Monday, April 2, 2007

The Decoy Effect

I just finished reading "A Beautiful Mind" about the game theorist John Nash. If you haven't read the book, or seen the movie, I highly recommend that you do. Nash's life is as dramatic as it gets: genius, fame, tragedy and finally redemption.

Game theory is an interesting, if somewhat dispiriting, lens with which to view decision-making processes. It's astonishing how predictable we are. Even when we're unpredictable, we tend to be unpredictable in a systematic (i.e. predictable) manner.

How does any of this relate to software, technology and innovation? Only this: I think it provides a useful set of tools for product managers and marketers to have at their disposal as they think about their target markets and adoption of their products. There's one interesting example that I remembered reading about in grad school. It's a phenomenon called "The Decoy Effect" and provides an insight into how consumers value different attributes in a given product set. The wikipedia article explains it very well so I won't discuss this in any more detail here.

Thinking about current products within this framework can be a clarifying experience. As an example, consider the market for web-based meetings. There are two major players: Webex and GoToMeeting. Customers value two attributes: ease of use (to set up as well as to participate in meetings) and collaboration features. Based on my experience with both products, Webex is harder to use but has more powerful collaboration features than GoToMeeting. What sort of decoy product would increase adoption of Webex over GoToMeeting? What about vice-versa?

By the way, the decoy effect can be used in a wide variety of circumstances. Take a look at this fascinating article in the Washington Post about the decoy effect applied to the 2008 U.S. Presidential Elections.