The Decoy Effect and Recommendation Systems

Abstract

Recommendation systems and the decoy effect are two popular marketing techniques that have been used for facilitating decision making. Practitioners often use decoys to help drive demand for specific items, and prior research has shown the decoy effect to be robust in traditional choice settings, with consistent reporting of an overall positive impact. Recommendation systems are also increasingly being used to present item choice sets to customers and users, assisting users in their decision-making process. However, previous work has not examined the decoy effect in the context of recommendations. The decoy effect may facilitate consumer decision making and positively impact user behavior when used with recommendation systems. However, in the recommendation context, customers often have different expectations for the reliability and quality of the presented information. Hence, a decoy as a recommendation could signal issues in system reliability, resulting in a negative effect. Our study demonstrates that depending on the recommendation context, the decoy effect can be beneficial or counterproductive. Specifically, we find in the personalized context, including a decoy minimizes the demand for the target option and pushes consumers to opt out of purchase, which deviates from the traditional decoy effect. However, a decoy increases the target item’s demand in the nonpersonalized context, following the conventional decoy effect.