Decoy effects for vertically and horizontally differentiated products

We experimentally study the dominance effect using vertically and horizontally differentiated products. To do this, we run a laboratory experiment and let subjects to choose when the target, decoy, and money options are available.

2024-11-04

2025-04-30

Switch point of the target option without a decoy option
Switch point of the target option with a decoy option

A subject is asked to choose between the money option or the target option, where the target option consists of a product and a money amount. This question is asked when the money value of the money option is $8.00 and is asked multiple times by decreasing the money value of the money option in decrements of $0.10. The question is repeated until the money value becomes $0.10. When the money value of the money option is high, we expect that a subject will choose the money option. However, as the money value decreases, the subject will switch to the target option. We say that the switch point is the money value of the money option when a subject switches from the money option to the target option. When the available alternatives are the target and money options, we measure the "switch point of the target option without a decoy option." When available alternatives are the target, decoy, and money options, we measure the "switch point of the target option with a decoy option."

The experiment consists of two tasks: (i) product evaluation task and (ii) target evaluation task. Between the tasks, we have an intermediate step called the product pair selection step. In the product evaluation task, we elicit subjective quality values of consumer products in dollars. In the product pair selection step, based on the elicited quality values, we select one pair of vertically differentiated products and another pair of horizontally differentiated products. In the target evaluation task, we measure the values of the target in dollars when the decoy is absent and when it is present. Using the measures of the targets, we can study the dominance effect. See the attached file in the Analysis Plan section for the details of the experimental design.

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Randomization is done by the computer server that hosts the experiment.

In the product evaluation task, a subject faces 10 rounds, and each round consists of 50 sub-rounds. The order of the rounds is randomized at the subject level, but the order of the sub-rounds is not randomized. In the target evaluation task, a subject faces 6 rounds, and each round consists of 80 sub-rounds. Likewise, the order of the rounds is randomized at the subject level, but the order of the sub-rounds is not randomized. In the payment stage, one round of the tasks is randomly selected with equal probability. Given the selected round, one sub-round is randomly selected with equal probability. The final payment is determined based on the choice of the selected sub-round.

No

Based on the simulation results, including power analysis, the target number of subjects is 150 students. The details of the simulation are presented in the attached file called "Analysis Plan."

The main variables are "switch points of the target option." Each subject reports 6 switch points of the target option in total. Thus, for the main analysis, we expect to observe 900 switch points.

Based on the simulation results, including power analysis, the target number of subjects is 150 students. See the attached file in the Analysis Plan section for the details of the simulation.