Why do embedded options usually reduce a bond's duration?

Embedded options can shorten or reshape the expected cash-flow path when rates move. Duration is lower because the bond is not fully exposed to the same rate scenarios as an otherwise identical option-free bond.

For a callable bond, falling yields make the issuer more likely to redeem. That limits price upside and shortens expected life. For a putable bond, rising yields make the investor's put right more valuable. That supports the price and can shorten expected life in bad rate scenarios.

The key phrase is "effective duration." Modified duration assumes fixed cash flows. Effective duration allows the up-rate and down-rate price estimates to reflect changing expected cash flows.