Human choices are remarkably susceptible to the context in which options are presented. The introduction of an inferior option (a decoy) into the choice set can make one of the original options (the target) more attractive than and the other original option (the competitor). This so called "decoy effect" represents a striking violation of the "context-invariant" axiom, yet its underlying neural mechanisms are not well understood. Here, we used a novel gambling task in conjunction with functional magnetic resonance imaging (fMRI) to elucidate its neural basis. At both the stimulus and decision phases, choice sets with decoys activated the occipital gyrus and deactivated the inferior parietal gyrus. At the decision phase, choosing the targets vs. the competitors elicited stronger anterior insula activation, suggesting that perceptual salience drives heuristic decision making in the decoy effect. Moreover, across participants, activity in anterior cingulate cortex (ACC) predicted a reduced susceptibility to the decoy effect, indicating that resisting the tendency to make heuristic decisions is taxing. Our findings highlight the power of the decoy effect in laboratory settings and document the neural mechanisms underlying the decoy effect.