The Decoy Effect is a cognitive bias that lures us into buying more than we need. By introducing an additional BAD choice, the less expensive choice seems MEAGER, and the most expensive choice appears to be a GREAT VALUE.

The Decoy Effect has four steps:

1) Identify the most appealing COMPETITOR
This is typically a low-profit, inexpensive choice. The $5 popcorn is the item we are most likely to buy.

2) Identify the TARGET
This is the choice they want us to buy, the $9 popcorn. It’s more expensive and therefore much more profitable.

3) Insert the DECOY
A great DECOY will have a feature that is just slightly better than the COMPETITOR. The $8 popcorn has only slightly more popcorn than the $5 option.

4) Overprice the DECOY
$8 for a medium-sized popcorn seems like a bad deal. For just one dollar more, you can get the huge bucket of popcorn. By making the DECOY only slightly less expensive than the TARGET, the TARGET appears to be a great bargain.

A great DECOY will be close in features to the COMPETITOR, but close in price to the TARGET. The rotten deal of the DECOY makes the supersized TARGET look like a real bargain.

How can you avoid the Decoy Effect?

1) Beware of sales pitches that come in threes, and product information that compares features side by side. Anything that is labeled “best value” or “best bargain” is the target.

2) Actively seek out the DECOY. Look hard for the one option that seems to be a terrible deal.

3) Don’t trust your gut. A recent study shows that people who primarily rely on intuition tend to fall for the Decoy Effect more often.