ECON30019 Chap.4 Menu Effects: Decoys, Compromise and Deferral
Menu Effects: Decoys, Compromise and Deferral
Menu dependence occurs when the ranking of a fixed set of options shifts as the menu around them shifts, and the phrase over the same alternatives is what makes it a violation rather than a change of mind. The subject groups several observed effects here and gives them the same verdict: the decoy, compromise and deferral effects all violate Axiom alpha, because widening the menu moves what gets picked.
What differs between them is the mechanism. A decoy is an option asymmetrically dominated by one existing option but not by the other, and it pulls share toward the option that dominates it. A compromise makes a former extreme into a middle option. A second attractive alternative removes the reason to prefer either and pushes people to the default.
The chapter closes with anchoring, which changes no alternative at all and violates procedure invariance instead.
What this chapter covers
- 01
Menu dependence, and the diagnostic question that identifies it
- 02
Why one axiom covers three named effects, and what differs between them
- 03
The decoy, and the three clauses of asymmetric dominance
- 04
Target and competitor, and the direction the share moves
- 05
The compromise effect and extremeness aversion, with the published battery shares
- 06
Decision avoidance, and the study where a second option doubled deferral
- 07
Constructed preferences: what if some people have no clear ranking?
- 08
Reason-based choice as the mechanism uniting all three effects
- 09
Anchoring and adjustment, and the anchoring index
- 10
Procedure invariance, and why anchoring breaks a different assumption
Design a menu that moves a choice
- 2To steer toward Plus, add a plan priced just below Plus but with fewer hours than Plus, so that Plus dominates it on both attributes while Basic, being cheaper, does not.
- 1Name the mechanism: asymmetric dominance, which predicts a higher share for the dominating option, the target.
- 1To steer toward Basic, add a very cheap and very restricted plan below Basic, so that Basic becomes the middle option on both attributes and extremeness aversion works in its favour.
- 1State the violation in both cases: a buyer who took one plan from the two-plan menu and the other from the three-plan menu has discarded an option chosen from a subset, which Axiom alpha forbids.
Key terms
- Menu dependence
- A shift in the ranking of a fixed set of options as the menu around them changes. Nothing about the options themselves has moved, only their company, which is why it is a violation.
- Asymmetric dominance
- The property of an added option that is dominated in all respects by one existing option, while being beating the other on some attributes and losing on the rest.
- Extremeness aversion
- The tendency to avoid options sitting at either end of the attribute in play, which is what makes the middle option attractive when a new extreme is added.
- Decision avoidance
- The tendency to bypass a trade-off by selecting the default or the status quo, which becomes more common when a second attractive option makes the trade-off harder.
- Constructed preferences
- The alternative to the assumption that rankings are fixed in advance: some people may have no clear preference over some options, and build one from the menu presented.
- Anchoring index
- The difference between two groups' average estimates divided by the difference between the two anchors they were shown. Without an anchoring effect it should be zero.
Menu Effects: Decoys, Compromise and Deferral FAQ
Do all these effects break the same rule?
The three menu effects do. The subject gives the same verdict for the decoy, the compromise effect and decision avoidance: each violates Axiom alpha, because widening the menu moves what gets picked. Anchoring is different. It changes no alternative at all, only supplies an irrelevant cue, so it violates procedure invariance instead, and naming the wrong casualty costs a mark.
What exactly makes a decoy asymmetric?
It must be dominated in all respects by one option, the target, and it must be beating the other option on some attributes and losing on the rest, the competitor. If it were worse than both, or better than one on everything, the effect would not be predicted. Students routinely drop the second clause and describe a plain dominated option.
Is anchoring just people being careless?
The evidence says otherwise. The published willingness-to-pay study used an elicitation procedure designed so that stating your true value is the best strategy, and the anchoring effect appeared anyway, with the gap between the top and bottom fifths of respondents running to several hundred per cent. The two-step process is an initial estimate followed by an adjustment, and the failure is that the adjustment is insufficient.
Exam move
Sort the effects by mechanism rather than by name, because the exam will describe a situation rather than label it. Ask first whether the set of alternatives changed or only the description or a nearby number, since that single question separates menu dependence from anchoring and, later, from framing. Then ask what the added option supplies: a dominated comparison, a new extreme, or a harder trade-off.
Practise the anchoring index on invented numbers until the formula is automatic, and always state the zero benchmark, since an index without its benchmark says nothing.
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