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Executive Summary
People are frequently faced with a choice between two or more options that are equally attractive but for different reasons. For example, a consumer might be faced with a choice between two automobiles, one of which offers excellent gas mileage but is low on power, while another might have superior power and acceleration but poor gas mileage. When people are confronted with such trade-off-type choices, the introduction of a third, dominated option increases the share of the original option that dominates it. Thus, the introduction of a car that is fairly good on the gas mileage attribute but just as poor on power will increase the choice share of the original high-gas-mileage/low-power option. Apparently, the introduction of the dominated option into the choice set makes one of the original options more attractive; this effect has been termed the “attraction effect.” It is clear from several studies in marketing and psychology that this effect is robust. What is less clear is why it occurs.

The authors propose that the introduction of a decoy into a trade-off-type choice set reduces “trade-off aversion,” or the decision maker’s experienced trade-off difficulty. That is, the introduction of a third, tie-breaking option provides the decision maker with an opportunity to employ a simple heuristic (pick the car that performs better on gas mileage) as opposed to engaging in an elaborate and emotionally taxing evaluation of two equally (un)attractive options. As a consequence, any negative emotion generated during trade-off-type decisions is reduced. The authors study this problem using a cognitive neuroscientific approach that assesses the cerebral activation of participants while they are engaged in choice tasks.

The participants evaluate choice sets while undergoing a functional magnetic resonance imaging scan. When exposed to choice sets that do not represent a trade-off (i.e., a dominant option can be identified), participants display relative lower activity in areas associated with negative emotion. This suggests that a compelling explanation for the attraction effect is trade-off aversion and the avoidance of negative emotion. In general, the negative emotion associated with trade-off decisions is lower in decisions when the choice set is enriched with a decoy.

This research has several implications. Irrelevant alternatives are routinely encountered in various settings, ranging from Web-based travel and vacation markets, to the market for political candidates. In these markets, the addition of irrelevant alternatives to a choice set is a strategy that should reduce negative emotion. Firms interested in reducing negative affect may choose to introduce decoys, political parties interested in reducing negative affect may strategically foster the entry of decoy candidates, senior managers may want to correct for the effect of a decoy when personnel managers make recommendations about job candidates, and patients (and regulatory agencies) may want to monitor the role of decoys in physician prescribing behavior.

Biography
William Hedgcock is an Assistant Professor of Marketing at the University of Iowa. He received a BA in Economics and a BA in Psychology from Macalester College and his PhD in Business Administration from the University of Minnesota’s Carlson School of Management. Hedgcock conducts research in the areas of decision neuroscience and behavioral decision theory. He uses choices, response time analysis, and brain imaging techniques to study cognitive functions while people make decisions.

Akshay R. Rao holds the General Mills Chair in Marketing and is director of the Institute for Research in Marketing in the Carlson School of Management at the University of Minnesota. He has a bachelor’s degree in Economics (honors) from Madras University in India, an MBA from Xavier Institute in India, and a PhD in Marketing from Virginia Tech. A winner of the 1987 Robert Ferber Award and the 2000 Harold H. Maynard Award, he has published his research on pricing and brand management in various scholarly journals, such as Journal of Consumer Research, Journal of Business, Journal of Marketing, Journal of Marketing Research, Marketing Science, and Organizational Behavior and Human Decision Processes, as well as in managerially oriented journals, such as Harvard Business Review and Sloan Management Review. For the 1993–1994 academic year, he was a Visiting Professor at MIT, and in 2000–2001 and 2007–2008, he was a Visiting Professor at the Hong Kong Institute of Science & Technology. He currently serves on the editorial review board of Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, and Journal of Consumer Psychology.

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