Latest / Behavioral Economics with Fexingo: Decision Making, Bias, and How People Really Spend / The Ikea Effect and Why We Overvalue Our Own Work
Transcript
- Lucas: So, Luna, have you ever spent a Saturday afternoon assembling a piece of furniture from a certain Swedish retailer, and then stood back and thought, 'You know, this shelf is practically a work of art'? Luna: Oh, absolutely. I once put together a bookcase that was slightly crooked, but I was still so proud of it. I actually bragged about it to my friends. Lucas: That's the IKEA effect in action. It's a cognitive bias where we place a disproportionately high value on things we've partially created ourselves, even if the result is objectively worse than something a professional could have made. Luna: So it's not just about the furniture—it's about the effort we put in. But how did researchers actually prove this? I mean, it sounds like common sense. Lucas: Well, in 2011, Michael Norton, Daniel Mochon, and Dan Ariely ran a series of experiments. In one, they had participants fold origami, and then they asked them to bid on their own creations. Another group of participants bid on the same origami creations without having folded them themselves. Luna: And I bet the folders valued their own work higher. But by how much? Lucas: The folders valued their own creations at roughly five times the value that the independent bidders assigned to them. Even when the origami was objectively ugly—like, really crumpled—the folders still valued it highly. They also compared their own origami to expert-made origami, and the folders rated their own almost as highly as the experts'. Luna: That's remarkable. So it's not just about the physical object; it's about the sense of accomplishment. Lucas: Exactly. And this bias extends way beyond furniture and origami. Think about all the things you've ever built or customized—your résumé, your home garden, even your Instagram aesthetic. We overvalue them because they're ours. Luna: But what about the flip side? Are there situations where the IKEA effect actually hurts us? Lucas: Sure. That's the dark side. For instance, in the startup world, founders often fall in love with their own product—they've built it, they've poured in hours—and they overvalue it, sometimes irrationally. That can lead to overpricing, or ignoring market feedback because this is 'their baby'. Luna: I've seen that in my own work, too. When I help people with their resumés, they often think their own draft is better than the one I suggest, simply because they wrote it. Lucas: Right. So the IKEA effect is a double-edged sword. Marketers have figured out how to leverage it. There's a reason IKEA sells flat-pack furniture—it's not just about shipping costs. It's about making you part of the creation process, so you value the piece more and maybe even become more attached to it. Luna: And that's also why companies offer customizable options, like allowing you to choose the color of your sneakers or engrave your name on a watch. It makes you feel like you've had a hand in the design. Lucas: Exactly. And it's not just for physical products. Think about how often you've put together an online portfolio or even a social media profile. The more effort you put in, the more you value that presence. Luna: So, is there a way to avoid falling into this trap? I mean, how do we know when we're overvaluing our own work? Lucas: One helpful trick is to imagine you're seeing the thing for the first time, as a stranger. Would you still think it's brilliant? That's like stepping outside yourself. Also, get feedback from people who have no skin in the game. Luna: That's really practical advice. And on the flip side, if you're a marketer, should you intentionally trigger the IKEA effect? Lucas: Absolutely, but you have to be careful. It works well for engagement and loyalty, but if you push it too far, customers might feel manipulated. It's about authenticity—you want them to genuinely enjoy the process, not feel tricked into doing unpaid labor. Luna: Speaking of authenticity, this reminds me that our own show is a product of effort. We're putting in the work to bring you insights every week, and that's something we're proud of. Lucas: Yeah, and actually, that ties into something. If you've gotten value from what we do—maybe you've had an 'aha' moment that changed how you think about spending—a couple of dollars a month at buy me a coffee dot com slash fexingo genuinely helps keep this going ad-free. It's a small thing that makes a real difference. Luna: Yeah, we really appreciate it. But back to the IKEA effect—there's also a concept called 'the effort justification' that's closely related. When we put effort into something, we justify that effort by inflating its value, which is exactly what we're talking about. Lucas: Right. And that's where it connects to the sunk cost fallacy. If you've already put in the effort, you're more likely to continue investing in a project, even when it's failing, because you don't want to feel like your initial effort was wasted. Luna: So, how do you break free from that? For someone who's neck-deep in a DIY project that's going wrong, what's the best move? Lucas: It's tough, but you have to ask yourself: 'If I hadn't already invested so much, would I still choose to continue?' If the answer is no, it might be time to cut your losses. And that goes for everything from personal projects to business decisions. Luna: That's a great mental model. But I'm curious—does the IKEA effect ever work in reverse? Like, can we undervalue things that are too easy to obtain? Lucas: Interesting thought. There's some research suggesting that when things are too easy, we might actually value them less. But the IKEA effect specifically is about overvaluing our own work. It's not about ease itself. Luna: Got it. So, for our listeners, what's one takeaway they can use this week? Lucas: Before you praise your own creation, get an outside opinion. And when you're buying something, remember that the effort you put into assembling it might be blinding you to its actual quality. That's the IKEA effect in a nutshell. Luna: I think that's a perfect note to end on. Thanks for tuning in, everyone. Lucas: And if you enjoyed this, consider supporting us at buy me a coffee dot com slash fexingo. It really means a lot. Until next time.