A rational account of the repulsion effect

Abstract

The repulsion effect occurs when the presence of an inferior option (the decoy) decreases the attractiveness of the option that dominates it (the target), in puzzling contrast to the attraction effect. In this paper, we formally develop and experimentally test a normative account of the repulsion effect. Our theory is based on the idea that the true values of options are uncertain and must be inferred from available information, which includes the properties of other options. A low-value decoy can signal that the target also has low value when both are believed to be generated by a similar process. We formalize this logic using a hierarchical Bayesian cognitive model that makes predictions about how the strength of the repulsion effect should vary with statistical properties of the decision problem. This theory can help account for several documented phenomena linked to the repulsion effect, as well as results from new lab experiments. Our results illuminate key drivers of context dependence across both economic and perceptual judgment and sharpen our understanding of when decoys can be detrimental.

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