Which rubber duck makes the best decoy? Considering the decoy effect on the basis of different behavioral theories

Empirical evidence has established the existence of a phenomenon known as the decoy effect, which suggests that including irrelevant alternatives into a choice-set may affect the way in which the original alternatives are evaluated. In this paper we explore different ways to characterize the decoy effect and offer an in-depth discussion on the theoretical and empirical implications of the different modeling approaches. We also consider a stated preference experiment for which we model the phenomenon according to the assumptions of regret theory, emergent value, and prospect theory. Based on theoretical and empirical considerations, our results suggest that models based on prospect theory seem to outperform alternative behavioral paradigms to model the decoy effect.