The decoy effect (also called asymmetric dominance) is why The Economist's famous subscription page worked so well. They offered: digital-only for $59, print-only for $125, and print + digital for $125. Nobody picks print-only — that's the decoy. But its presence makes print + digital look like an incredible deal. Without the decoy, most people chose digital-only. With it, most chose the combo. Same options, radically different revenue.
Dan Ariely popularized this example, and it's been replicated across industries. The mechanism is simple: people struggle with absolute value judgments but are excellent at relative comparisons. Give them something obviously worse to compare against, and the "target" option wins.
Using decoys on pricing pages
The most common application is three-tier pricing where the middle tier is the target. The top tier (expensive, loaded with features most people don't need) serves as a price anchor. The bottom tier (cheap, missing key features) serves as a capability anchor. The middle tier looks perfectly balanced by comparison.
Decoys work best when they're close to the target option on the dimensions that matter. If your target plan is $49/month with 10 features, a decoy at $45/month with only 3 features makes $49 look like a steal. The $4 difference for 7 extra features is an easy mental calculation.