The seeming irrationality of the customers choice may disappear after the cost of decision-making is taken into account.

In our daily life we are constantly required to estimate trade-offs between things that are very difficult to quantify (e.g. pleasure of wearing a new jacket - money that has to be paid – extra hours of work to earn this money - …). Hence using simple subconscious heuristics (such as “improving the trade-off by 50% is worthy of your time, 5% is not”) is very helpful. A constant search for an optimal solution would make a nightmare out of our every decision, which is hardly worth an occasional 5$ saving.

In this specific example, I believe that increasing the price differentials would have justified an additional mental effort, leading more people to the “optimal choice”.