Article: “Trade-off Aversion as an Explanation for the Attraction Effect: A functional Magnetic Resonance Imaging Study,” William Hedgcock and Akshay R. Rao, Journal of Marketing Research (February 2009).                     

 

 

 

MINNEAPOLIS / ST. PAUL – A stimulus package that is heavy on tax cuts or spending programs? Lay off some workers or cut the hours of all workers? Al Franken or Norm Coleman? Governments, corporations and individuals face difficult choices frequently. Sometimes the options are equally attractive, and at other times the options are equally unattractive.

 

Akshay Rao, a marketing professor at the University of Minnesota’s Carlson School of Management, has just published an article that shows that decision making is simplified when an individual considers a third, less attractive option. For example, wavering Republicans who would prefer a stimulus package that emphasizes tax cuts versus one that emphasizes spending may be persuaded to choose a spending heavy package if a third, less desirable package that also includes family planning is added to the choice set. The third, less attractive option plays the role of a “decoy.” “In some ways, it is quite straightforward,” says Rao. “When an individual is faced with a choice, the presence of a relatively unattractive option improves the choice share of the most similar, better item.”

 

In their lead article in the latest issue of the Journal of Marketing Research, “Trade-off Aversion as an Explanation for the Attraction Effect: A functional Magnetic Resonance Imaging Study,” Rao and co-author William Hedgcock (University of Iowa) explain the reasons for this decoy effect. Volunteers had their brains scanned while they made choices between several sets of equally appealing options as well as choice sets that included a third, somewhat less attractive option. Overall, the presence of the extra, “just okay” possibility systematically increased preference for the better options. The fMRI scans showed that when making a choice between only two, equally preferred options, subjects tended to display irritation because of the difficulty of the choice process. The presence of the third option made the choice process easier and relatively more pleasurable.

 

“The technical evidence for our conclusion is quite clear, based on the imaging data,” Rao said. “When considering three options, our ‘buyers’ displayed a decrease in activation of the amygdala, an area of the brain associated with negative emotions. Seemingly, subjects were using simple heuristics – short-cuts or decision rules – rather than a more complex evaluation process, when they were evaluating three-item choice sets.”

 

There are several practical implications of this research. President Obama can make his stimulus package look more attractive to law makers by offering a third option that is dominated by his preferred option. Irrelevant alternatives are routinely encountered in a variety of other settings including web-based travel and vacation markets, cable deals, cell phone plans, and even newspaper circulars. In these markets, the addition of irrelevant options is a strategy that ought to reduce negative emotion. “And,” adds Rao, “political parties interested in easing voters’ decision problem may strategically foster the entry of decoy candidates.”

 

Akshay Rao's teaching, research, and consulting have focused on industries ranging from food and airlines to apparel and the Internet. His research and opinions have been featured in Time, The Boston Globe, The New York Times, The Wall Street Journal, NPR, CNN, and other outlets. More information on Professor Rao and a copy of the article can be found at www.carlsonschool.umn.edu/marketinginstitute/arao.

 

The Institute for Research in Marketing is part of the Carlson School of Management at the University of Minnesota. Established in 2005, the Institute fosters innovative, rigorous research that improves the science and practice of marketing. More information can be found at www.carlsonschool.umn.edu/marketinginstitute.

 

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To view the December 2008 press release on this research, click here.