26 November 2012

This One is Clearly Better than That One - The Attraction Effect

If we have to choose between a situation where there is only one option and a situation where we can choose for ourselves out of several options, we will prefer the second situation and for good reasons.

Imagine that you live in a country under a dictatorial regime and in order to keep the appearances the regime organizes elections. At the same time for president there is only one candidate and for parliament there is only one political party participating in the elections. It doesn't take a genius to figure out that you – who are living in this country – will not be very happy with the situation and you would like to have to choose from more than one option.

It goes similarly for other areas of our lives. We like to have to choose from a menu at a restaurant, we like to choose from multiple options for mobile phone plans and we clearly want to have more options for our summer vacation. We like to make choices. I have discussed in previous posts that having more choices is not necessarily good , but it is clear that in most areas we like to make our own choices.

What we are less aware of is that in many instances the options we have to choose from can and do influence our choice. In theory it will be ideal to have virtually an infinite number of choices, but in real life it is not so. For example if you’re going out for dinner at a restaurant, regardless of what you choose from the menu, you’ll end up eating something that that restaurant sells and the cooks at the restaurant know how to cook.  To make this a bit clearer… if you go for dinner at a “Pizza and Pasta” restaurant, you will make your choice out of the generous (or not) menu. What is for sure is that you will have for dinner a type of pizza or a type of pasta and you will not have steak or stew.  

The choice set we are presented with clearly influences our choice. The choice set may only restrict our choice as in the pizza and pasta example or it can in fact guide our choice to a particular option.

One way of guiding choice towards a particular option was presented in the post “Not too… but not too…” 

In this post I’m going to present another influence that the choice set has on our choice. This is called the “Attraction effect”. To better illustrate this I’ll use an example from Dan Ariely’s book “Predictably Irrational”.

A newspaper has the following options for subscription:
Option A: On-line Only (Newsletter + access on-line to the current edition and archive): 49 Euros/year.
Option B: Print and On-Line (Printed Edition + Newsletter + on-line access to the current edition and archive): 100 Euros/year.

What would your option be?

In this scenario about 65% went for the On-line Only option (option A) and about 35% of people went for the Print + Online option (option B).

I guess that most likely the preferences among my readers are roughly the same as in the experiment.

But, now clear your mind and imagine that you are faced with the following choices…

Option A: On-line Only (Newsletter + access on-line to the current edition and archive): 49 Euros/year.
Option B’: Print Only (Printed Edition): 100 Euros/year.
Option B: Print and On-Line (Printed Edition + Newsletter + on-line access to the current edition and archive): 100 Euros/year.

As you can see, options A and B are the same as in the previous case. What is new is option B’, namely Print only for 100 Euros per year.

At first glance this option (B’) has no reason to be chosen since it is clearly inferior to option B. It gives fewer advantages than B (print and on-line) and it costs exactly the same. Most people think about this option in terms like “Who is stupid enough to choose this (B’) when the third option (B) is clearly much better?”

Thankfully, people are not (that) stupid to choose option B’ (print only). But this is rather obvious, right? What is less obvious is how the introduction of a clearly inferior option to the choice set influences the choices for the other two options that were already there. But before I reveal the results, I’d like to take you a bit in the land of Economics.

In the land of Economics there one of the laws is that preferences are stable. So if you prefer A over B in a situation, in any other situation you will prefer A over B regardless of any other options available.

Another law in the land of Economics is that when introducing an additional option in a choice set, the shares of preferences of the options previously in the choice set can decrease or remain constant.

To translate this in normal language, in the previous example where there were only two options: A (on-line only) and B (Print + On-line), the introduction of a new option B’ (Print only) should not lead to an increase of preference share of A or of B.

The reasoning is quite simple. If option B’ is preferred by some people than it will take its preference share form A or B or both. If B’ is not preferred by anyone (which is the case here) there is no reason that the preference shares of A and B should be affected.

Now, I assume you’ve guessed what the results of preferences are in the second situation when the undesired by anyone B’ option is included. The results go something like this: B’ (Print only) had a zero share of preference (no one wanted it); Option A (On-line only) had about 15% preference share and option B (Print and On-line) had about 85% preference share.

If we compare the two scenarios you will see that introducing the clearly inferior option B’ has led to a huge change in preferences. Without it about 65% of people chose the on-line only option (A) and about 35% of people chose the print + on-line option (B). But when the inferior option B’ was introduced, only 15% of people chose the on-line only and about 85% of people chose print and on-line (option B). This is a huge shift…

I would like to point out that this is a huge violation of the economic laws briefly presented above. I will explain what is happening here.  First, we can state that in the first choice set, options A and B can be considered equivalent. If we take the benefits and costs we can say that they are more or less the same and that people can choose what is best for them.

Second, option B’ is clearly worse than option B. It doesn’t take a genius to see that Print only for 100 Euros is worse than Print + On-line for 100 Euros. Even if the on-line option is never used, it is better to have it than not to have it especially that it doesn’t cost more.

What is happening is called the “Attraction effect” (or asymmetric domination). The only real difference between the two choice sets is that in the first one A and B are equivalent while in the second A and B remain equivalent and B is clearly better than B’.  

Since B is better than B’ what is the point of comparing B with A? When comparing A with B it is quite effortful for our brains, but when comparing B’ with B there is no effort, the answer comes quickly and a decision is readily made. Of course it would be rational to still compare B with A but why bother when we know that B is clearly better than B’.

In brief, the “Attraction effect” occurs when in a choice set there is an option that clearly dominates another. Because it is easy to compare a superior and an inferior option we tend to ignore the other options in the choice set. 

The attraction effect becomes stronger when people who make the choices expect to be under the scrutiny of others. Choices of the dominating option are both easy to justify to one’s self and to others and less likely to be criticized by others. In this case the chooser can easily say: “Hey, of course I picked “Print and On-line” since it was for the same price as “Print only””.

A particularity of the “Attraction effect” is that it occurs mainly when the (initial) choices are quite difficult to compare against one-another. If in the previous example options A and B would be easily comparable (such as one is clearly better than the other) there would be no attraction effect.

The key element in the attraction effect is that introducing a dominated option in the choice set makes comparisons easier. Now the chooser doesn’t need to compare against each-other two options that are difficult to compare. Now the chooser can make a simple comparison and not a difficult one, reach a conclusion and subsequently make a choice.

You might think that the Attraction effect is something more of theoretical nature than practical one, but it is not exactly so. On-line shopping is one of the areas where it is used. Imagine that you’re shopping for a laptop computer and you see that there are two roughly equivalent computers that are sold with a laptop bag. It’s hard to decide between, let’s say, Asus and Lenovo with similar configurations. But you see that the Lenovo is also available without a bag for the same price… Should this change anything? In principle you still have to choose between Asus and Lenovo, but now it is clear that to buy a Lenovo with a bag is better than buying the same Lenovo without a bag… and for a couple of seconds the Asus just went out of your mind. Before you know it, you have the Lenovo with a bag in your “shopping cart” and you’re filling in your bank card details.

My dear wife, who works in recruitment, tells me that the Attraction effect is encountered often in her line of work. When they have three candidates invited for an interview (one position available) it happens that one candidate is clearly worse than another, but somehow they can’t figure out what is with the third candidate …

I’ll end with two questions for you. Do you choose what you want? Do you want what you chose? 

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