Why do menus include a decoy option? The popcorn pricing trick

Faced with a small at five dollars or a large at nine, most moviegoers pick the small. The bars show why: the large costs four dollars more, and that jump feels steep. Nothing is wrong with the large. It just looks expensive when it's compared only with the small.

Now compare the two menus. Menu A has just a small and a large. In Menu B, the theater adds a medium at $8.50 and changes nothing else. The small and large keep their prices, yet more customers now choose the $9 large. The only difference is the new option.

Look at which gap the customer now sees. Small to large is a four dollar jump, and that feels big. But medium to large is just fifty cents, and that feels tiny. A decoy changes which gap you compare, and the large starts to look like a bargain.

The medium is a decoy because the large beats it for just fifty cents more. It works even if almost nobody buys it. Ordinary upselling is different. It openly pitches an upgrade, like asking, would you like to make that large?

Using assumed ingredient costs, a small tub earns five dollars minus fifty cents, so $4.50. A large earns nine dollars minus ninety cents, so $8.10. Each customer who moves from small to large adds $3.60 of margin. That's why the decoy can pay, even if few people buy it.

Keep in mind, this is a nudge, not a guarantee. Many experiments show the decoy effect, but some replications found smaller effects than early research.

The popcorn pattern travels. A subscription's weak middle plan sits close to the top plan, a bundle costs just above one item, and drink sizes sit a small step apart. Each time, the nearby option makes the target look like the obvious deal.

A decoy changes which price gap you compare, not what you want. So ask yourself: would I still pick this without the middle option? And compare what you actually want, whether that's size or value, rather than the price gaps.