The Compromise Effect

The tendency to avoid extremes and choose an intermediate choice.

People shy away from extremes. This aversion gives rise to “The Compromise Effect” which states that a customer is more likely to choose the middle option of a selection-set rather than the extreme option. The framing of a choice matters. Here are three classic examples based on studies:

• Going Out to Dinner: Almost everyone has had the experience of switching to the second most expensive entree on the menu, of doing so partly because of the presence of the most expensive item. Did you know that the expensive item is there to lure you into buying the second item? And guess which one has a higher profit margin? Yep, the second one.

• Buying a Car: A car-shopper who is given three options: the low-priced basic model with no extras, a high-priced fully-loaded model with all the extras, and a mid-priced model with a few extras, will most likely choose the middle option. 

• Buying a Radio: When choosing between a small radio A and a midsized radio B, people usually choose A; but if a large radio C is added, people will choose B instead of A. 

MANTRA: To act more rationally, I must not be swayed to choose a middle option flanked by two extremes.