The "Decoy Effect": How to Use a 3rd Option to Sell Your Expensive Item

Have you ever bought the "Large" popcorn at the movies simply because it was only $0.50 more than the "Medium"?

If so, you have been manipulated by the Decoy Effect.

The movie theater doesn't actually want you to buy the Medium popcorn. They priced the Medium intentionally high to make the Large look like an absolute steal. The Medium is the "Decoy."

In this guide, we will break down the psychology of Asymmetric Dominance and show you how to apply it to your Shopify store or SaaS pricing page to effortlessly increase your Average Order Value (AOV).

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The Science: Asymmetric Dominance

Humans are terrible at evaluating absolute value. We don't know if a coffee maker is "worth" $100. But we are excellent at evaluating relative value.

The Decoy Effect works by introducing a third option that is "asymmetrically dominated."

• It is inferior to the Target Option (usually in quality).
• It is superior to the Basic Option (usually in features).
• But crucially, its price is very close to the Target Option.

The Famous "Economist" Experiment

Dan Ariely, a behavioral economist, famously tested this with subscription prices for The Economist magazine.

Scenario A (No Decoy):

• Web Only: $59
• Print + Web: $125

Result: 68% chose the cheap Web option. 32% chose the expensive Print option.
Revenue: $8,012

Scenario B (With Decoy):

• Web Only: $59
• Print Only (Decoy): $125 (Yes, same price as the combo!)
• Print + Web (Target): $125

Result: Nobody bought the Decoy. But suddenly, 84% chose the expensive Target option because it looked like they were getting the Web subscription for free!
Revenue: $11,444 (A 43% increase!)

How to Apply This to E-commerce

You don't need a subscription service to use this. You can use it for physical products through Bundling or Variants.

Strategy 1: The "Bundle" Decoy

Let's say you sell Organic Shampoo bottles for $20. You want people to buy a 3-pack.

The 2-pack exists only to make the 3-pack look like a "no-brainer."

Strategy 2: The "Ugly" Variant

This is common in tech (e.g., Apple).

• 64GB iPhone: $799 (Too small for most people)
• 128GB iPhone (Decoy): $899 (Still feels tight)
• 256GB iPhone (Target): $949 (For $50 more, you double the storage?)

The gap between 128GB and 256GB is priced so aggressively that the 128GB version feels like a bad deal mathematically.

The 3 Rules of the Decoy

1. Make the Decoy "Dominated": It must be clearly worse than the Target option in at least one dimension (Price or Features).
2. Place it Visually Close: On your pricing page or product page, the Decoy should be right next to the Target option.
3. Don't Hide It: Even if nobody buys it, keep it there. If you remove the Decoy, sales of the expensive option will drop.

Ethical Considerations

Is this manipulative? It can be.

The Line: It is ethical if the Target option genuinely provides good value. In the Economist example, getting both Print and Web for $125 is a fair deal.

It becomes unethical ("Dark Pattern") if you artificially inflate the price of the Decoy to absurd levels just to trick people, or if the Target option is actually defective/bad value.

Use the Decoy to highlight value, not to force a bad purchase.

FAQ

Can I have more than 3 options?

Be careful. "Decision Paralysis" kicks in if you have too many choices. The sweet spot for the Decoy Effect is 3 options. (Goldilocks Effect: Too cold, Too hot, Just right).

What if people actually buy the Decoy?

That means your Decoy is too attractive (or your Target is too expensive). You need to either raise the price of the Decoy or add more features to the Target to widen the value gap.

Does this work for dropshipping?

Yes. Use it on your "Quantity Breaks" apps. Set the discount for buying 2 units to be very small, and the discount for buying 3 units to be massive.

Conclusion

The Decoy Effect proves that value is subjective.

Your customers don't have an internal "Price Calculator." They look for clues in the environment to tell them what is a good deal.

By adding a strategically priced "dummy" option, you aren't just increasing your prices—you are helping your customer feel confident that they made the smart choice (the Target option).

Your Homework: Look at your pricing table. Do you have a "Middle Option" that nobody buys? Tweak its price to be closer to your "High Option" and see what happens to your conversion rate.