Imagine you’re lining up at a movie theater to buy some popcorn. You’re not all that hungry, so you think you’ll get a small-sized bag. When you get to the concession stand, you see the small costs ETB 60, the medium is ETB 130, and the large is ETB 150. You don’t really need a whole large popcorn, but you end up buying it anyway because it’s a much better deal than the medium. How about this other scenario where you go to a pharmacy to buy medicine and the pharmacist informs you that the medicine is 25% effective? Would you trust the medicine? How about if the pharmacist instead tells you that 1 in 4 patients has given positive feedback? Without a doubt, now you would feel more confident in the medicine than you would have in the former case where you were told it has a 25% effectiveness. These are perfect examples of the decoy effect and the framing effect respectively. Especially in the realm of business or commerce, these are two of the most common cognitive biases that have an impact on our decision-making as consumers.
The decoy effect describes how, when we are choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices.
In the above example of the decoy effect, we can consider the large popcorn as the target that the movie theater wants you to purchase, while the small popcorn is its competitor. By adding the medium popcorn as a decoy (since it is only ETB 20 less than the large one), the movie theater persuasively convinces you to give in and make the bigger purchase instead. The decoy effect can cause us to spend and consume more than we really need to. When a decoy option is present, we tend to make decisions based less on which option best suits our purposes and more on what feels like the most advantageous choice.
Unfortunately, following our intuition doesn’t always mean we’re making the smartest choice. Most of the time, the decoy effect leads us to pick a more costly alternative than we would have otherwise that really doesn’t add much additional benefit. In other words, what seems like a good deal in the moment often isn’t worth it in the end.
Framing effect on the other hand is when our decisions are influenced by the way information is presented. Equivalent information can be more or less attractive depending on what features are highlighted. Decisions based on the framing effect are made by focusing on the way the information is presented instead of the information itself. Such decisions may be sub-optimal, as poor information or lesser options can be framed in a positive light. This may make them more attractive than options or information that are objectively better but cast in a less favorable light.
Consider the previous example of the framing effect. A 25% success rate is actually very weak and no medicine should ever be sold with such a low success rate. However, when it is presented as 1 in 4 patients giving positive feedback, suddenly it doesn’t seem that bad. The information itself is telling us, however, that this medicine does not work.
Here is another example to consider. Imagine there is a deadly virus threatening a small village with 600 lives at stake and you are tasked with choosing a treatment program for the village. Program A saves 200 people with absolute certainty. On the other hand, Program B has a 33.3% chance of saving all 600 lives and a 66.7% chance of saving no lives. Which program would you use? You will most likely choose the first program even though you know very well that saving 200 people out of 600 is a very weak treatment program; it basically doesn’t work because 2/3 of the population will not survive.
The framing effect can have both positive and negative impacts on our lives. As mentioned above, it can impair our decision-making by shedding a positive light on poor information or lesser options. In other words, overvaluing how something is said (its framing) can cause us to undervalue what is being said, which is usually more important. As a result, we may choose worse options that are more effectively framed over better options or information that is framed badly. This holds true in the smaller decisions we make as consumers and citizens, as well as more significant decisions in our personal and professional lives.
The decoy effect and framing effect are two cognitive biases that significantly influence our decision-making as consumers and individuals. The decoy effect demonstrates how the addition of a less attractive option can sway us towards a more costly choice, leading us to spend and consume more than necessary. Meanwhile, the framing effect shows how the presentation of information can alter our perception of its value, often causing us to make suboptimal decisions based on how the information is framed rather than its actual content. Awareness of these biases is crucial for making informed choices in various aspects of life, from everyday purchases to critical decision-making scenarios.