, real-world purchasing behaviour rather than only in neat three-box experiments.

But the size of the effect is just as important as its existence.

This is one reason I am wary of the lazy version of behavioural economics in marketing. An effect can be real without being enormous. Consumers are not programmable meat robots waiting for the correct third price to be inserted.

Some people will glance at the range and choose quickly. Some will calculate the cost per unit. Some will know exactly what they want. The same person may behave differently over a £4 coffee, a £25 bottle of wine and a £40,000 car.

The value of the purchase, familiarity with the category and personal importance of the decision all matter.

Sometimes People Do Not Want the Cheapest. They Just Do Not Want the Most Expensive.

This is probably the version I have seen most often in practice.

At Paleo Ridge, our Essentials, Classic and Paleo Plus ranges form a recognisable good/better/best structure. The products genuinely change as you move through the range. Paleo Plus is not there as an intentionally bad option to make Classic look attractive.

But the existence of Paleo Plus changes the frame. Classic is no longer the top of the range. It becomes the substantial middle proposition — and we know commercially that the premium range helps the way customers perceive Classic.

I saw similar dynamics in paper. At Arjowiggins, premium 100% recycled papers could make more budget-friendly recycled ranges feel more accessible. The premium product had a perfectly legitimate reason to exist; it also gave the rest of the portfolio a reference point.

And at Modal Electronics, there were very expensive flagship synthesizers at one end, much cheaper build-it-yourself products at the other, and smaller mid-range instruments between them. The middle products sold extremely well.

I would not describe those as decoys.

There is a psychological comfort in not choosing an extreme. Simonson’s 1989 work on the compromise effect found that products can gain share when they become the middle option in a choice set.

That is subtly different from a decoy. Nothing has to be obviously inferior. The surrounding range simply changes the story the customer can tell themselves about the choice.

The Williams-Sonoma Bread Maker Is Often Mislabelled

One of the most repeated stories in pricing psychology concerns Williams-Sonoma.

The retailer sold a bread maker for about $275. Customers had little reference point for what a home bread machine ought to cost. Williams-Sonoma then added a larger model priced at just over $400. The expensive version reportedly sold poorly, while sales of the original model increased sharply.

This story is constantly described online as a decoy effect.

I think that description is too casual.

The larger bread maker was a real premium product. It was more expensive, but it was also larger. The original product became the cheaper, more moderate option once the premium model existed.

That sounds much closer to anchoring, contrast and the compromise effect than to the clean asymmetric dominance of The Economist example.

The difference is not academic nit-picking. It changes the ethical interpretation. A premium option that genuinely exists for premium customers is different from inventing a deliberately poor alternative mainly to make another product look clever.

Price Can Change More Than the Purchase

Wine provides another slightly uncomfortable piece of evidence.

In a 2017 Scientific Reports study, participants tasted wines while being shown different price cues: €3, €6 or €18. The wines themselves all had the same actual retail price of €12 and each wine was presented under every price condition over the experiment.

Higher displayed prices increased reported pleasantness. Brain imaging showed changes in valuation-related activity consistent with the expectation created by the price cue.

In other words, price did not merely influence whether people thought the wine was good value. It influenced the experience of drinking it.

Again, that is not the decoy effect. It is another reason to resist throwing every piece of pricing psychology into one behavioural-economics bucket.

Prices are signals. Ranges create context. Expectations affect experience. Decoys are one specific mechanism within a much bigger system.

Discounting Is Not Morally Inferior Marketing

This is where marketers can become slightly self-righteous.

There is a perfectly legitimate argument for protecting a premium brand, avoiding permanent promotions and refusing to train customers to wait for the next discount code.

But there is a difference between protecting brand value and becoming commercially dogmatic about price.

I have seen businesses boast that they do not participate in Black Friday or do not discount. Sometimes that position is strategically coherent. Sometimes it starts to sound as though the company expects customers to applaud its moral courage for refusing to give them a better price.

Discounts work because price matters.

Reference prices matter too. A saving feels different when the customer understands what the normal price was, what alternatives cost and what they are giving up by waiting.

J.C. Penney provides one of the clearest cautionary cases. In 2012, the US retailer launched its “Fair and Square” strategy, moving away from the heavy promotional rhythm customers had learned to expect and towards simpler everyday pricing.

The principle sounded refreshingly rational.

Customers did not respond rationally enough to rescue it.

J.C. Penney reported that comparable-store sales fell 25.2% in 2012, while internet sales fell 33%. The company itself said lower-than-expected sales reflected the early impact of trying to communicate the new pricing approach.

That failure does not prove that constant discounting is always good. The wider business was undergoing major change. But it does show how dangerous it can be to remove familiar price cues simply because management regards them as inelegant.

What If the Nudge Wins the Sale but Loses the Customer?

The ethics question is not especially useful if it is reduced to “behavioural economics is manipulation”. Almost all presentation affects perception. Shelf order affects perception. Package size affects perception. The words “best seller” affect perception. A premium product sitting beside a standard one affects perception.

The more interesting question is what happens when the customer feels pushed into something they do not really want.

Research published in the Journal of Consumer Research in 2024 examined what happened after people made choices influenced by decoy, default and compromise nudges.

The nudges increased initial selection of the targeted options, but people subsequently consumed those choices less than people who had selected the same option without the nudge. In one eight-month membership experiment, nudged participants engaged substantially less with the service over time.

That feels like the right warning for marketers.

If the structure helps customers understand a complicated range, good. If the premium tier genuinely serves a premium need, good. If the customer can see a clear reason for each choice, good.

If one option exists mainly because the business hopes nobody notices how pointless it is, we are in different territory.

The Three-Bottle Test

Imagine three bottles again.

That is a pricing architecture. The £45 bottle may make £16 feel more reasonable, but all three products can stand on their own.

Now change the third bottle. Put another wine beside the £16 bottle at £17, with the same style, weaker reviews and no meaningful advantage. If its main job is to make the £16 bottle look obviously superior, we are much closer to a genuine decoy.

The difference is purpose and dominance.

That is why the best question is not:

“Does this range have three options?”

It is:

Price Is Always Relative — but Consumers Are Not Stupid

I do not think marketers should assume consumers are perfectly rational calculators.

I also do not think marketers should assume consumers are stupid.

Both views are convenient caricatures.

People use shortcuts when the decision does not justify hours of analysis. They compare options because comparison is useful. They use price as a signal when quality is difficult to observe. They are influenced by extremes, anchors and familiar promotional cues.

They can also open another tab, divide one number by another, read reviews, recognise a deliberately poor package and decide the pricing page is taking the mickey.

Context matters massively. So does involvement. So does experience.

The decoy effect is interesting precisely because it shows that preference is not fixed inside the product. The set around it can change what feels attractive.

But the real lesson is broader than “add a bad third option”.

Products are evaluated comparatively. Price is interpreted comparatively. Value is experienced comparatively.

Sometimes that comparison is designed to manipulate.

Sometimes it is simply how customers make sense of a complicated world.