The bias explored in this paper is the so called ‘IKEA Effect'. This observed phenomenon entails that individuals attach more value to an object they have assembled themselves compared to objectively similar objects. It is named after the Swedish manufacturer whose furniture often partly needs to be assembled at home. This violation of standard theory was first described by (Norton, Mochon, & Ariely, 2012) in their paper “The IKEA effect: When labor leads to love”.
It violates standard theory because you would assume that a rationally acting individual would value objectively similar objects equally and subtract the cost of the labour they have to put in a product from the overall value they assign to it.
In economics the relevance of this bias is especially present in marketing, where the dominant logic used is increasingly dependent on intangible factors like co-creation of value, experiences and relationships (Vargo & Lusch, 2004). Producing less finished products while gaining customer value is of course interesting for the seller of the product. Apart from IKEA, examples of this can for instance be the popularity of DIY kits ranging from electronics to even tiny houses. Possibly, profits could be increased if companies raise the amount of labour a consumer has to put in the product. More optimistically, if a consumer can increase their satisfaction by buying something that requires a little extra effort, being aware of this effect could help them make choices that make them better off.
There are also cases when managers should keep this effect in mind, since it could also apply to non-tangibles like ideas or projects, for instance in software development (Shmueli, Pliskin, & Fink, 2015). When an individual has already put a lot of work into something, they might over-value or over-require a project.
The broader concept of higher valuation when an individual is more involved could also be used in policy making, where ‘co-creating' with residents could potentially lead to higher satisfaction, e.g. involving the neighbourhood in the design phase of a new public park.
In the original paper, (Norton et al., 2012) (2012) demonstrate the existence and magnitude of the IKEA effect in three experiments. Participants were asked to assemble a LEGO set, origami or an IKEA box, and afterwards their willingness to pay (WTP) was measured using the Becker-DeGroot-Marschak (1964) procedure. In all cases, the participants who assembled something themselves were willing to pay more, than a control group who's WTP for the same product was measured without assembling it first. The valuation of the self-assembled product was
The main part of the experiment that differentiates these experiments from previous research on valuation for self-assembled products is the fact that the effect was also observed for standardized and/or utilitarian goods. This decreases the likelihood that we are looking at an ‘I designed it myself'-effect, where participants feel like they ‘own' the design (Franke, Schreier, & Kaiser, 2010). Part of the explanatory power of the theory explored by (Franke et al., 2010) is in the customisation to idiosyncratic preferences of individuals. Since this is hardly possible for the LEGO set, and even less so for the IKEA box, it is unlikely to be a factor in valuation. The consequence is that the applicability of the effect is no longer limited to made-to-order or mass-customised (MC) goods, but also for IKEA tables.
The IKEA Effect can be seen as a specific form of the theory of effort justification. This theory states that there is a positive relation between the effort an individual puts into a task, and their valuation of the outcome (e.g. Alessandri, Darcheville, & Zentall, 2008; Aronson & Mills, 1959). Even animals seem to show this behaviour (Lydall, Gilmour, & Dwyer, 2010), suggesting it is a very primitive instinct. Often, behaviour originating in effort justification is explained using cognitive dissonance theory (Festinger & Carlsmith, 1959).
Then why does the IKEA-effect need a separate name?
One of the possible explanations of higher valuation suggested by (Norton et al., 2012) is the additional utility we experience with the positive feeling of being a ‘smart shopper'.
The main possible alternative explanation is. But if loss aversion, you've already lost it??
Other way around: effort jsuti
Factors to consider:
- display of hedonic goods (show off)
- process enjoyment (Franke & Schreier, 2010)
- makes people feel confident
- It is a specific case of the psychological effect of ‘effort justification', hypothesised to decrease cognitive dissonance.
- smart shoppers
- ownership (endowment) or more time touching
- effort justification and cognitive dissonance
A concise literature study on the bbias/anomaly, focusing on how this bias has been claimed to be empirically observed.
- describe how the existence of the bias/anomaly has been claimed to be observed empirically in the literature (if relevant, how has the empirical literature on this bias ensured that the apparent bias cannot alternatively be explained by standard neoclassical theory? have the findings of the seminal papers in this literature been replicated?); do not focus only on the earliest references about the bias/anomaly of your choice, but also consult any recent papers, which you can find by looking on Google Scholar who cites the earliest references. Make sure you do not miss out on new, relevant papers. (Note: if the literature on the bias of your choice is very large, you may decide to focus on the relevance of this bias for a particular subfield of economics (e.g. finance, public economics,…). For instance, anchoring as a topic, without any further specification, may simply be too broad.)
The purport of the original publication was especially picked up by popular science, helped by the effect's enticing name. The applications of the effect that can be found online on productivity and software design are fun ways to talk about irrational behaviour in the workplace but are rarely very scientific.
The study was reproduced in an applied form by (van der Horst, Ferrage, & Rytz, 2014), who found that the effect seemed to hold in a case where children were involved in making their own food. Several others incorporated the ideas in other literature, but never with the same explicit distinction of a standardized, utilitarian product. This makes it close to impossible to isolate the IKEA-effect. Often customization, process enjoyment, endowment and other processes described above are not explicitly accounted for, and it is hard to explain why the measured effects need this separate name.
For me personally
Sense of freedom?
More complex situaltions? Higher value?
It seems to stay what it originally was, an known effect in marketing hard to apply consistently, with little science involved.
- assess the literature on the bias/anomaly you chose, from the perspective of the criticisms of behavioral economics as a subfield of economics, treated in Week 1.
- confront your study of existing literature, with you critical assessment of this literature, to come to conclusions about open questions and possible directions for future research.
...(download the rest of the essay above)