How the Decoy Effect Inflated My Grocery Budget

Relative Pricing and my Cognitive Biases

For our last company book club, I reread one of my favorite books: Dan Ariely’s Predictably Irrational. In the very first chapter he explains how relative pricing options can change decisions. In marketing, this specific way of using relative pricing is referred to as the “decoy effect”

I’ve seen this in my own behavior in the last few months. For most of the 2+ years I’ve lived by Dolores Park, there’s been two grocery store options: Safeway, and Bi-Rite Market. Safeway was farther away, but Bi-Rite was much more expensive.

1) Safeway: far away, cheap

2) Bi-Rite Market: close, expensive

Since those are two different metrics, they’re hard to compare. Personally, I think walking a couple extra blocks to save money is worth it, so I did most of my shopping at Safeway.

At the beginning of this year, a new Whole Foods opened up immediately across the street from Safeway. So now I have three options for grocery store shopping:

1) Safeway: far away, cheap

2) Whole Foods: far away, very expensive

3) Bi-Rite Market: close, expensive

Now, when compared to Whole Foods. Bi-Rite is better on both metrics: it is less expensive and closer. Safeway is only a little better than Whole Foods, since it is cheaper. Because of this new way of comparing, Bi-Rite seems obviously better, and I now do most of my grocery shopping there.

I’m pretty unnerved to see this in myself (and my bank account doesn’t appreciate the shift to Bi-Rite!). I’m on on the hunt for more examples of when the introduction of a new option changes my behavior, even though I don’t choose the new option.

Want more? Follow me on twitter (@maiab) for more about how our brains work, how psychology applies to user interfaces, and startups. Oh! and check out my company RocksBox. Photo is from bunnyhero on flickr.