Hello and welcome to the first psychological principle in this course, here we're going to be talking about quite an interesting phenomena called the decoy effect. In this lecture, I'll present two things. First, a decoy effect definition and second examples which clarify the definition. Okay, let's get started. What is decoy effect? I would like to read the definition for you.
The decoy effect is a phenomenon whereby consumers will tend to have a specific change in preference between two options, when also presented with a third option that is a symmetrically dominated an option is a symmetrically dominated when it is inferior in all respects to one option, but in comparison to the other option, it is inferior in some respects and superior in others. So this was the set definition. As I promised you, I'll simplify that. Before we give you some examples, which will clarify the definition. I want to show you some pictures that clearly show the application of the decoy effect. Now look at these fruits, I would like you to choose one of the three options you have.
I'm going to give you approximately five seconds, please make your choice. You have an orange into apples. Think about what do you choose? Okay, now I'm going to be talking about myself. I feel like eating a fruit. In the picture, I have three options to choose from.
The first option is an orange. The second and third options. I have two apples, however the letter is decayed. What I and the majority of you guys who choose I believe the higher percentage of us chose The red apple. And this is because the third option is so bad that it's made, it makes my choice a lot easier. Of course, some of you went with the orange, but the majority chose the red apple.
If I give you only the first two options, the orange and the red apple, your choice wouldn't be influenced by any other less attractive or more appealing options. Okay, I have another picture for you here. This is how decoy effect works. It changes your opinion by adding different options. The green circle on the left looks too small to me. Whereas the green circle in the right looks too big.
But what happens in reality, these two circles are with the same size. My opinion was influenced by the decoy effect. Now we've come to the example I'm going to give you one Please focus on this part of the definition. Consumers tend to change their preferences between two options when a third less attractive option is presented. An alternate solution page, a de economist stated web subscription for $59 print subscription for $125 and weapon print subscription again for $125. It seems like a super deal for web in print subscription, right?
Professor Dan Ariely tested this model with students at MIT, asking them to choose a subscription option among the three choices listed by the economist. And here are the results they're quite interesting. Web subscription was chosen by 16 students print subscription was chosen by zero students, so nobody chose print subscription. And then we have the last option web in print subscription was chosen by ad four Students, so the total revenue of that is 11,444. Okay, but see what happens next. When the principal scription was removed.
The results looked like that 68 students chose web subscription, and weapon print subscription was chosen by 32 students, the total revenue $8,012. Now I'm going to ask you, do you make the analogy with the fruits I showed you? The print subscription by itself for $125 was the detailed apple. It made the weapon principal scription look like a great deal. That's 30% difference in sales for the economist, but using a decoy price of a print subscription. I want to point out that this example was taken by the book of Professor Nunn Ali called predictably irrational.
Some of the biggest companies in the world utilize the code effect, they do it quite profitably. And another example would be apple in the adequate pricing on iPad. We have three options of Apple iPad, they those options have two variables. The first variable is price, and the second variable is gigabytes. All the other specifications are the same. Now, unless you're 100% convinced that 16 gigabytes are enough for your needs, you go with the first option, right.
But if you think that having more storage would be would be good for you and for your needs, you would consider the second and third option. Now the first option you get 16 gigabytes for 499. The second option, just $100 more, you get 16 gigabytes more. So you get it for the second option is 599. Let's see What happens with the third option. So if you add another $100, this time, you don't get 16 gigabytes more.
This time, you get 32 gigabytes more. And this is again only for just $100 more. And so if you compare the first and the second option, you buy 16 gigabytes more for $100. But if we compare the second and third option, you buy 16 gigabytes for $50. And when you get to choose this, this looks like a great deal for you. And this is how they influence our decisions to make a more expensive purchase, or to buy the more expensive iPad.
From now on, you'll be observing the decoy effect when you need to make a decision to buy something and you have few options. However, if you are a marketer, you can implement a decoy effect into your pricing strategy can get some great results. But wait a second. What does it mean to be marketer, I'm going to make things easy for you remember this. We are all in the marketing business. There is no such thing.
As you know, I'm just a blogger or I'm just an online instructor teaching people how to use Photoshop. If you sell any kinds of digital products, or you want to sell digital products online, the most important aspect of your online business are the marketing skills you have. And in this course, I promise to help you develop these skills from a very powerful psychological perspective. Thank you for watching and see you in the next lecture, where we will be talking about the marketing implications of the decoy effect. Thank you again.