The Compromise Effect

This effect states that a consumer is more likely to choose a product with the middle ground when presented with extreme choices.

When the consumer sees extreme options they are filled with uncertainty and believe that choosing the middle option will help them get a little bit of both the extreme options.

for example, a new cycle enthusiast wants to begin cycling as a new form of regular exercise. She visits a store to buy a cycle and see 2 options

• option 1: model A (basic quality) for $80
• option 2: model B (high quality) for $150

Now since she is a new cycle enthusiast and doesn’t know how long this new passion will last she will most likely choose option A. 

What if we introduce another option which is much more expensive and much higher in quality than model B.

the new set of options are:

• option 1: model A (basic quality) for $80
• option 2: model B (high quality) for $150
• option 3: model C (extra superior high quality) for $500

The introduction of Model C makes Model A look extremely basic and rather questionable in quality. This is where the compromise effect kicks in. Now the consumer thinks she is better off buying Model B than Model A or Model C which are both extreme. 

Even though the compromise effect may seem very much like the decoy affect the difference between the two is very subtle. The decoy effects introduces a baseless, an unfavorable, and poor option which would never be selected whereas the compromise effect introduces an option this is extremely superior in quality and invert high in price, and could be selected if the preferences of the consumer align with the option.