How to Spot the Decoy Effect in Business Case Options Appraisals.

Coffee Choices and the Decoy Effect. Have you every bought a coffee and been ‘bedazzled’ into getting a bigger or frothier one than you’d planned? “It just seemed sooooohhh much better value to have the Maximo Grande Frothiata…”. Basically you’ve had your behaviour ‘modified’ by the retailer using a process called Decoy Pricing or the Decoy Effect. I’ve fallen for it, many times – quite often when I’m buying beer “That’s a bargain, the more I drink, the more I’ll save…”

Some people might now be thinking “Oh, that’s terrible. They are manipulating our behaviour to maximise their profits. Shame on you coffee retailers… I bet it happens all over the retail sector?” Sadly, yes it does.

But Wait! Before you get too self righteous have a quick pause for thought. What if this is happening closer to home, at work? What if the Decoy Effect is deeply embedded in your; PRINCE2 compliant, transparent and assured business processes? What if the process of making the ‘right’ decisions in a business case is just another case of people using the Decoy Effect? Influencing the behaviour of people in serious decision making positions to get the answers they want? Shocking!

Lets Play the Business Case Options Appraisal Game. After careful reflection I thought the easiest way of helping you to spot a Decoy in business plans was to run through an example. Think about this as a ‘game’ if it helps.

The Scenario: Imagine you’ve gone through the bureaucratic hell of getting a project approved for a ‘pilot’. You are now returning to the (insert name here) Committee for approval to scale up implementation.

The Punters: The Committee will want to feel like they have made the ‘right’ choice. They also needs to look compliant with policy. Make it easy for them to ‘do the right thing’.

Player 1 (You): You just want your favourite idea approved so that you can get on with doing what you think is important.

Tactics: Use the Decoy Effect to get them to make the right decision. I’ve illustrated this in a handy guide below.

How to Spot a Decoy. Apologies if anyone is feeling aggrieved that I’ve suggested they might be ‘playing a game’ with the carefully crafted business cases they write. I’m sure that there are many ‘straight down the line’ people in the world. Raising this is just about helping people make better decisions. Helping decision makers recognise that there might be some unscrupulous types in the world. ‘Messing with their heads’, and trying to get what they want by using the Decoy Effect.

In the sprit of helpfulness, here are FIVE pointy questions an Approvals Committee might want to ask about an options appraisal. You can do this if you suspect the Decoy Effect, or just make it routine practice.

  1. Just the 3 Options? Why aren’t there any more? (try to remove a bit of the asymmetry)
  2. Option 3 looks a bit extreme? If something looks like lunacy compared to the others – it’s probably a Decoy. Suggest you send it back and ask for something a bit more in tune with reality.
  3. Do we really need ‘Do Nothing’? Lets take it for granted that we can stop this project if we really need to. Replace ‘Do Nothing’ with a realistic ‘Do Something Useful’ option.
  4. Why are they all so ‘similar’? Why are the options all just increasingly more expensive versions of the same thing? Is this just adding ‘whistles and bells’? Are there any other possibilities?
  5. Were there any failures? Did you try anything that didn’t work? What did you learn from that experiment?
  6. (NEW) Who did you talk to? Give us a picture of the variety of experience and ideas that surfaced during the development of these options. What sort of Trojan Mice emerged? (More on Trojan Mice here) Thanks to Diana Reynolds
  7. (NEW) How wide was the thinking? What were some of the completely potty ideas you considered at the beginning of this? Gives a sense of how widely people have been thinking, or is it just a narrow favourite? Thanks to @ComplexWales.

I’m sure there will be plenty of other questions that people could ask, feel free to add them in the comments and I’ll include them on the list.

Ultimately its about having a bit of healthy skepticism and keeping your nose open for the smell of ‘Trojan Horse Poo’. Is someone trying to roll their favourite Trojan Horse past you by deploying the Decoy Effect? Sorry to mention Trojan Horse Poo, but I have written about them and Trojan Mice previously (link here).

Asymmetrical Dominance Effect. If you fancy a bit of a deeper dig into the world of the Decoy Effect you can have a look at the Wikipedia entry, here. If you want to go deeper still, there are plenty of research papers, try this: The asymmetric dominance effect: Re-examination and extension in risky choice – An experimental study from the Journal of Economic Phycology (August 2019).

From a personal perspective I’ve gone for something a bit more relatable. Here’s my attempt at trying to explain the Decoy Effect in Business Cases through the medium of Sheds.

So, What’s the PONT?

  1. When we are faced with choices – the things that sit in the range of options influence our choice. Beware of Decoys.
  2. Extreme options at either end of a range of choices can make some things appear more favorable. The ‘Decoy’ pushes us towards something we might not have chosen.
  3. The Decoy Effect isn’t limited to retail choices. Look out for it in Business Case Options Appraisals and ask pointy questions… You’re welcome.

About WhatsthePONT

I'm from Old South Wales and I'm interested almost everything. Narrowing it down a bit: cooperatives, social enterprises, decent public services, complexity science, The Cynefin Framework, behavioural science and a sustainable future. In 2018/19 I completed a Winston Churchill Travelling Fellowship, looking at big cooperative enterprises and social businesses in NE Spain and the USA. You can find out more here:

7 Responses

  1. 7. What were some of the completely potty ideas you had at the beginning of all this?

    I’ve never, not once in 30 years of writing and receiving business cases, been involved in a project where the decision had not already been made, prior to the business case being presented. And that is the correct way to do development, getting all the groundwork and buy in done first, so that the business case is just a bit of governance that produces a permission slip.

      1. I have known Committee types to send off an underling to produce a business case for the latest fad they picked up on some away day. I’ve also seen Committees deny people they don’t like, for no other reason. There is certainly a power game going on even around the nicest tables, full of senior period who won’t be found any of the work. Business Cases should be approved by those it effects, but if you work closely with them, there’ll be no need for a business. Sion and I have taught people how to write a compelling business case and at the same time, how to keep going, without one.

  2. Sion Charles

    To pointy question 3. Do Nothing is a useful do something option. Do Nothing is a valid choice.

    Remember that all options are a hypothesis and DoNothing is as much a hypothesis as any other options presented.

    Do Nothing is (almost always) confused with the baseline – an option against which other options are assessed. It shouldn’t be, it is a choice.

    NEW question 8. What modelling assumptions have you made to calculate/forecast the costs and benefits of each option? To self… ‘do I agree with the assumptions made?’

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