Latest / Behavioral Economics with Fexingo: Decision Making, Bias, and How People Really Spend / Why Your Brain Overvalues the Things You Build
Transcript
- Lucas: I spent last weekend assembling an IKEA bookshelf — the Billy model, nothing fancy — and I gotta say, once it was standing there, I was ridiculously proud of it. Luna: Right? I have a Pax wardrobe that I still brag about, even though it's literally just a box with doors. Lucas: Exactly. And that feeling — that irrational pride — has a name in behavioral economics. It's called the IKEA effect. The term was coined by Michael Norton, Daniel Mochon, and Dan Ariely in a 2012 paper. Luna: What did they do? Make people build furniture and then ask how much they'd pay for it? Lucas: Pretty much. In one experiment, they gave participants IKEA boxes — the kind that hold storage units — and had them assemble them. Then they asked how much they'd pay for the box they built, versus an identical pre-assembled box. People who built it themselves were willing to pay about sixty-three percent more. Luna: Sixty-three percent? That's huge. So it's not just about the physical effort — it's about the sense of accomplishment. Lucas: Right. But here's the twist: the researchers also tested with origami. People who folded an origami crane valued it almost five times higher than people who just looked at a pre-folded crane. But there's a catch — they only overvalued it if they successfully completed the task. If they failed, the effect disappeared. Luna: That makes sense. The pride comes from finishing it. So it's not just labor — it's successful labor. Lucas: Exactly. And the effect is stronger when the task is moderately challenging. If it's too easy, you don't feel invested. If it's too hard and you fail, you feel frustrated. But that sweet spot — where you work at it and succeed — that's where the valuation jumps. Luna: So companies like IKEA are basically exploiting this bias. They sell you a flat-pack, you build it, and you love it more than a comparable pre-assembled piece from another store. Lucas: Exactly. And it's not just furniture. Build-A-Bear Workshop lets kids stuff their own teddy bears and dress them up. Those bears become incredibly precious to the child — way more than a plain teddy off the shelf. The same principle applies to customizable products — sneakers, phones, even food like the 'create your own pizza' trend. Luna: And there's a dark side, too. In the workplace, it's called the 'Not Invented Here' syndrome. Teams overvalue their own ideas and reject perfectly good solutions from outside because they didn't build them. Lucas: Right. And it can lead to sunk-cost escalation — you've put so much labor into a project that you keep investing even when it's failing. The IKEA effect amplifies the sunk-cost fallacy. Luna: So what's the takeaway for a consumer? When you're considering a DIY product, be aware that your own labor is making you see more value than is actually there. Separate the pride of building from the objective utility. Lucas: Exactly. And on the flip side, if you're a business, you can use this to increase customer loyalty. Let them customize, let them assemble, let them feel like co-creators. But be ethical about it — don't make the assembly frustrating just to boost the effect. Luna: That's a good line to draw. Speaking of building things ourselves, you know, we build this show every week — no ads, no sponsors, just us and our curiosity. Lucas: Yeah, and the IKEA effect applies here too — we're definitely attached to it. But it also takes time and resources. Some listeners have asked how they can support the show, and we've kept it simple: if walking through the economy with us has made something click, you can buy us a coffee at buy me a coffee dot com slash fexingo. Luna: We keep it ad-free on purpose — it lets us cover the stuff we find genuinely interesting without any outside pressure. Any support is completely optional, but it helps keep the lights on. Lucas: Right, so no pressure at all. Back to the IKEA effect — one more example I love: the 'instant lottery ticket' phenomenon. People who scratch off their own ticket value it more than an identical ticket handed to them, even before they know if it's a winner. Luna: Oh, interesting. So the physical act of scratching creates ownership. That's the IKEA effect in real time. Lucas: Exactly. And it shows how deeply this bias runs. It's not about rationality — it's about how we feel about things we've touched and shaped. So next time you're patting yourself on the back for a job well done, just ask: is this really worth more, or did I just build it? Luna: Wise words. I'm going to go admire my wardrobe now. Lucas: Enjoy it. That's all for this episode of Behavioral Economics with Fexingo. We'll be back with another bias to unpack soon.