The IKEA Effect

I like to spend a lot of time exploring cognitive biases. I firmly believe that if we spend the time to get familiar with the natural flaws in our thinking we can avoid those flaws, make better decisions, and live a richer and happier life.

Previously we have explored confirmation bias and the sunk cost fallacy. Today I want to talk about the cognitive bias with my favorite name.

The IKEA Effect

The IKEA effect was discovered (and named) by a group of researchers at Harvard in 2011. (The group included Dan Ariely, whose book Predictably Irrational is a really interesting look into cognitive bias if you are interested.)

Basically, the researchers found that we tend to value more highly things that we helped build ourselves (like the IKEA products that require you to do all your own assembling). In their words, “Participants saw their amateurish creations – of both utilitarian and hedonic products – as similar in value to the creations of experts, and expected others to share their opinions.”

In the first experiment, participants were randomly dividing into two groups. The first group would assemble an IKEA storage box. The second would inspect a box that had already been assembled. They were then asked how much they would pay for the box and how much they liked it. The participants who assembled the box on their own reported liking the box more and were willing to pay a higher price for it.

A second experiment similarly divided a group of participants into builders and non-builders. This time the builders constructed origami frogs and cranes. In this experiment, the builders offered to pay almost five times more than the non-builders! This suggests (to me at least, as it is not spelled out in the study) that the more effort you put into something, the larger the gap between actual value and perceived value.

The experimenters were concerned that the builders may just be willing to pay more so that they did not have to give up their creation, and so they asked builders to state both what they would pay and what they thought others would be willing to pay. It turns out, they thought that others should have the same view of how much their origami creation was worth. A valuation that was 500% off.

They also compared the price that builders were willing to pay for their own origami creation to the price they were willing to pay for origami created by an anonymous expert. The builders found the difference in value between the two to be very minimal. The non-builders disagreed vehemently.

A follow-up experiment involved Lego sets. Two people would go into a room, each with a different 10 to 12 piece Lego set. Each person built their set and then bid on both their own and their partner’s set. As expected, people were more willing to pay for their own set.

The twist here is that the difference between the two bids went away if the experimenters had the two people deconstruct their sets before bidding.

These are sets that could easily be reconstructed. They were only 10 to 12 pieces and the participants were college students that could presumably follow Lego instructions. And yet they were willing to pay more for their own constructed set than either their partner’s constructed set or either deconstructed set.

Takeaways

First, recognize that this is a trap that you probably fall into! The researchers asked participants whether they would pay more for products that were already assembled or products they would assemble themselves. 92%(!) of the participants said that they would pay more for products that were already assembled. Clearly this is a trap that most people fall into without realizing.

Next, look for areas where this could create problems for you. For example, the experimenters note that this could be very problematic in home improvements. When someone makes improvements and customization to their home, they will start to more highly value the house and will want to sell it at a higher price when the time comes. At the same time, those improvements and customizations are designed to the owner’s tastes and could actually lower the value of the home for buyers, making it more difficult to sell.

Are there any instances where you, or someone you know, has dealt with the IKEA Effect? Can you think of other instances where it might arise? Any other ideas for protecting against it?

10 thoughts on “The IKEA Effect”

  1. Really interesting post! I do a lot with real estate as we own a number of properties. Home improvements can cause huge issues for people. With shows like HGTV, everybody wants a master bath or granite countertops. We re-did our kitchen and really took time to figure out what was best for our level of house. The more personal of decisions you make, the less it may appeal to future buyers. I guess the whole thing is to go in with your eyes wide open so you are remodeling for yourself and not for others (but understand it may impact your bottom line too!)

    1. I’d imagine it must be tricky with rental properties trying to guess what people will like (and also what will stay in style so you don’t have to redo it in five years). I can definitely see the HGTV effect being an issue, as well.

  2. I hadn’t heard of the Ikea effect before. Interesting concept! I do think value is subjective, no matter what. I have family members that are famous for buying things (i.e. custom made furniture) that “are worth x amount of money, but if you hold onto them, they’ll be worth 10x more in 5 years”. Things are only worth what people are willing to pay for them.

  3. I have never heard of the IKEA effect before. I also didn’t know Dan Ariely was that famous, I love his behavioral economics ideas. I’m becoming a lot more cognizant of things as a result of watching his podcast one work day. It’s so important to look at default positions!

    1. Dan Ariely and pretty much everyone in the field of behavioral economics are doing some amazing work. Default positions are definitely one area where they have made some really useful findings.

  4. I can see this principle arising with food. While I recognize homemade Is often healthier and tastes better, sometimes that’s not the case. I’ve bought numerous jams and preserves at farmer’s markets. They cost twice the amount of store bought and were less tasty. I’ve seen similar principles with craft items where you’re expected to pay a premium, and sometimes the items are not quality-made.

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