This article gives a basic definition in behavioral economics.
View a complete list of basic definitions in behavioral economics
The isolation effect refers to the phenomenon whereby people value a thing differently depending on whether it is placed in isolation and whether it is placed next to an alternative. In particular, a certain choice can be made to look more attractive if it is placed next to an alternative relative to which it is distinctively better in some respect.
The isolation effect follows from the fact that, in order to simplify choosing between multiple alternatives, people disregard the common baseline, and focus only on the differences between the alternatives. It is related to the behavioral economics notion of anchoring.